Litigation as an Asset Class

(upbeat music) John, today we're talking about litigation, not as a practice, but as an asset class. I'm curious, how long have you been tracking or following the litigation finance industry? I mean, ever since I started thinking about law firms as a topic of study, litigation finance, I think is really fascinating because it gets to the heart of some of the unusual challenges around what I call generational conflict that law firms often experience. I should have known that you were on top of this from the start. (laughing) Well, we have the perfect guess today. We have someone who I think is at the center of, if not part of the origination of it as an asset class, who are we talking to today? We're talking today with Chris Bogart. He's a former crevap litigator and former general counsel of Time Warner, and he's now most importantly, the CEO and co-founder of Berford Capital, which is the world's largest litigation funder, with about a $7.2 billion portfolio of assets. Let's bring Chris out. Chris, welcome to the podcast. Thanks, John. Nice to see you and Hyde Joel. Chris, it's wonderful to see you out and curious. When you were back as a crevap associate, could you imagine the reaction you would have gotten if you pitched to the partners you were working with that you were gonna create a multi-billion dollar litigation finance industry? Now, litigation finance wasn't on the radar screen then that was in the '90s. And the model was a very simple one. You know, passed by the hour, passed lots of money by the hour and that's really all we need. It's a good model if you can get it. And it's interesting today how many law firms, despite all of the talk, would alternate a fees and so on, still operate on a very straightforward bill of hours, business model. But I think the turning point for me was not so much my time at crevap, it was my time at time Warner. Because you know, time Warner was a big company with lots of money, but that didn't make it any happier spending that money on collateral things like litigation as opposed to spending it on making movies and music, which is what shareholders gave it the money to do. And it was really that experience, the fact that I was constantly under pressure from a CFO to spend less money on law stuff that got me thinking about these issues. And even in time Warner, I was a pretty early adopter of trying to do things differently economically. During my time at time Warner, we did a very large merger deal with time Warner and AOL merged. - Yeah, that was massive. - Yeah, it was a massive deal. And I did what I think was then the first significant corporate M&A contingency fee where we had in fact my old firm operate on contingency to do the merger work, which not only was a cash and budget issue for us, but it was also a significant accounting issue. So if the merger went through, sure, we'd be happy to pay the fees and we pay a premium for doing this deal, but those costs would disappear into the mists of purchase accounting. Whereas if the deal didn't go through, if it got blocked by the government, which was some chance, then I didn't want to have to take this huge what would have been at the time, tens of millions of dollars of broken deal fees onto my budget and through time Warner's running stream. So that was the beginning for me. And then some years later, we found ourselves revolutionizing an industry. - So in other words, this originated largely in kind of your understanding of budgeting constraints as distinct from the capital needs of law firms. - Yeah, for me, what it does is it intermediates to competing sets of desires. Law firms, especially law firms that work on an hourly fee basis, want to maintain that business model. They want on a current basis to receive cash in the door to pay their fees from which they pay their expenses and then they make distributions to their partners. And that's a triadventure business model for law firms. It's high margin, it's successful. It yields high profitability for the partners in successful law firms. And importantly, in most jurisdictions, including basically everywhere in the US, law firms are constrained from raising external capital, even if they want to take on a different and more commercial business model. So you've got the law firm fairly rigid business model in a number of law firms. And then you've got over here, you've got the corporate desire for both cash allocation reasons and also market value reasons, not to be diverting capital away from the operating business into collateral things like litigation. And I think that the market value point is a really important one, because it's not only that companies would prefer to spend the dollar on litigation somewhere else. That's point number one, running the business, that's right. But point number two is, businesses are valued and a multiple of their earnings, not just on that dollar of earnings. So if you make a dollar of earnings as an entertainment company, that dollar of earnings is worth about 15 or so dollars in market value. And so when you spend money on things that don't give rise to that multiple effect, in other words, when you divert money away from the movie to the litigation, you are having the cost of the litigation flow through your P&L, through your income statement and you're reducing your profits. And so every time you spend a million dollars on legal things in a business, you're actually reducing your market value by $15 million. And if you can solve that by removing that cost, then you're actually enhancing market value very considerably. And so that's the motivation of CFOs. It's in part to husband the cash, but it's in part to protect the market value. - Yeah, that's something that I think is lost on. Most people when they're analyzing the value to the participants of litigation finance, I also think from the general counsel's standpoint that just taking a swing where it's winner lose and the loss could be, maybe you think you're owed $50 million, but in fighting it, you might actually lose $10 million. I can just see legal departments leaving that on the table, even if it's assessed as a likely win. - I think you're right. There's certainly also a risk management element to this. And you certainly have businesses that don't pursue every meritorious case that they could pursue. - Although frankly, I think that is a secondary factor in the decision making. I think the primary factors are really around cash management and P&L management. And as we talk later about this and how litigation finance has evolved, we also are gonna have to talk with balance sheet because what is happening today in this market is not only the funding of legal fees, but it's also the monetization of claims which is providing a balance sheet solution to companies as well. But that sort of litigation finance 202, and we can get into that down the road. - Yeah, we'll get into that. Let me pause here before we jump into the founding of Berford Capital and ask just a naive question at the beginning. Why couldn't the law firm provide the sorts of financing that you provide? So in your example of the time Warner, AOL mergers, now, Kravath effectively was financing that merger work by agreeing to the bonus pay structure that you described. And of course many plaintiffs firms agree to work on contingent fees for clients. Why can't law firms supply litigation funding in that way? - They certainly can provide the fees and expenses funding, which as you know is exactly what a plaintive contingency firms do. But there is a deliberate business model choice to be made there. So hourly fee law firms have built a business model that includes the annual distribution of cash to the partners. Whereas contingency fee law firms have very uneven cash flows. So if you don't resolve a case this year, the partners are not going to make any money this year. And that's not particularly attractive to the hourly fee law firms. And that's especially true today when you have a high degree of mobility among law firm partners. And so you can imagine if you are in 2025, you're a partner in Paul Weiss. So Paul Weiss now goes and takes on a piece of litigation on contingency. Well, that litigation realistically isn't going to pay until 2030 or something. By that point, you may well be a Kirkland. - Or your retirement might have clicked in. - Or exactly. So you will have had a world where you will have reduced your earnings in the years when you are investing in the case. In other words, when you're spending money on rent and associates and all the other things that you spend money on, but you're not getting any income from that case. So you're investing and you're reducing your partner compensation in those investing years. And then when it comes time for the payoff, you're gone. And that's why you see less mobility among contingency fee plaintiffs, lawyers, than you do in the big hourly fee law firms. - Yeah, this is a really deep challenge that infects not just litigation financing. We really everything a law firm does. If it's a law firm, The law firm owns its building. It has a similar kind of problem about aligning the costs and revenues. I just want to flag that your co-founder at Berfford Capital, Jonathan Malo has written a fascinating academic article about this explaining exactly this phenomenon and why law firms have difficulty providing financing to themselves and to their clients. Absolutely. Why don't we transition now to talk quickly about the birth of Berfford? When did you start the firm? John, I started Berfford in 2009 and both of us had been before that playing around in this space more on a hobby basis. I had actually been doing what we would today call litigation funding since about 2002 or 2003. But I've been doing that in a small private fund that just was providing financing for one big law firm's cases. Interesting. Were you doing that on your own budget or did you raise some capital from a small pool? Now, the dynamic in this goes right back to what we were talking about a minute ago and one of John's preoccupations with big law firms is, so this was a good college friend of mine who had gone on to become a partnered laythom. And laythom is one of those firms that is very wedded to an hourly billing and hourly collections model and doesn't have as part of its model a desire to take on risk and extend out the payment of its fees. And he had, he was an international arbitration lawyer, he had a global practice and he had a number of clients who were interested in financial arrangements other than pay by the hour every month. And he would lose some of those clients because they didn't like the laythom structure. And so he and I were having dinner one night, this is 25 years ago, and he was complaining about this part of big firm life. And he basically said to me, and I was by this point running a venture capital firm, he said to me, you've become a money guy now, can't you do something to fix this. And I thought that was sort of an intriguing challenge and I liked the idea of keeping a little bit of my finger in the law world. A partner and I set up a little fund. So we raised some external capital, but this was really a hobby enterprise. This was taking a few hours a week, not this wasn't a significant part of my life. And we did it just for laythom. But word that we did that, and I think that was probably the birth of today big dollar, you know, big law firm litigation funding. Word got out with some other law firms that we were doing that, and we would get calls from other law firms saying, oh, can you, can you do this for us as well? And we would say, no, no, we're not trying to, we're not trying to do this as a business. But then we got to the financial crisis, the 2008, 2009 financial crisis. And you know, two things happened. First, my day job wasn't very much fun because equity values had declined and everything that my day job was all about. And second, law firms were going completely crazy because all of their clients were very concerned about liquidity and they didn't want to be paying their legal bills. And so effectively, my phone was ringing off the hook from law firms who were looking for capital solutions while at the same time, you know, my day job wasn't that exciting. And so I teamed up with John Maloe, who, who, who got mentioned earlier, who similarly was sort of running on the side a little hobby business of his own. And we decided to see if we could raise an institutional product. So we went to market, we raised what was then a pretty small deal. We raised $130 million on the lens and talk exchange. And we started, burfered and we started the business of professionalizing the commercial litigation finance business by going public. Our sense of that has the same question. We did. So we didn't have an operating business, but we also didn't have any capital. And it was clear, you know, the conventional way to do that would have been to raise a larger private fund. But it was clear in 2009 that the funds market was, was completely dead. And so this, this couldn't possibly be better full circle for, for you, John, you're going to love this part of it. The reason, the reason that the London market was receptive to this idea was because a couple of years earlier, the UK had changed its own rules about law firm ownership and started to permit third party ownership of law firm's private equity ownership. Law firms could go public and so on. And they weren't really yet. But there was this sense among London investors that something exciting was going on in the world of law. And so there was a much greater willingness to put capital to work in a concept place. But if we were to play in law, then there would have been in the US where there was just no investor discussion about about legal services and the role of law firms. And so that's why we raised the capital in London, even though it was a US focused business. That is so funny. And you're now public in the United States as well. We added a New York Stock Exchange listing about five years ago. Okay. Can I ask part of the reason why you were able to in some ways reinvent this as an industry was because it was straight up prohibited for a period of time, right? What are these these chauceries or what were these laws that were prohibiting investing in lawsuits? So they're from the chaucer the chaucer time basically. But there's there's a legal principle called chamferty. Chamferty sorry. Thanks for trying to save that one for me, Chris. Yeah, what what chamferty and its progeny, you know, there's chamferty and maintenance and baritory and these are all sort of medieval English legal constructs. Basically what they're trying to do is not have the term of art is a vicious intermeddling into other people's litigation. And you know, it sort of goes all the way back to when justice was dispensed in the market square and where you know, you figured it was going to win the case by which which person, the plaintiff, the defendant, more of the villagers would line up behind. And so what would happen is these and noble would go and dole money to get the villagers to line up behind him. And so we said, gee, that that's not fair. And we don't want that to happen. Chamferty doesn't really fit in modern legal practice. And so it's it's somewhere between dead and on its way out depending on which jurisdiction you look at. If you sort of look across the US, there's a whole bunch of states that never adopted the chamferty from the English common law at all, like California, for example. So it's just never been in play there. There are a number of other states that used to have chamferty and have just abolished it completely like Massachusetts. And then there are still other states that have put some sort of consumer-focused guardrail around it like New York. So New York has a statute basically that says, you know, financing deals under $500,000 need to be subject to some regulation. Financing deals over $500,000, which is everything we do are not much. So it's a patchwork quilt, but it doesn't really interfere with the operation for business today. Do you have a regulatory apparatus inside the firm that coves with these variations in state law? Or is it sufficiently insignificant that you don't care? No. We certainly obviously pay attention to making sure that whatever we do is compliant with the laws of whatever the jurisdiction is that we're doing it in. And it's not just a domestic US issue, it's a global issue as well. You know, we do this around the world in basically every common law country and a whole lot of civil law countries as well. And so each of those countries presents just as in any financial services business, their own collection of regulatory things that you have to make sure that you're navigating properly. Let's now turn to thinking about just kind of the mechanics of how a deal works. So let's just start with the underwriting decision. Somebody comes to you and says, I got this litigation, I'd like you to fund it. How do you make the decision about the merits of that and the quality of the risk you're taking on? So and that's much of what we spend our time doing because unlike a public market investor, for example, where you think today in video stock is a good deal, but tomorrow you change your mind, you can turn around and sell that stock. Whereas in litigation, there's not an active secondary market. And so as a result, when we make an investment, we're making a multi-year investment that we have no practical way of exiting in most instances. So that means we spend most of our time on the investment decision as opposed to the subsequent question of, should we have made the decision in the first place? So what we do, we have a large team of people, many of whom are lawyers from, you know, litigation lawyers from big law firms who have joined us, who are paired up with significant quantitative and credit analysts. And we're basically engaged in a three-part analysis of things that we contemplate taking on. The first part won't be surprising to you. It's the legal merits of the case. It's the application of the law to the facts. And it's an attempt to come to a conclusion about whether we think this case is meritorious, whether we think this case is going to be successful if it goes all the way to trial in a normal adjudication format. So think of that as sort of the liability assessment part of the business. And that's a pretty traditional lawyer's role. The second leg on the three-legged stool is economic. And here we do a lot of work, and we do a lot of work, frankly, because a lot of lawyers don't focus so much on economics and damages and numbers, especially at the beginning of cases. And so we're doing a lot of work to try to understand not only the question of will this case win, but how much will it win? What's the realistic level of damage? What's the realistic settlement value of this case? As opposed to the highest possible number that you could conjure up to put in the complaint. So what's the thing actually worth? And the reason that that's important is not only to decide if the case on its own makes sense as a matter of litigation, but it's also to make sure that there is enough left in the case for everybody to be happy. We don't want a world where the case wins, but it wins at a small level, and therefore the client is very unhappy with the outcome because our return on capital took more than a desirable share of the outcome. And so that's an important dynamic that is a relatively new concept for lawyers. Lawyers haven't historically been accustomed to thinking in those terms. And so we inject those kinds of dynamics into the damages assessment as well. And we do a lot of our own quantitative work. So we hire a whole bunch of people who have nothing to do with law, people who have PhDs and astrophysics and so on. And they are doing very high order modeling, including making use of what is now for us 15 years of proprietary data about litigation resolution, for us to come to conclusions about what we think cases are actually worth. And then the third leg of that stool is collectibility. If we go all the way through this case and win, are we going to be able to get paid? Are there assets in a jurisdiction that we can enforce against? Is the are all of the relevant party solvent and so on? It doesn't do me any good. Obviously, it'll litigate for five years and win and not be able to collect the judgment that we've received. - Chris, it sounds like some of the evaluation that you're doing would be super valuable to sell as a service itself. - Well, we're in a fortunate position of having done this for a long time and having done it at scale. And so there's nobody else who has been in the business for as long as we have at the scale that we have. There are other scale players today and there are other players who have been around for a long time, but nobody has that combination of things. And what that has given us is an extraordinary amount of data. Because when you think about this, Berfford has done, you mentioned the portfolio size of the B and he puts $7.5 billion right now. We've done well over $10 billion over the course of our life. And that's a lot of cases, but even more interesting than that is the fact that we only ultimately do somewhere around six to eight percent of the cases that we look at in the first instance. And so that means that not only do we have this database of sort of $10 billion of litigation spend, but we've got this much larger database of all the cases that we look hard at and didn't do. And do you track those cases to see if you missed out? - Yeah, to the extent we can. - And you have economists that are trying to develop models to predict the case success. - Case success and importantly, the economics associated with, the modeling is more valuable for us in the economic side and the damage aside of the equation. - So you want a case that you don't just win and too much of the money goes to actually paying the lawyers or in this case paying the lawyers and the financiers. You want returns on investment for everybody involved? - That's right. - So tell us what the economics of a deal typically look like. What kind of return do you typically demand and how is it structured? - So we price to risk. And there's an enormously wide variation in litigation risk. And so there's therefore also an enormously wide variation in capital crisis. So you can imagine a spectrum where one end of the spectrum is a company coming and seeking post trial judgment, appeal financing for a commercial contract claim that they've already won in the Southern District of New York, which is on appeal to the second circuit. Right, so we have a full record. We know who the judge was. We know the statistics about appellate reversal which are pretty low for the Southern District and the second circuit. So we can make a number of informed judgments about that case and the pricing for a case like that is gonna be comparatively low. The other end of the spectrum might be a complicated multi-gearestictional, international arbitration that is gonna run for years and years. There's still a degree of factual uncertainty about it. And there are enforcement and collation risks. So that's gonna be quite expensive capital. And so you get pricing that is really across the range but what we're trying to do here, as a matter of portfolio, is create a big diversified portfolio and in that diversified portfolio, we're generally seeking returns that are comparable to a private equity firm. So if you look across our history, we've generated IRRs in the mid-20s and returns on invested capital in the 80s across a multi-billion dollar cash portfolio. And we've done that by having cases that don't pay very much and cases that pay a lot. - Can we get a little more concrete for the viewers because they're the listeners? Because we've used terms like more risk or where you're demanding a higher return. What are we talking about specifically? So like if Joel Coe is suing John Coe and we need a million dollars for a $50 million case, how are you structuring the payment to Berford for that million dollars in litigation? - Well, first of all, it would be a lovely day if you could do that case for a million dollars today. But, you know, million dollars is barely gonna get you past motion to dismiss these days. But leaving the numbers aside, again, we're very flexible in terms of financing structures based on what the client is trying to achieve. But let's assume that the client isn't coming in with a preconceived notion of what they would like. And so Joel Coe has just walked in off the street and said, "I don't really have any idea what I'm doing here. How would you do it?" So our default position would be to offer you capital. So we would basically say, "Will agree to pay the fees and expenses up to whatever the budget is associated with taking this case through the litigation path." And we'll work with your lawyers obviously to figure out what those numbers are. And in exchange for providing that capital, we would tend as a default matter to ask for a three-part structure we'd asked for our invested capital back. - First, you know, as you would get with any sort of financial institution, yes, first. We would then typically take a time-based return on the capital that we've invested. And so that is a return that's gonna go up over time. - Sounds like an annual interest rate or it's just a fixed-theller amount. - It's expressed in lots of different ways. Again, if you were showing up with no preconceived notion for whatever reason the industry uses multiples instead of interest rates. And so you would probably start off at a 0.5x multiple or something like that. So if we've put in $10 million, we'd be looking for $10 million back and then another $5 million in terms of the time-based and that number is gonna go up over time. And then we'd ask for a portion of the actual recovery, some percentage, almost like a contingency of the net recovery after all of that is set up. So those are the, that would be a very traditional litigation finance arrangement. But there's an enormous amount of variability there because first of all, some clients want something different and we can certainly fiddle with the numbers to accommodate that. Some clients are risk adverse and so they're looking for certainty. So they want a higher share of dollars in a low outcome scenario. And some clients are optimistic and they wanna make sure that they're not giving away. - Too much of the upside. - Exactly. They're happy to take a lot of the upside and pay us more upfront. To the point where sometimes we have deals that don't have any back-end participation and sometimes we have deals that don't have any time-based. Richard. - Oh, Fesany. So there you're just providing the capital with some multiple on the investment period done. - Yep, we certainly do it that way and we do it at the other end as well where we look very much like a contingency fee from and we're just simply taking a percentage of the outcome with nothing back in advance. - I'm struck by the level of customization here. Like this is not a standard kind of private credit business for example that looks at least somewhat formulically at different indicators of creditworthiness. You're really making a very complex investment decision that involves a lot of variation in structuring. Is that just because lawsuits are so different? from one another? It is. It's also the fact that we operate at the larger and more complex end of the market. So the people that we're dealing with tend to be sophisticated clients represented by large law firms or boutiques that used to be at those large law firms. And the deal size is that we're doing our larger. So I gave Joel a hard time with his million dollar example. The average. Dream a little bigger, darling. Yeah, the average check that we're writing today is north of $20 million. And we've done deals as large as north of $300 million. So these are traditional, fairly complex, individually negotiated, financings. They're not sort of cookie cutter. Here are the terms taken to leave up. And the client base wouldn't put up with that. Lawyers like to put their own, impromptu or own things. And lawyers like to negotiate things. Yeah, of course. I'd love to talk a bit about how this works with the lawyers and law firms. Do you prefer that they stick with their hourly rate or do you sometimes give them a piece of the upside as well? Now we're again, you're capable of customizing the same lots of different ways. So what we're trying to do here obviously is fill the gap that the lawyer and the client haven't been able to close on their own. And so we're respectful of the business model that each of them is trying to preserve. And so we certainly have deals where we're simply paying law firms by the hour. And we certainly have deals where law firms are taking lots of risk. In fact, we'll even do deals where the law firm is taking the entire risk on the fees. And the only thing they're asking us to do is help them finance the case expenses, the expert witnesses and so on, because those have become so expensive in some instances. Wow. So is the borrower or the entity you're financing typically a law firm or a litigant? It's both. And it happens in a few different ways. So sometimes the law firm is coming to us and saying, I have this client that needs financing. When you please do a financing deal with the client so that I can get paid. Sometimes the law firm is coming to us and saying, I've already agreed to do a risk based deal with this client, but I would like to lay off some of that risk to you. And more commonly when that's occurring, it's occurring over a number of cases that we would do with a law firm in a portfolio, as opposed to doing that in just one case. All that we do do it just for one case. But it's very common for law firms now to say, gee, I'd like to take some risk, but I don't want to put my costs at risk. So let's make up an example. Let's assume you've got a law firm that's running with a 50% profit margin and billing $1,000 now. $1,000 an hour, Joe, is also too low these days. I was trying to make a simple example. So that law firm, because the law firm is spending, for every $1,000 it bills, it's spending $500 on expenses, rent and associate salaries and so on, we might agree to pay half. We might agree to pay $500 an hour for that law firm because now we're de-risking the amount of money they're paying for their costs, but they may want to put their profit at risk on the case. And so we would share risk with them, depending on how you negotiate the economics. So there are any number of variations. And the same is true for companies. The big difference with companies, as opposed to law firms, is that law firms are really just all about their fees, obviously. Whereas companies have, and this is what I referred to earlier, a sort of litigation finance 202, companies have the whole value of the case, not just the question of the legal fees. And so if you have a case that is $100 million claim with a $10 million legal fee budget, the law firm is only focused on how it gets to some portion of the $10 million value. The company is there saying, well, this doesn't do very much for me. Others aren't giving me any credit for having this pending lawsuit sitting there. So can I do something with that lawsuit while it's pending to be able to enhance my business operations? And so we will, for that law firm, not only agree to pay the $10 million legal fees, but we might turn around and write them a further check, let's say, for another $10 million. That's the future expected value that kicks, and they take that next $10 million, and they go and invest that in their own businesses. And so they're now driving an even greater economic efficiency around engaging in litigation, as opposed to being effectively punished by the market for doing it on a self-pay basis. Is that debt? Is that recoupable by you or not? No. All of the capital that we put out is non-recourse. So if the case doesn't produce a return, we don't recover our principle. This is going to be a naive question. Do you take security interests in the return proceeds? Is that possible for you to know? We often do. Yes, we often take a security interest. In fact, we often take a security interest in the case, not just in the proceeds, because the case is a technically a shows an action, and a shows an action under the UCC is capable of being secured. Great. Great. You know, I've heard plaintiffs lawyers talk about how they will finance portfolios of cases, and that litigation funders really like this because it emeliorates adverse selection problems. Is that right? Well, it's true if you're doing it across the entire firm's inventory, if you will. Which some of them do, correct? Which some of them absolutely do. When you hear that happening, you're more often seeing that in the traditional plaintiffs' contingency fee world. And what those firms are doing, because banks are reluctant to provide lines of credit to those firms without personal guarantees, what those firms are basically doing is they're tapping an alternative credit market for financing for their whole firm. And so the collateral that they're offering is basically all of their cases. Whereas when we do portfolios, we're more often doing them with hourly fee law firms. And we're more often constructing them around something. So maybe it's a particular pool of cases, maybe it's a particular area within the firm. So go back to international arbitration, for example. We might do a deal that just covers a firm's international arbitration practice. And now enables them to go out into the market and offer risk-based services to clients. Are you worried about the adverse selection issues? I've heard some people say that plaintiffs' lawyers will present to the litigation funders all the worst cases and keep with themselves all the best. Is that something you worry about? Well, sure. So the entire business is about adverse selection. And it's not just from plaintiffs' lawyers. It's corporate clients as well. And so an important part of our diligence process is dealing with the fact that it is inevitable that we are being adversely selected against. But the simple reality is that if I go and do a deal with Pick Your Favorite Fortune 50 company, if I go and do a deal with that company, I'm realistically not going to do a deal with that. And so I'm not going to be able to protect myself structurally against adverse selection anyway. And so the way that you deal with adverse selection is with high quality diligence and with relationships and with lots of representations. Let me return to the question Joel asked earlier, which is, if you're genuinely this good at evaluating cases, and by the way, everyone I've talked to says that you are, if you're genuinely this good at it, why not sell that as a service? The blunt, somewhat crash answer is we make more money this way. You know, double the size of your apparatus and make money in both ways. Well, but the business of consulting on litigation and people who've tried to do this over time, you know, the reality is clients are simply not willing to pay millions and millions of dollars for litigation consultant services. They're willing to pay maybe a few hundred thousand dollars. They're not properly valuing their valuing process. Well, I think that's right, but they're also, they're also not getting any of the other benefits that come with using capital. So, so imagine a corporate client saying, okay, well, these guys are prefer to good at evaluating litigation risk. And statistically, we are, you know, our, our, our loss rate is on a case basis less than 10%. So we've got a good most trap that works. So fine, they hire us and we say to them, yeah, you've got a good case there. It's going to win. I haven't solved any other problem for them, right? They still have that fundamental economic problem. So imagine that case. We'll go back to the numbers we were using before. $100 million claim, $10 million budget. So think about the economics of that for that company. They're about to spend 10 million dollars. That's $10 million that isn't going elsewhere. That $10 million is going to flow through their P&L, reduce their earnings. They're going to reduce their market value by $150 million because they're trading at 15 times earnings. When they win the $100 million, they're not going to get a multiple on that. So they're only going to recover a hundred million of that. So they have by doing their own litigation, even though I've given them comfort that they're likely to win, they're still destroying market value. Wow. So the value for them is for me to pay the $10 million dollars. Because now I have restored that $150 million with market value. And in fact, I've done more than that because they can take the $10 million dollars that they didn't need to earmark for litigation. And they can go and spend it on something that will make them a multiple. And they get that for free because they get my evaluation of the case by the fact that I'm prepared to put capital against it. So it's a much better deal for them. And for me, as a matter of profitability, I'm going to make, let's call it, $8 million dollar profit on my $10 million dollar investment, as opposed to making a $100,000 profit on my consulting assignment. Let's talk about how Berfford's business compares to those of your major competitors. You talked about Berfford having kind of this unique position of being both old and large. Are there other aspects of your business model that differentiate you from others? Well, I think what that has done for us is given us a whole variety of ancillary benefits. Brands, you know, we're by far the most recognized brand in the industry. The ability to use our proprietary data to make better investment decisions gives us better outcomes. And that also drives a lower cost of capital. So before we started, we were chatting about market size. We raised another half a billion dollars two weeks ago. You know, we're paying seven and a half percent for that money that's significantly lower than most of our competitors can price capital. Yeah, yeah. Let's think for a moment just about kind of key use cases. We've talked about kind of corporations seeking to finance large commercial litigation. We've talked about law firm fees and expense funding. What are the other kind of key spaces in which you find yourselves doing work? Well, we do this all over the world. And so we really put capital to work wherever there's a need in the litigation ecosystem. For example, we provide regularly provide capital to insolvencies and bankruptcies. So it's a common phenomenon for companies to go bankrupt for there to be valuable claims still left in the estate. And so we have no capital that creditors want to advance to finance them. And so we are regularly appointed by bankruptcy courts around the world to provide that financing and sometimes management services as well to go and pursue remedies for creditors. So we do solvent corporates. We do insolven corporates. We do law firms. And so we do have a lot of money to build to what it is that our clients are trying to achieve. You know, in jurisdictions where there are more permissive regulations like the UK. You know, we, for example, have done a deal with a law firm that wanted financing, but didn't want as high a financing cost. And so we took an equity interest in the law firm instead. As a way of driving down the current financing cost, but but having us participate in the in the upside of the law firm's activities. So there's a really wide range of things that you can do with capital in this legal system when you start thinking broadly about how to put capital to work. It's such an enormous market, but that there's just in so much room like law firms collectively generate about a trillion dollars a year globally in billions. Like that's a very large market to be able to tap into. We began our conversation today by you talking about your experience getting crevath to finance the legal work on a merger. Have you ever thought about branching into transaction based legal financing? Like legal financing for transactions rather than lawsuits? We have, but frankly, the way that we have been growing has been sufficiently robust. And there's sufficient global demand for expansion that we stayed focused on the litigation ecosystem as opposed to the corporate ecosystem. I don't rule out doing that in the future. But today it's easier for me to add one person in Korea, which we just did. And do litigation arbitration there than it is to build a whole brand new corporate side business that requires a separate marketing effort. I'm curious about this as well. I mean, not about the direction that that Berfford is going to take, but where you see more spaces in the market. I mean, as somebody who kind of saw this as an opportunity early on, do you look at smaller stakes litigation financing as an industry that you think will grow? Whether or not Berfford is involved as well. I'm curious because there there seems to be, you know, quite a need as well for for financing. Yeah, the economics just make it hard today. You know, it's just very expensive to litigate cases. And so we really, unfortunately, we really have been in the litigation process. We really squeezed out the traditional SNE claim. You know, I think it's very difficult. If you've got a $5 million claim, it's very difficult to figure out how you're going to advance that claim. If it's if it's seriously contested by the outside. So I think that's tough. I think our our interest instead lies in continuing to broaden the use of capital in the higher end, the larger end of the legal sector. You know, you've you've seen a world where after a very slow start in the UK, law firms are increasingly aware of and focused on the ability to take on external capital. I think we would intend to do more there. I have to believe that that is something that is going to leak over into the US. It exists obviously today in Arizona, a little bit in Utah. That's to reflect those are great those are great starting points, but realistically, you know, that's a New York Illinois, California, Massachusetts, DC Florida sort of issue. And for our listeners who aren't up on these changes, states like Arizona have allowed outside capital to invest in law firm, something that's unique rather unique in the United States. That's right. And and I think that's going to change over time, not as rapidly as probably I would like. But I think it's going to change over time because there are there are two things going on. First of all, there are simply too many lawyers who have built up equity value in their law firms and who look around and say, why am I the only person who can't monetize my equity value? Every other industry investment bankers can consultants can, but why can't I? And the other part of that is that we have such large law firms today that it's very difficult to make the argument that these are, you know, not businesses that these are somehow existing above the level of the commercial business in some sort of special, you know, professional ethics, dynamic that oh my goodness, if you introduce commerciality into them. Terrible things would happen. Those businesses are already running like commercial businesses. And I think that that we just need sort of a regulatory and ethical dynamic to catch up with where the reality of the market is. Let's pursue this for a minute. You'd mentioned your Berffer's investment in a UK law firm. What is the law firm and what structure did that investment take? The investment basically took the form of something not very extraordinary in any other industry, which is effectively an equity kicker attached to a financing deal. So what we did is we provided financing, we've got a capital to the law firm as we often do, but instead of taking the full return on that financing out of the cases that are in the portfolio, we said, all right, we'll shrink the return from the portfolio, enabling in the short term, enabling the partners to capture more of the economic upside. And instead, we'll take an equity slice in the law firm of the whole firm. That's right. Now it's just a litigation firm. So that makes this easier. But we'll take a slice in the equity of the firm as a way of effectively getting some future earnings. And that will take longer to come. But as you say, it's across the whole firm and not just across the portfolio of cases that we did. Is that comparable to the equity a partner would have or do you also get a preferred payment structure there? Well, I called an equity kicker because if you were to do this in a non law industry, this would be very common. Right. So sure, there's senior debt where you're just paying interest rate, but then lots of companies have layers of debt in the capital structure below that that come with a combination of some time based return and some equity like return. And that's the whole essence of misneme capital in lots of instances. replicating that structure and applying it in the law world, the only thing that's novel about the structure is that it hasn't been done before or very often in the law world. And so I think that I think that that can be replicated in in other law firms. And will this interest last indefinitely or does it have a time limit? It has a time limit. Okay, I hope a few years. Yeah, I think it's five years. I think it earns itself out of me for five years. I see. Okay, and so the partners of the firm, they continue to have partnership interests that terminate upon retirement just as they did before. Is that right? Now we haven't changed otherwise the economic structure of the firm. We've just become a participant at a different layer in the capitalist structure. So instead of instead of us, these aren't the right numbers. I don't have them in my head, but let's just make the numbers up. But let's let's say if all of the $1 million Chris $1 million. If all of the return had been coming just off the case portfolio, let's say for, we'll make it up, let's say that's 30% a year. Okay, so the partners say, gee, I don't want to pay that much. I'd like to pay 15% a year. And I'd like instead to offer you a longer running thing that we think will actually pay you more money over time, but stretches it out and puts it lower down in the capitalist structure. So that we in year one, we're not paying that 30% we're paying 15% and the other 15 percent is riding along with the firm's success. So I can't restrain myself here. Joe knows that this is a hobby. We're some money. But I'm really fascinated about the generational differences that we talked about earlier. If I'm a partner today, I really want money today. And especially if I'm going to retire tomorrow before this equity all has to get paid over the course of the next five years, is this law from capable of managing how is this law from capable of managing that? But I don't think that's any different dynamic than you would get in any other kind of partnership style business that has taken on external capital. So you could have asked exactly the same question about investment banks. When investment banks were structured as partnerships instead of today publicly traded companies, Goldman famously was a classic partnership. So you always will have the dynamic of the need to grow yourself over the addition of the incremental capital. So it's not a good outcome for anybody, obviously, if you take on external capital in a business, whether that's a law from a not, and then the growth rate stops and the business starts to shrink. Because now you're going to have a difficult time addressing the economic needs and desires of the new, the upcoming, the future partner. Yeah. I mean, there's very similar dynamics in the private equity investments that are being made in accounting firms right now. Right. Was the firm using this money to kind of invest in or grow the business or was it paying in those distributions in the short term? It was doing both, but it was certainly there was a certainly a growth element to it. And that's we're obviously happier when we see investments in in growth in law firms. Of course. Yeah. Yeah. One of the things that this equity position may be trying to address is the concern the law firm may have that, hey, we win the case, but all the money goes to the financier. And there have been some criticisms about litigation financing in that realm. Maybe could you kind of explain what those criticisms are and we can talk as well about why I'm sure you think they're not so valid. Well, it's not that they're not so valid. It's that it's something you have to be very aware of both as a provider of finance and as a user of finance. So litigation obviously is it is in credit and comes with an unpredictable range of potential outcomes. And so when you if you're sensible, if you're economically rational, you're only going to go into a litigation financing arrangement at the beginning if all of the participants in that arrangement believe that it's in their interests. And so we're going to do it because we think the case is strong enough to pay our returns. The client is going to do it because the client attributes value to not putting its own capital at work, but also believing that the cost of that capital in terms of litigation is going to be a manageable cost. Right. So those are the dynamics going in. And most of the time that works out. And that's why as I was describing earlier ideology process, we spend a lot of time thinking about what the real value of the case is going to be because I don't want to get into a world where where our economics are driving the outcome of the case. In one way or another, right. Most importantly, I don't want a world where our economics are sufficiently large, but the client then says, well, gee, I'm going to take on more risk than I should. I'm going to reject this rational settlement offer and I'm going to push forward and take the trial risk because I'm going to shoot for the moon because otherwise I'm not getting enough out of the case. So you want to try to avoid that. And most of the time, we and other participants in the industry are successful. So you don't, as a general matter, the outcome of these cases is satisfactory for everybody concerned. Unfortunately, you know, bad things happen in litigation. And so there will be some number of litigation cases that don't lose because of course when you lose outright, this issue doesn't present itself either. Everybody just goes home, no. The issue presents itself when you have a much lower than expected, but still positive outcome. And so everybody thought this was the $100 million case. And in fact, you know, the documents weren't very good. The witness testimony was crummy. And now, you know, the jury gave you $7 million or the best settlement offer you could get was $11 million. And then you have the difficulty of the fact that, you know, the litigation funder may at that point be entitled to quite a lot of that recovery. And that obviously makes other people unhappy about the dynamic in much the same way that if you take a big loan out from the bank to put a big addition on your house and then the real estate market collapses, the bank still wants to be paid back for the renovation loan and you're the one who is going to suffer the loss of your homeowner's equity. And so nobody is happy in those situations and we try to avoid them, but they do exist from time to time. Do you have those educational conversations up front that like, look, you know, there's another outcome you need to be thinking about that's not a loss because you're not going to end up paying legal bills as well, but where you won't recover. And that's if instead of 100 million, we only get 10 million. Yeah. And again, you know, we have the benefit of working with sophisticated clients. And so people, people aren't just like walking off the street. They're modeling, they're doing their own modeling of these things. They're negotiating the terms often our contracts have worked examples of what will happen at various outcomes in them. So nobody is unaware of this dynamic, but that doesn't make it any happier when it actually happens. Right? Because when you're negotiating the thing up front, sure, that's a remote possibility. And yes, you know that it exists. That's different than when it comes home to groups. Let's look ahead to the future of your firm and the litigation financing industry. What do you see as the major trends in the next five to 10 years? Well, I think it's all about adoption. So litigation finance has gone from a cottage industry 25 years ago when I started playing around with this to a small industry when we started Bersford. And over the last 15 years since Bersford has been in existence, we've seen, you know, fairly significant growth measured on a very small base. And so now, you know, objectively, sure, we've had a good growth rate. You know, Bersford's stock is up more than 10 times in 15 years, but that doesn't translate into us yet having a material share of litigation spending locally. You know, Bersford is in round numbers doing about a billion dollars a year of new business. That's against a legal market where a trillion dollars is getting spent. And that doesn't include the value of the judgments and the settlements and the awards, which is a multi-trillion dollar number. So we are. Is that trillion? Is that a litigation number? No, that's no. And I'm not suggesting that that's all addressable. You know, that's going to include T&E business as well. Right. But just in terms of sheer scale, we are a tiny portion of what's going on globally in the overall disputes market. And so what and every year we grow, like our our suggestion to investors is that we are hoping to double size of this business in the next five years. And so with that kind of goal, that's happening through increased adoption. It's happening through, you know, yet more corporate clients realizing that this is a sensible thing for them to be doing and taking advantage of the use of that capital. And we grow the pool of people that we do this with every year. You mentioned that one of the biggest investments you've made was in the hundreds of millions of dollars of legal spend. Are you seeing more adoption? option on that mega litigation size? Yes, although just to be clear, the thing that makes it mega is the fact that we're doing multiple cases. So expensive as lawyers are, it's pretty hard to spend $300 million legal fees on one piece of litigation. And so it was actually a $325 million deal and it was with a Fortune 50 company. And so what that was was taking a number of pieces of litigation and constructing a portfolio financing arrangement around those cases that enabled the company to take capital in as a form of liquidity as opposed to having to go and take on more debt, for example. And so that was attractive because in the company's mind, investors weren't giving them a lot of credit for having these cases out there that were worth quite a lot of money. And they were just sitting there. And so we were able to unlock value for that company in a way that they couldn't otherwise do with those assets, these sort of invisible hidden assets on the nut even on the balance sheet. And so the company then turns around and uses that capital in its business in a more efficient way. And investors are pleased with that net outcome. Okay, I got it. So that was the case in which you weren't financing legal fees, you were financing recoveries, really. You were financing a company's balance sheet not on like a traditional corporate lender. Yeah. That's right. Except that, you know, just look at those two words that you use though, balance sheet and lender. The balance sheet part, remember that affirmative litigation doesn't show up on a corporate balance sheet. So it doesn't even show up in the notes. Defensive litigation does, but affirmative litigation doesn't even if it's going really well, a company can't take it onto their balance sheet and book value against it. So it's invisible on the balance sheet. Yeah, I was going to say it's a hidden asset. It's a hidden asset and we're not the lender because our capital is non-recourse. And so we're not adding to the company's leverage. We're putting capital, we're putting invisible capital against the invisible asset. And either the case will win, in which case we'll share the proceeds or the case will lose, in which case we lose our capital and the company has no obligation. But in the meantime, the company gets more cash. So Chris, in a sense, are you getting a discount on these assets because they're hidden? Is it the fact that accounting structure has made this decision that's creating a lot of value for you? I think there's something to that, but I don't see that changing in the world of accounting. And so you could say the same thing about lots of other corporate vehicles to maximize balance sheet flexibility like leasing. Before there was leasing, you know, the only way to buy a big piece of capital equipment was with cash. And now you can lease it and that has a very different balance sheet implication and leasing companies made money because that was desirable. So I'm effectively doing the same thing, I'm effectively doing leasing for litigation. - Hmm, hmm, we'll met an allergy. - Let's talk about AI for a minute. Everybody's talking about AI. - I'm gonna talk a lot about AI. - I'll let Joel jump in here. - No, no, please, John. I'm just fascinated what Chris is seeing in his industry. I mean, we didn't talk about how you find top experts, but I know that that's been, you know, one of the secret sauces, I suppose, of preferred is bringing in people who, you know, can analyze cases better than most. I'm wondering, are you seeing value already with AI in this space? Is it opening up new fields for you? I'm curious your thoughts. - So we're seeing AI have an impact. And I'll use AI sort of writ large of, a, a, a, a, and compass complex technology with machine learning. We're seeing AI in a couple of interesting ways. The first and, and right now, possibly the most important is at the law firm level, in fact, because the ability, what's happened over the last 20 years or so is an explosion of data in the hands of clients, right? So if you go back, you know, when I started practicing law, just to date myself, you know, we were still living in largely a paper-based world. And so most of the stuff flowed through people's offices and paper, they threw out most of it at the end of the day. And so as a result, their footprint was fairly narrow. It was just the things that they had elected to put in the filing cabinets outside their door that, that gave rise to litigation discovery. And so you had a world where young lawyers could page through the documents and figure out what was responsible and what wasn't. That's all gone today. Now you've got these enormous pools of data because of retention obligations. And so they're unmanageable by humans. And so you had an interim period there where the data pools were very large and the technology able to assess the data pools was not as robust as it should have been. And that is changing now. And so you're getting much better ability to analyze those pools of data from people. And that's doing two things. It's making it easier to assess litigation risk. And it's also showing up more potential litigation claims because now you can use sophisticated technology to start mapping behavior. When people conspire to fix prices, they don't tend to do it nakedly. It's not like Joel and John say, go for email each other and say, hey, my profits are kind of low this year. Why don't we agree not to compete in Chicago so that I can raise my prices? You don't see those documents very often. >> Sure, John send me over the contract. >> Right. >> But instead what you see is that Joel and John's calendars disclose that they met for coffee at the industry conference and loan be hold a few days later, Chicago pricing started to climb. And you see that repeated then when they went to the next industry conference and figured out that worked well for them and now they're going to do the same thing in LA. So there's all sorts of uses of technology at the law firm discovery level that I think are very helpful and that have a second order impact on our business because we get better quality analysis than we used to. Then you go to our business and the question is, can we make increasing use of technology to bring in data and make our investment decisions even better? And that's what we've been investing in at Berford for the last seven years. We started investing in our quantitative resources and our technology resources in 2018. And we've now built that to be really a co-equal heart of our investment process sitting beside the skilled experienced litigators that we have. And that looks to all sorts of things. It looks to settlement dynamics. It looks to predictability factors in courts, but it also does some other things that are relevant to investing capital, which is a time-based undertaking. And it looks at things, you know, pretty basic things. Like, you know, how long is this judge going to take to get through this case? What do we know about the predilections of this judge and how he or she manages the docket? So there are lots of things going on at sometimes at a fairly basic level. And sometimes at quite a sophisticated level, we use AI technologies, for example, to screen for new potential cases. So we've got a wide range of technological applications. And as a former technologist, I think that's only going to continue to be better and more valuable in enhancing. How do you see AI changing the business models of law firms? You've already talked about the use and litigation discovery and mastering comprehension of the fact. Do you think the prediction will come true that associates become less useful than they were before? Well, I think that the job becomes different. And that has been occurring anyway with technology. You know, the job of the associate, when I was an associate in 1992, is certainly different than the pre-AI associate in 2020. And so the skill set is different. And I think that will continue to evolve. So I'm not sure that we-- there are all these horse drodo, there will be no associates. I don't think that's true. I do think that it removes a degree of the drudgery of the jobs, both for law firm associates and look at investment banking associates. You used to spend hours and hours and hours at night pulling comforts. Now you can do that with the press of the button. Does that mean that you might need fewer associates? It might mean that. It might well mean that. And therefore, it might also mean the need for a change in the pyramid billing structure of some of the big law firms. But I don't think that we're talking about eliminating the practice of law and transforming it to machines any time soon. I suspect it may mean that firms will be a little more willing to take on alternate fee structures, especially as they're seeing efficiencies raised, interfering with their billable hour, and maybe understanding better the value of cases or the value of transactions or the value of disputes. I think that's very possible. The other thing that I think is very, very significant, especially on the litigation side, is that technology has enabled the creation of the litigation boutique. in a way that wasn't the case before. So if you think of a big case litigation 20 years ago, it was really only done by the big law firms because you needed the army of people, you needed all the resources that those firms had. And now-- We'll bury you in paper. Exactly. Now look at how many boutiques there are. And so part of the reason is it avoids conflicts and so on. But part of it is because you can stand up, a dozen people, and practice law at a very high level because of the advances in technology in a way that you absolutely could not have done before. And that's exciting for me on a number of reasons. It's exciting because it dislocates the market Joel as you were describing. And it lets all sorts of different models bloom. But it's also exciting for me as Berford because those boutiques, generally speaking, need to be financed. And so those are creating more opportunities for us as people want to leave the-- often the corporate-funded comfort of big law firms and strike out on their own. Chris, before we let you go, what are you excited about in the next 10 years, five years? I'm super excited for the opportunity here. And the reason for that is going right back to where we started. You've got these two pools of users. You've got law firms and you've got corporates. And I talk to lots of people on both sides of that aisle. I never go and talk to a group of CFOs or CEOs and have even a single one of them say to me, oh, I'm perfectly happy. I'm perfectly happy with what we spend on legal stuff. I have no complaints, no issues. I'm fine for that to just carry on without any change. Every single one of them doesn't like it. Every single one of them would like something different. And then over here at law firms, you have an industry that has changed some amount in the last 25 years, but is still pretty darn recognizable if you go back 25 years in time. So you've got a big, profitable, but relatively change-resistant business over here. But all of them know who we are and know what we offer and know what we can do to help them. And so being able to continue to put those two sides together with us in the middle is to me an enormously exciting thing to do, especially as we get to do it ever more around the world and in really big, interesting, complicated pieces of litigation. So it's just for me, it's a combination of a really interesting business dynamic and just a whole bunch of intellectual candy that goes along with it. Given that our audience for this is going to be mostly lawyers, another big winner is the legal industry in general. You're financing a lot of lawyers day-to-day jobs. We are, we're probably, if you look at the numbers, we're probably the largest single buyer of legal services in the world today. And that's a fun place to be. Let's me talk to lots of smart people. Chris Bogart is the founder and CEO of Berford Capital. Chris, it's been a real pleasure. Thanks, Chris. It's great being with you. Thanks, guys. John, what do you think of the conversation with Chris? I really enjoyed it. I learned so much and really appreciated his willingness to join us. I know. I got to say, I made me think, should I own Berford Stock? I wish I had bought Berford Stock 15 years ago as well. I know. And look, I find that this is compelling that there's still a lot of room for growth in this industry. I do think we will be seeing more innovation in this space. And I wonder, to what extent AI will make it more affordable to do financing to even smaller cases, cases that aren't lucrative enough for Chris at this point? Yeah, I guess if a lot of what makes lending to small cases difficult is the expense of the underwriting analysis. One might hope that AI tools would simplify that underwriting analysis and standardize it to unlock financing for smaller cases or the discovery. Maybe it'll make discovery cheaper. So that we'll see. We'll see about this. Yeah. I mean, in a way, this gets to the heart of the debate about AI's effect on the legal profession. Will it shrink the legal profession by reducing the amount of services that are required or will it grow it or keep it the same by expanding the-- by meeting more of the currently unmet need? There's so much legal work that doesn't get done right now to cost. Most of it. Yeah, most of it. I mean, no dispute that I've had has gone to litigation, knock on wood, but part of it is because I don't want to have to fork up the capital. And I don't have Chris Bogart on Speed Dial, ready to loan me an amount that's beneath their interest level. Yeah, that's right. You really would have to reach below the highest dollar value of litigation. You really would need kind of a different underwriting model. What did you think of his argument against the argument that litigation finance is a negative or against public policy? In my mind, there's no question that it results in more litigation. That's kind of the point. Obviously, many of those lawsuits would be brought. But surely, if litigation financing is truly adding value, then we would have to believe that there are more lawsuits brought and perhaps they're litigated for longer than they would be otherwise. However, I find completely compelling his argument that it's only financing meritorious cases. I mean, if his success rate really is as high as he says it is, then he's not financing vixacious litigation. It just doesn't make sense for him. Yeah, it seems like the vixacious litigation is not going to come from outside capital. It's going to come from an extremely rich plaintiff who is willing to take the loss. Yeah, I mean, I think we've all seen that. There are people who litigate out of spite. And the nice thing about a litigation funder is that it's completely impersonal and cold-hearted about it, which on the one hand, makes them kind of scary. And on the other hand, makes them less careful. Yeah, that's right. That's right. I love talking to you about this, because I could just see whenever he was discussing kind of the structural imperfections or the picadillos of the law industry. I could just see your excitement. Yeah, that's right. I mean, generational conflict is a topic that fascinates me. I'm writing a book about it. The basic issue is that unlike in conventional public companies where the equity lasts forever, in law firms, the equity interests only last as long as a partner's tenure with a firm when you retire your partnership interest has gone. And that creates all sorts of difficult challenges in law firms. One of them is the inability to finance activities over the long firm. And an ordinary public company, if you do something today that will generate profits in the future, the stock price increases immediately in anticipation of that. So you can reap the value of it, even if you're going to sell tomorrow. You can't really do that in a law firm. And I feel like litigation financing is one way, not the only way, but one way to cope with that problem. And for that reason, I find it very exciting. I was a little surprised to hear that they've taken equity positions, obviously not in the US, but in law firms. Yeah, what did you think about that? It seemed to me related to their core business. But if they see so much upside in cases, it was kind of surprising me that they would buy the whole cow instead of the milk. Yeah. With every provider of capital, there's always needs to be a fit between the provider's expertise in assessing information and the business of the company. And hedge funds have particular domains of expertise. Private equity funds have particular domains of expertise. And even if there are opportunities out there, if they lie beyond that domain of expertise, often the investors will avoid it because they feel like we can't really evaluate it. And for litigation funder, really so much of the value of the business is tied up in the expertise of evaluating cases. So it does feel like a little bit of a risk or a stretch for a litigation funder to finance not a set of cases, but a whole law firm, which might include things beyond the immediate portfolio. He did say that it was a litigation only law firm. So it meant that he didn't have to evaluate risk. Also, it was a law firm and not another kind of business. And one can imagine that if the portfolio of cases was large enough relative to the size of the firm, there might not be that much of a difference between financing cases and financing the firm. Now let me just riff on this for a moment, Joel, and say, we talked with Chris a lot about equity stakes in law firms, whether there might come a day when it's legally allowed outside of Utah and Arizona. To me, as a kind of corporate lawyer, the line between equity and debt is thin and porous. And you can construct a nominally-- there's no interest. There's no problem with extending debt to law firms. But you can construct the terms of a debt interest in such a way that it begins to look a lot like equity. And so one wonders if one of the work arounds for the current legal prohibitions on investments that produce equity stakes in law firms is just to offer debt interests that functionally look like equity. Yeah, we spoke with John Quinn for this series as well. And there we have a mega litigation law firm. You could imagine a company like Berford coming in and saying, "Hey, look, we'll buy a tranche of the upside of your patent litigation cases." That's right. And if you buy a tranche of the upside of 100% of Quintamannual's cases, then you've just made a quick decision. Yeah, I mean, it gets very close. Or you could say, we're taking an interest rate that varies with your profitability, which is functionally like profitability, right? The other side of the investing in law firms point that I think we're making was, maybe it's just getting a bigger slice of the upside. Imagine a world where there weren't these constraints on capital investing in lawsuits. Maybe Berford would want to buy the entire case and run the entire case with its own, you know, ex-chosen experts. And maybe that's what they'll be able to do with these boutique law firms that they're taking equity positions in. Yeah, well, you know, we didn't ask Chris. We should have asked him whether this equity interest was paired with any degree of control or oversight. Also, one of the long-running controversies in litigation financing is the degree of control over the litigation that the funders have. But I agree. I mean, if New York and Florida and other big states lift their restrictions on investor ownership of law firms, it's a very quick transition from Berford Capital and others in its industry from financing lawsuits to running lawsuits. That's how it happens. A logical next step. Yeah, yeah. It's one of the many ways in which the transition would happen. In an event, it already establishes proof of concept for how these things could work. I found it fascinating and I hope that our listeners did. And if there are comments or questions you know, we've been asking this. I hope it's not redundant for regular listeners, but we'll provide an email in the show notes in case you have suggestions or ideas on how to make the series better. Yes, thanks very much. We always welcome your comments and thoughts. That didn't sound genuine, John. It seemed like you really don't welcome them. But he does. He does. I know he does. Thanks for watching and John, thanks for the time. [Music]