Ava Labs, Roche Cyrulnik Freedman LLP, and Republic Advisory Services are bringing the $10B asset class of litigation financing to the Avalanche blockchain through the creation of a first of its kind token, the Initial Litigation Offering (“ILO”), a blockchain-enabled litigation financing product open to all investors.
Litigation funding, also known as legal financing and third-party litigation funding, provides individuals who otherwise lack the necessary resources the funds needed to litigate or arbitrate a civil claim. ILOs democratize this process by allowing parties to raise the funding required to pursue litigation in these cases and tokenize an economic right in such claims. Each token indirectly represents a legal claim to a portion of the potential financial recovery which has been converted to a digital asset.
Since these arrangements are secured only against the outcome of the litigation, the funders bear the risk in the event the claims are unsuccessful. However, if the litigation does return a recovery, the funders share in the financial upside. One the leading litigation funds, LexShares, has invested in 103 cases since 2014. Of those, 43 have been resolved, with a 70% win rate, and median annualized returns after fees and expenses of 52% (CNBC), beating out many hedge funds and far exceeding the 8.7% annualized return of the S&P 500 over the same time period.
“ILOs are a breakthrough for both individuals lacking the resources to seek remediation, and for retail investors who are often locked out of the most highly-performant asset classes,” says Kevin Sekniqi of Ava Labs. “They are fundamentally unique from any other investments, and the creation of the ILO marks the first time blockchain technology will be used to democratize financial products at a multi billion-dollar scale. We’re working with the right organizations in Roche Cyrulnik Freedman LLP and Republic Advisory Services to realize this vision.”
The first of many contemplated ILOs arises from one of the largest wholesale destructions of personal property by government entities in the history of the United States. The plaintiff in that matter, Apothio LLC, is a California-based industrial hemp research, development, and commercialization institution focused on hemp-derived cannabidiol oil (CBD). In late October 2019, without providing any notice or opportunity to be heard, Kern County Sheriff’s Office (“KSCO”) deliberately and wrongfully destroyed 500 acres of the plaintiff’s legally grown hemp farm, estimated to be worth at least $1 billion. The ILO, which is expected to take place in Q1 2021 will provide investors the ability to participate in the upside of a potential recovery.
Apothio LLC is represented by Roche Cyrulnik Freedman LLP, a prominent, NYC-based law firm with deep experience handling cryptocurrency and cannabis matters. It will be the first time a civil action is partially financed in a tokenized offering.
“The rise of litigation funding in the United States has provided individuals and smaller organizations access to the resources necessary to assert their legal rights against well-funded entities,” says Kyle Roche of Roche Cyrulnik Freedman LLP. “The advent of the ILO has the potential to provide even greater access to justice in our society and I’m excited that our firm will be leading the charge along with the innovative minds at Ava Labs and Republic.”
Avalanche and Republic Advisory Services are working on the regulatory processes to enable primary issuance and secondary trading of the litigation offering tokens minted on the Avalanche blockchain.
