Harvey Hirschfeld is the President and Founder of LawCash and also serves as Chairman of the American Legal Finance Association (ALFA). Mr. Hirschfeld has over 30 years of experience in consumer and commercial lending and financial administration.
We sat down with Mr.Hirschfeld to dive deeper into LawCash and his thoughts and experience with the litigation finance industry. This interview has been edited for clarity.
How did you originally get into the litigation finance space?
It was back in 1999, I had a health care finance business that financed hospitals, nursing homes, home health agencies, and doctors. Some of those doctors had liens on cases that were given to them by lawyers, but there was no insurance on the case. As we looked at those, we didn’t finance them, but we saw how they worked. We knew that if an attorney granted a lien on the case and it didn’t pay, they were subject to sanctions including disbarment. So that got us thinking about litigation finance and as we started thinking deeper about the business, we eventually formed Lawcash. We did our first advance in 2000 and since then we have funded over 100,000 individual cases for over 400 million dollars in the last 16 years.
Tell us a little bit more about LawCash and how you operate.
Lawcash is one of the oldest companies in this industry. This industry started in the mid 90s and Lawcash was founded in 1999. Now, we’re one of the largest litigation finance companies in the United States. Lawcash funds over thirty eight thousand attorneys across 45 states.
I’m very pleased with the fact that unlike some of the other companies in our industry that rely on advertising, Lawcash relies on word of mouth from law firms. And that’s been one of the secrets to our success over the years.
Over the last 16 years, how have you seen the industry change and evolve?
There’s been a big change. When we were first starting out, people hadn’t really heard of litigation finance, and what they had heard had been negative. That is because there were some small players charging outrageous amounts of money to plaintiffs.
This need to create standards in litigation financing partially motivated the creation of the American Legal Finance Association, of which I’ve been the chairman for its eight year history. We started with three member companies and now it’s 46 member companies all over the United States. Its main focus is to make sure that we get the word out on industry operating standard. I always use testimonial letters in my speeches and appeals to demonstrate the positive impact litigation financing can have on a plaintiff’s life.
In addition to adding more structure to the industry, legal funding on a commercial basis has become more popular starting in 2007/2008, and has grown significantly since then. So, in the recent years, I’ve seen the litigation finance industry trend more and more into the mainstream.
How has litigation finance influenced the relationship of plaintiffs and lawyers?
More law firms understand the use of litigation finance for both their clients, as well as their own firm. The one thing that’s funny is when you get in a room of people and you ask attorneys “How many clients have asked you for money?”, 90% raise their hand because most clients will ask their attorneys for money when they are on the brink of losing their house. However, it is unethical for attorneys to lend money to their plaintiffs because if I was your attorney and I gave you money, and down the road, there was an opportunity to settle your case, I know that a settlement would enable me to get my money back, even if it’s not in the best interest of the plaintiff.
The attorneys are also catching onto the benefits of litigation funding. It allows them the time to work a case to the fairest conclusion and settlement possible.
We get quite a few questions on litigation finance because many investors haven’t been exposed to the asset class before. When you are looking at an individual plaintiff or a law firm to fund, what factors does lawcash consider in that decision?
What we really look for are clear cut cases, all cases are personal injury related, and the biggest subcategory that we fund are automobile cases. Automobile accidents represent about 70% of the cases we fund. We also fund slip and fall, product liability cases, police brutality, and medical malpractice cases. We don’t accept any shades of gray cases like employment law, where there’s different sides of the story. We also don’t do cases where the client is looking for a lot of money.
Our job is to assess the the case value and then we had a strict rule to fund only 10 percent of what we believe to be the total value of the case . So for example if we believe a case has a total gross value of $100,000, we will advance no more than $10,000 to the plaintiff or law firm.
Other factors that we look at are location – where did the case happen? Certain geographic areas have better cases. For example a case in the Bronx New York is a better place than Suffolk County Long Island if you had to go to a jury pool. Another factor is – who is the lawyer on the case? Since the attorney is taking the case on a contingency basis, their time and money is going into it and it’s important to have a good working relationship with them. These kinds of factors blended together give a good picture to make a decision on a potential case.
Let’s dive deeper into why you fund no more than 10 percent of the case value. Why is this the case?
That’s a very good question. The reason for the 10 percent rule is to protect Lawcash from getting too invested in a case. By only funding no more than 10%, we provide plaintiffs needed funds for necessities and life expenses only. If we had given them much more, they may just decide to go to trial. One of the things that we have on our 16 years of statistical analysis is that 90% of all cases settle before they go to trial.
Another thing that many investors find attractive about Lawcash’s investment offerings offered on YieldStreet are the diversified portfolios of pre-settlement cases. How are these portfolios created?
The most important thing investors need to remember is that every case that goes into this portfolio has already been funded through LawCash’s book of business for a minimum of a year to a year and a half, so it has met our strict case standards. When we decide to sell a case to outside investors, it needs to fit the parameters of a year to year and a half old, then we have our risk management team go through the case, contact the attorney to make sure that this case is alive and well, there’s no mitigating factors that cause a problem and that it is a real clear cut case where we know that collectibility should be strong.
So why use a platform like YieldStreet to raise funds through our investors? What benefits does that provide to Lawcash? It’s a very strong benefit. Part of our business model is to sell cases from time to time – for example if we’re acquiring a portfolio or we’re gearing up for a strong fourth quarter. We have a bank line where we get an 85% advance, and we have to come up with the other 15%. Therefore, when going into a high peak period selling cases gives us the staying power and cash flow to continue operating. When there’s a marketplace like YieldStreet as a stable source to do that, is very comforting as well as practical for us in running the business.
With your 16 year track record you’ve lost under 5% of principal on all your advances, clearly you have a well developed risk management and due diligence processes. What would you say are the primary things that contribute to that sustained success?
That’s a great question. It’s sticking to the tried and true questions – what happened in the case? Who is at fault? What are the injuries? What’s the venue? Once you put all of those factors together, it’s simple to decide which cases fit our philosophy, and which don’t. Our full time attorneys have many years of being trial lawyers so they go through these things with a clear cut understanding on what will work, and what won’t. If the case is something that is a) too complicated or b) the plaintiff is asking for too much money, we just pass on it.
It’s important to note that in our analysis of cases, we only fund every other case. We turn down about 50% of cases because of those factors. I feel that that’s one of the main reasons why we’ve been successful over the years.
How does litigation funding impact the plaintiff?
Our job here is not to make somebody rich but just give them enough money to wait until their case is settled. In testimonial letters from our clients, people say things like “If it wasn’t for Lawcash, I would have lost my house.”, “Thanks to Lawcash, I was able to keep my car from being repossessed which meant I could go to work.”, “If it wasn’t for Lawcash, my son would have dropped out of college because I couldn’t work.”, “Thanks to Lawcash, I could put food on the table.” Those are very telling. We only get involved when somebody is injured to the point that they can’t use their own money, or they run out of money. They are faced with foreclosures, evictions, and the prospect of losing their jobs. In many cases, their case could be worth $100,000, but due to the amount of time it takes to settle a case, the money won’t be available for years. Plaintiffs need $3000 to make payments on their bills, to put food on the table, or to stop evictions, and this is where Lawcash comes in.
It’s also important to note that we don’t get anything until and unless the case is settled. So there’s no monthly interest or principal payments for the plaintiff. If the plaintiff wins their case, the owe us the money and if not, the funding is forgiven.
Occasionally you hear discussion around moral issues with investing in litigation finance. How would you answer this question?
I would love to talk to anyone with this concern because I’m very passionate about this topic. As I said, when we first started, there weren’t that many people working in the space. In the early days you would see fly by night companies spring up that would charge plaintiffs 15 percent a month for funding, which is an interest rate of about 180 percent per year. It took us years to get rid of those people and we did it by creating a superior model for plaintiffs : “Why would you go to a guy charging 180% or 15% a month when you can work with us for 2% -3% a month depending on risk profile?”
Now some people may look and say 3% a month sounds outrageous but it really isn’t. Here’s the best way I can describe it. If you are about to be evicted from your house and need money to keep yourself going, you can go to Lawcash and say I want an advance of $5000, and that $5000 stops the eviction. In addition, you need $2,000 a month for the next two or three months to keep yourself going. Lawcash will give you the first five thousand, put it on a debit card and then every month thereafter you’ll get a monthly transfer. So on the third of every month you’ll get a transfer of funds to your card, and you can utilize that to keep yourself afloat. It also allows your attorney to continue to work your case until they get the fairest settlement possible. When you look at it, if you were forced to settle your case that’s worth $100K for only $50K because you are about to lose your house, you’re done. But what if you had $5000 of financing and that kept you in a playing field by giving your attorney the time and freedom to earn you the rightful $100K? To me the costs associated with financing are much less than the benefit of receiving a fair settlement. We’ve seen that over and over again, litigation funding helps level the playing field and keeps plaintiffs afloat.
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