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Hulk Hogan’s Litigation Financing Lessons

Hulk Hogan’s Litigation Financing Lessons

In April, we introduced the growing trend of third-party litigation financing to help offset the cost of litigation. Since then a specific case has catapulted the idea into the mainstream. The Wall Street Journal recently reported that Peter Thiel, founding investor in PayPal and Facebook, has provided about $10 million to support pro-wrestler Hulk Hogan in an invasion-of-privacy lawsuit against Gawker Media (read the full article here). 

At face value, it may seem that litigation attorneys who handle more modest cases have little to learn from such a high-profile case concerning so many millions of dollars. But that assumption would be wrong, for two important reasons:

1. No matter the stakes, litigation financing may offer a competitive advantage for attorneys. As WSJ reports, funders are currently under no legal obligation to disclose their involvement in a lawsuit. Defendants may know that the prosecution is receiving funding from a third-party source but may not know how much money is being used to back the case. This can theoretically change a settlement offer in the plaintiff’s favor because the defendant may assume the plaintiff can afford to be “in it for the long haul” and won’t take a quick, affordable settlement.

2. A family limited partnership (FLP) can make litigation financing accessible. In large cases, hedge funds or funders with deep pockets are necessary for litigation financing. But litigation financing can be accomplished on a smaller scale, through tools like FLPs. What’s more, using an FLP can be a wise tax strategy. Depending on the litigating attorney’s tax bracket, financing in this way may save the attorney 15 to 20 percent in taxes because any gains from winning the case are taxed as capital gains and not as ordinary income. If the case is lost, the FLP can file capital losses.

Steven Bankler, CPA, Ltd., does not invest in litigation nor provide investors for financing litigation. However, if you have investors or are interested in setting up a controlled entity to engage in litigation financing for strategic as well as tax purposes and need assistance or advice, contact us.

Image Copyright: albund / 123RF Stock Photo

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