Roche Freedman represents Apothio, and Roche Freedman and Republic issued the $5 million ILO on Republic’s platform. The lawsuit pits Apothio LLC, a hemp and cannabis company, against Kern County in California, arising out of the County’s alleged destruction of Apothio’s crops, valued at U.S. Roche Freedman and Republic have already rolled out the ILO concept in a real-world lawsuit. This, in turn, would enable token holders to enter or exit a litigation fund very quickly with reduced risk and value loss (for example, the ability to sell stakes to another bidder at any point in the proceedings), and, possibly, hedge risk by buying or selling derivatives against the value of the interest.Įxpanding the Investor Pool for Litigation Finance
A third benefit would be liquidity: because crypto structures easily allow for the creation of marketplaces to buy and sell tokens, market makers can create large liquidity pools very quickly. A second benefit would be automation and flexibility: allowing embedded options for investors based on various case outcomes (e.g., partial refunds for early dismissal), and self-executing payouts to investors in the event of successful recovery, bypassing payout risks in traditional funding. This auditability would ensure that the funding fee structures themselves make investment sense.
A first benefit would be the transparency of all transactions and smart contract processes on the blockchain. In theory, the tokenization process involved in an ILO should allow investors to leverage the benefit of the technology to maximize returns. The Act allows for a crowdfunding exemption for private companies to raise up to $5 million from the public, dispensing with the requirement to seek funding only from accredited investors. securities law requirements by leveraging the Obama-era Jumpstart Our Business Startups (JOBS) Act. In the case of Ryval, the ILO crypto tokens appear to meet the classic definition of a security, in that it would be merely a publicly traded, tokenized interest in a fund that is in turn funding a lawsuit. In turn, the underlying structure of an ICO often resembles an initial public offering (IPO) in traditional equity finance, in the sense that legal tender is exchanged by investors for a project’s token, in the same way traditional investors would for a newly publicly traded stock.ĭepending on the jurisdiction, crypto tokens may be considered securities.
High-profile and successful ICO examples include Ethereum, Tezos, and EOS. The crypto tokens created (using the Avalanche blockchain) represent tokenized shares in a funded claim, and that tokenization/capital-raising crypto-economic structure has been termed an ILO.Īs noted above, the ILO concept mirrors the ICO structure that has been utilized in crypto fundraising since around 2013. Ryval’s concept is to create a marketplace for crypto tokens that represent shares in a litigation claim, in the process granting non-accredited individual investors access to litigation financing as an investment class. Ryval’s Initial Litigation Offering, Explained However, the broader tokenization concept raises fascinating possibilities for the litigation finance space, potentially creating entirely new funding markets and classes of investors. The particulars of Ryval’s offering generate serious doubts about its viability and attractiveness for potential investors. Ryval calls this crypto offering the world’s first “ Initial Litigation Offering ,” or ILO – taking inspiration from the mechanics of the most known crypto fundraising process called an initial coin offering (ICO). The project is a collaboration between Kyle Roche, a partner in the New York law firm, Roche Freedman LLP Republic, an investment platform providing access to startups, real estate, crypto, and video game investments and Ava Labs, creator of the Avalanche smart contracts platform. The innovation concerns Ryval, a law firm-backed crypto project with an ambitious vision of creating the “stock market of litigation financing,” via the purchase and trade of crypto tokens that fund civil lawsuits. This post reports on this innovation, and expands upon the ArbTech discussion. The topic has caused quite a stir, including a thought-provoking discussion on ArbTech, an online forum on technology and dispute resolution.
A recent VICE Motherboard article highlights an intriguing innovation at the intersection of crypto tech and litigation finance.
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