Legal Finance in the United States: How It Started

July 24, 20174 min read
Legal Finance in the United States: How It Started
Share on facebookShare on TwitterShare on Linkedin

The large and growing legal finance industry that we see today is only a couple of decades old. Although Yieldstreet currently focuses solely on the U.S. litigation market, the industry actually started in Australia and the United Kingdom in the 1990s.

The catalyst in both countries was legislative. In Australia, Parliament recognized legal claims as assets, a move intended as an exception to help bankrupt companies. By allowing third-party legal funding in the limited realm of bankruptcy proceedings, Parliament made it possible for lawyers to pursue claims against creditors and company officers despite representing companies that were out of cash.

Similarly, in the United Kingdom, Parliament removed a ban on conditional fee arrangements, which had been the last standing barrier to the non-recourse (“no win, no pay”) loans that litigation funders provide. Contrary to the Australian Parliament’s focus on corporate bankruptcies, the U.K.’s goal was to provide access to justice for middle-income individuals. These individuals did not qualify for Legal Aid, but also could not afford expensive litigation on their own. Conditional fee arrangements–and legal finance in particular–became especially needed when Parliament altogether abolished Legal Aid for personal injury plaintiffs in 1999.

In both countries, litigation funding exploded into a booming industry. In Australia, litigation funding expanded beyond its original testing grounds (bankruptcy proceedings) to personal injury and class action lawsuits. Australia’s High Court endorsed the industry in 2006 and again in 2009, and nearly half of all class actions brought in the country are now backed by litigation funders. The total Australian legal funding market reached an estimated $3B in 2015. In the United Kingdom, litigation funding has expanded in the opposite direction–while it was created to help individual plaintiffs, it now serves businesses as well. Financiers deployed over £1.5B in total into legal cases by 2016, and the rate of deployment increased sharply from 2015 to 2016, suggesting the industry is continuing to grow. 

Funders in the United States, quickly drew inspiration from the overseas models. In the mid to late 1990s, finance pioneers launched grassroots efforts in disparate areas of the country to provide potentially meritorious plaintiffs with access to courts while generating financial returns.

Early litigation funding arrangements were not always well-recorded, and there are competing claims as to who first backed American personal injury plaintiffs. There are several known examples of innovators who, seemingly independently, began some of the country’s first litigation funding operations.

The early pioneers operated in a sort of “wild west” period, and with their success came skepticism. Observers began worrying about the industry’s ethical implications for lawyers and fairness toward litigation parties. The industry responded by proactively self-regulating. The American Legal Finance Association (AFLA) was formed in 2004 and now includes 37 member companies that provide legal funding to individuals. The member companies created the AFLA Code of Conduct in 2005 to formalize ethical standards, fair business practices, and rules around transparency and disclosure. They continue to collaborate to standardize deal documents, ensure cases are not over-funded, and institute state-tailored legal and regulatory frameworks. Legislatures, courts, and society at large are increasingly recognizing funding agreements as legitimate, mutually-beneficial contracts between investors and plaintiffs.

Litigation funding’s self-regulatory framework has provided guardrails as the industry quickly expands. Although many of the early pioneers were individual investors, more established institutions—including large banks, hedge funds, pension funds, and insurance companies—soon added litigation to their portfolios. Hedge fund EJF Capital LLC, for example, raised hundreds of millions of dollars to create a new arm that invests solely in class action lawsuits. In the words of one finance professional, these institutions recognized litigation as a potential “unicorn of non-correlated absolute returns.” Additionally, rising pressure from investors for funds to be socially responsible made legal finance–which provides access to justice for plaintiffs and may incentivize better, less risky corporate behavior–even more attractive. Beyond existing institutional investors, new, highly-specialized hedge funds, like Gerchen Keller Capital, sprouted up specifically around litigation funding.

Beyond these large institutional funds, which are often focused on commercial litigation (backing major corporations or corporate law firms), investors focused on individual personal injury plaintiffs and class actions also proliferated. The 2012 JOBS (Jumpstart Our Business Startups) Act allowed funders to solicit accredited investors online. The Act enabled consumer-funding-focused marketplaces like Yieldstreet, which in turn enabled individuals to access this innovative asset class.

Once consumer lawsuit funders were operating widely on the market, plaintiffs quickly saw the benefit in their offerings. These were avenues to justice for victims who were out-sized and out-resourced by the defendants who had injured them. Often, these victims seek funding as groups, not just individuals, in cases brought as class actions or mass tort litigation cases.

Today, the litigation funding industry is an American staple in both commercial and personal injury lawsuits, and is poised for further growth.  For additional questions regarding Yieldstreet or our legal finance offerings, please email us at [email protected].


1. Terrence Cain, Third Party Funding of Personal Injury Tort Claims: Keep the Baby and Change the Bathwater, 89 Chi.-Kent L.

2. Victoria A. Shannon, Harmonizing Third-Party Litigation Funding Regulation, 36 Cardozo L. Rev. 861.

This communication and the information contained in this article are provided for general informational purposes only and should neither be construed nor intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice. Any link to a third-party website (or article contained therein) is not an endorsement, authorization or representation of our affiliation with that third party (or article). We do not exercise control over third-party websites, and we are not responsible or liable for the accuracy, legality, appropriateness or any other aspect of such website (or article contained therein).

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest," "Annualized Return" or "Target Returns" represents a projected annual target rate of interest or annualized target return, and not returns or interest actually obtained by fund investors. “Term" represents the estimated term of the investment; the term of the fund is generally at the discretion of the fund’s manager, and may exceed the estimated term by a significant amount of time. Unless otherwise specified on the fund's offering page, target interest or returns are based on an analysis performed by Yieldstreet of the potential inflows and outflows related to the transactions in which the strategy or fund has engaged and/or is anticipated to engage in over the estimated term of the fund. There is no guarantee that targeted interest or returns will be realized or achieved or that an investment will be successful. Actual performance may deviate from these expectations materially, including due to market or economic factors, portfolio management decisions, modelling error, or other reasons.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments, excluding our Short Term Notes program, weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 18th, 2022, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Alternative Income Fund before investing. The prospectus for the Yieldstreet Alternative Income Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

9 Statistics as of the most recent month end.

300 Park Avenue 15th Floor, New York, NY 10022


No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice, except for specific investment advice that may be provided by YieldStreet Management, LLC pursuant to a written advisory agreement between such entity and the recipient. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefore.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and are willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

YieldStreet Inc. is the direct owner of Yieldstreet Management, LLC, which is an SEC-registered investment adviser that manages the Yieldstreet funds and provides investment advice to the Yieldstreet funds, and in certain cases, to retail investors. RealCadre LLC is also indirectly owned by Yieldstreet Inc. RealCadre LLC is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Information on all FINRA registered broker-dealers can be found on FINRA’s BrokerCheck. Despite its affiliation with Yieldstreet Management, LLC, RealCadre LLC has no role in the investment advisory services received by YieldStreet clients or the management or distribution of the Yieldstreet funds or other securities offered on our through Yieldstreet and its personnel. RealCadre LLC does not solicit, sell, recommend, or place interests in the Yieldstreet funds.

Yieldstreet is not a bank. Certain services are offered through Synapse Financial Technologies, Inc. and its affiliates (collectively, “Synapse”) as well as certain third-party financial services partners. Synapse is not a bank and is not affiliated with Yieldstreet. Bank accounts are established by Evolve Bank & Trust. Brokerage accounts and cash management programs are provided through Synapse Brokerage LLC (“Synapse Brokerage”), an SEC-registered broker-dealer and member of FINRA and SIPC. Additional information about Synapse Brokerage can be found on FINRA’s BrokerCheck. By participating in a Synapse cash management program, you acknowledge receipt of and accept Synapse’s Terms of Service, Privacy Policy, and the applicable disclosures and agreements available in Synapse’s Disclosure Library.

Investment advisory services are only provided to clients of YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission, pursuant to a written advisory agreement.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure