Scott Drake: Welcome. Legal funding, also known as litigation financing, is a generic term used to describe the mechanism or process through which litigants, even law firms, can finance their litigation or other legal costs through a third party funding company. My guest is Joe Genovesi. He is the Senior Vice President of RD Legal Funding. Joe, thanks for joining for us today.
Joe Genovesi: Thanks for having me.
Scott Drake: Let’s talk about the industry as a whole and how your company relates to it. Legal financing is a fairly new concept. Again, can you explain RD Legal Funding and what your role in this process is?
Joe Genovesi: We have been in this industry for a little over 14 years. Our CEO, Roni Dersovitz, who was originally a plaintiff attorney himself, found out there were some cash flow problems in the world of law. So he developed legal funding. Our primary business is that we purchase legal fees and settlements from attorneys (also known as attorney fee financing), so we are able to expedite them getting their fees.
There are numerous reasons why a collection of settlements are delayed, and that’s where we come in. We recently expanded our model to incorporate plaintiff funding as well but still in the settlement phase. Now the legal funding space in general is growing as you said, but a big part of it is pre-settlement funding, and that’s a part of the industry we currently are not funding in. We strictly focus on post-settlement funding.
Scott Drake: In this particular case, are these kinds of transactions, are they considered loans or are they non-recourse debt?
Joe Genovesi: So we structure everything as non-recourse payments, where we are purchasing the entire fee or a portion of a fee on a settled case, and we take the risk of non-payment.
Scott Drake: Again, talk about some of the benefits of legal financing for the attorney and for the client as well.
Joe Genovesi: For the attorney, it fills a gap in cash flow problems. So if you’re an attorney you could go months at a time without actually collecting a fee. So obviously you have to run your business, pay your attorneys, expert witnesses for other cases, lots of things that take place. So once you settle a case and you find out that it’s going to be another six months or more before you actually collect your fee. That’s the real benefit of our service; we can kind of bridge the gap in-between settlements.
For a plaintiff, it’s really a very similar benefit. Let’s say you won a settlement in a class action lawsuit and you really need your settlement award now, but you are not going to collect it for however many months. With some class actions, it might take over a year to actually collect your award settlement. That’s the benefit of it: we are able to expedite the process of collection for the plaintiff and attorney alike so they can access their fee or fund.
Scott Drake: So again this is a fairly new kind of industry here. I think it’s been around since 1997, if not a little bit earlier. Critics of the industry talk about the emergence of hedge funds being involved in them, there is a high interest rate, there is a lack of regulation. Can you talk about those things?
Joe Genovesi: The high interest rates involved, it’s almost unavoidable. If you are about to go to a local bank, legal funding groups can’t compete with bank rates, but the benefit of it is a bank can’t value your case inventory or what the settlement is worth. So, a legal funding company is able to extend you more of your settlement and what pre-settlement feels is they can extend you more against your case inventory than a bank is able to. While they can’t compete with bank rates, they are able to extend a higher line against your case inventory.
Scott Drake: There is still a lack of regulation; it seems your industry is trying to provide some sort of regulation. Can you talk about that a little?
Joe Genovesi: At RD Legal, we focus on post-settlement funding. It’s a little bit different in that it’s not considered a loan, so regulation does not come into play as much or lack thereof. So it’s structured as a finance sale, which is really a different investment vehicle than the pre-settlement lines.
Scott Drake: One other criticism is that sometimes litigation funding is said to encourage frivolous claims. What do you say to that kind of criticism?
Joe Genovesi: Again, I can’t speak into depth about that as I said we focus on post-settlement funding, so we don’t fund anything that doesn’t have a firm settlement in place. So there are no frivolous claims in what we do. We simply focus on settlements. Not being in the pre-settlement realm, I’m not an expert in it, but I can say that most pre-settlement groups do their homework. I would imagine with most if there is a frivolous claim, it would be caught.
Scott Drake: How do you see the industry evolving compared to others, as it is still comparatively in its infancy?
Joe Genovesi: Sure, I think it’s going to continue to grow. The U.S. tort system is huge, there are tons and tons of settlement dollars every year, the delays on collection have increased over time, so I expect the settlement funding industry to continue to grow as well as pre-settlement-I think the whole industry overall will continue to grow. You mentioned earlier hedge funds getting in the space; I see that as a fairly positive thing. Hedge funds generally are known to be very smart-savvy investors and they’re entering this space because it’s viewed as a good investment. Especially in the post-settlement funding space we play in, it doesn’t have near the risk profile that pre-settlement has.
Scott Drake: My guest has been Joe Genovesi. He is Senior Vice President of RD Legal Funding. Joe we appreciate your expertise and sharing your time with us today. Thank you so much.
Joe Genovesi: Thank you, thank you for having me.
Scott Drake: This is the Legal Broadcast Network.