July 18, 2019

July 18, 2019

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July 17, 2019

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July 16, 2019

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Sen. Chuck Grassley Leads Effort to Improve Transparency of Third-Party Financing in Civil Litigation

On February 13, US Senators Chuck Grassley, Thom Tillis, John Cornyn and Ben Sasse, all members of the Senate Judiciary Committee, introduced legislation requiring disclosure of third-party litigation financing agreements to the court and named parties to (1) any class action lawsuit filed in federal court, and (2) any claim that is aggregated into a federal multi-district litigation proceeding. Currently, the existence and terms of third-party litigation financing agreements, whereby hedge funds and other lenders finance the cost of civil litigation with the expectation of sharing in a portion of any recovery, are rarely disclosed to the court or opposing parties, creating the potential for conflicts of interest.

If enacted, the Litigation Funding Transparency Act of 2019 would require counsel to disclose the identity of any enterprise (other than a class member or class counsel) that has a right to receive payment that is contingent on the receipt of the monetary disposition of the case. According to the Judiciary Committee, the primary purpose of the Act is to enhance transparency and oversight in the litigation finance markets, which are currently operating largely without regulation. According to Sen. Grassley, “[a] healthy dose of transparency is needed to ensure that profiteers aren’t distorting our civil justice system for their own benefit.” Sen. Grassley goes further to say, “[o]ur bill strikes the appropriate balance in getting certain information out in the open while allowing courts to craft necessary protections.”

The disclosure obligations contemplated by the Act may be limited by stipulation or order by the court to protect certain information, and will require assessing the varying interests of the parties to a particular case.

A complete copy of the proposed Act is available here.

©2019 Katten Muchin Rosenman LLP

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About this Author

Henry Bregstein, Katten Muchin Law Firm, Financial Institutions Legal Specialist
Partner

Henry Bregstein is the global co-chair of the firm’s Financial Services practice and a member of the firm’s Executive Committee and Board of Directors. In his role as partner in the Financial Services practice, he advises banks, domestic and offshore hedge funds, private equity funds, life insurance companies, family offices, sovereign wealth funds, investment advisers and broker-dealers on regulatory, securities, tax, finance, licensing, corporate and other legal matters.

Henry provides guidance on fund formation and regulatory compliance and advice related to...

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Allison C. Yacker, Katten Muchin, Corporate regulatory Matters Lawyer, Offshore Hedge Funds Attorney
Partner

Allison Yacker, co-chair of the New York Financial Services group, represents domestic and offshore hedge funds, including fund of funds, private equity funds, commodity pools, investment managers, managed account platforms, banks and broker-dealers on a broad range of corporate, securities, finance and other regulatory matters. She provides structuring, organization and ongoing advice related to hedge funds and private equity funds that employ a broad range of investment strategies and regularly counsels investment managers with respect to state and federal registration issues and preparation of compliance policies and procedures manuals. In addition, Allison advises funds and managers in connection with seeding arrangements.

212.940.6328
Associate

Leonard Licht is an associate in the Financial Services practice. He advises a broad range of financial market participants, including investment managers to private funds and investors in private funds. Prior to joining Katten, Lenny practiced as a corporate and securities attorney and has also worked in an analytical capacity with a family office.

While in law school, Lenny was a Heyman scholar and member of the Moot Court Honor Society.

212-940-6587
Associate

Adam Haft is an associate in the Financial Services practice.

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