A Toxic Stew: Litigation Financier Launches New "Whistleblower" Business

November 01, 2016

What do you get when you mix two of the most pro-litigation tools in America today?

The tools in question are Third Party Litigation Finance (TPLF) and the False Claims Act. And one large firm has combined the two — announcing recently that it will begin a practice focused on providing financing for False Claims Act (commonly known as “whistleblower”) lawsuits.

“Bentham IMF, the U.S. subsidiary of the publicly traded Australian litigation finance firm of the same name, announced on Tuesday it is unrolling a new program to finance whistleblower lawsuits,” reported Bloomberg Big Business.

The result is a potential powder keg that could lead to an explosion of lawsuits against American businesses and, if recent trends are any indication, institutions of higher education.

TPLF is a burgeoning industry that is now at least as big as $3 billion. It is unregulated and operates largely in the dark. It allows investors to essentially place bets on lawsuits in exchange for a potentially large return on investment (sometimes in excess of 200%).

The most obvious danger of TPLF is that it could result in more litigation. But it also holds the real danger that the course of the litigation is driven not by the merits of the case, but by the desire to garner a higher return on investment.

In other words: More lawsuits in general, as well as prolonged litigation with larger settlements.

The False Claims Act is a Civil War-era law that purportedly allows “whistleblowers” to sue for alleged fraud committed by companies doing business with the government.

Over the years, the law has become a profit-center for the plaintiffs’ bar while doing little to actually combat fraud. For example, total monetary damages under the False Claims Act have risen from $272 million in 1992 to a record $3.5 billion in FY 2015.

At the same time, the government estimates that it loses approximately $72 billion to fraud, abuse, and improper payments each year, yet the FCA (as of 2013) had recovered only $35 billion since 1987—a tiny fraction of the estimated money lost over that period. 

As we recently posted, the plaintiffs’ bar is also increasingly using the False Claims Act to target America’s colleges and universities.

Which leads us back to IMF Bentham’s new endeavor.

No doubt seeing dollar signs, they are combining a practice which leads to an increase in litigation and higher settlements, with what has increasingly become a cash cow for the plaintiffs’ bar.

It’s not unreasonable to assume that this toxic stew of TPLF and the False Claims Act, if it catches on, could lead to a massive transfer of wealth from America’s businesses, taxpayers, and universities… to the plaintiffs’ bar and the TPLF investors who are less concerned about justice than about cashing in on the lawsuits.