The Initial Litigation Offering or ILO – with something as simple as a website page or an app, anyone could potentially invest money to fund the costs of litigation. The investor is issued an ILO token, secure on the blockchain, as a share of the potential returns from the litigation. The ILO tokens themselves can be traded and sold on.
The Apothio ILO
I came across this Reuters article on the ILO case of the Plaintiff (Apothio LLC), a hemp grower of 450 acres of crop allegedly worth US$1 billion, crowdfunding its litigation costs to sue California’s Department of Fish and Wildlife in bulldozing its crop.
Apothio LLC will issue the ILO tokens, which are secured against any potential monetary recovery obtained by Apothio LLC in the litigation captioned Apothio, LLC v. Kern County et al., Case No. 1:20-cv-00522 (E.D. Cal.) or any appeal or related case stemming from the Litigation.
The ILO tokens will be hosted on the Avalance platform, a blockchain smart contracts platform. Investors will buy the ILO tokens with their US Dollar investments. The ILO tokens will be subject to a 1-year programmatic lockup, after which, the ILO tokens will be transferable.
The Apothio ILO is still open for investors. As of the time of writing, close to US$330,000 has been raised and where 131% of the minimum goal of US$250,000 has already been met.
Linked to this launch of the ILO, we also see the launch of Ryval – a marketplace for ILOs. Its website calls itself “the stock market of litigation financing”.
This development of crowdfunding + crypto investments + litigation funding seems almost inevitable. We are in the age of the gamification of investing at the click of buttons on a website or on an app. Combine that with trends like the Redditers short squeeze and cryptocurrency going mainstream. Rather than pumping the Shiba Inu coin to the moon, or buying the next Bored Ape Yacht Club NFT, will we next be buying and selling ILO tokens on a digital asset exchange?
Repercussions of ILOs
The use of any ILOs will throw up difficult considerations.
On the one hand, litigation funding can lead to democratising access to justice. As quoted in the Reuters article:
“The rise of litigation funding in the United States has provided individuals and smaller organizations access to the resources necessary to assert their legal rights against well-funded entities,” Roche’s statement said. “The advent of the ILO has the potential to provide even greater access to justice.”
On the other hand, whether any rise in funding, especially from retail investor crowdfunding, would lead to more frivolous lawsuits.
Agee’s first fear is that small investors don’t have enough litigation savvy and inside information to make informed investment decisions. In big commercial litigation finance deals, Agee said, funders often have access to non-public information that helps them decide if the case is a good bet. In Apothio’s offering, Republic is providing links to public filings from its case in federal court in Fresno, California, but no insider take on litigation risk.
Commercial litigation funders, Agee said, are effective gatekeepers precisely because they make sophisticated evaluations of litigation risk. After all, when commercial funders back a case, they usually put up a lot of money – an average $4.5 million for single-case deals, according to Westfleet’s analysis of 2020 transactions. Individual investors who are chipping in as little as $100 may not be as risk averse, Agee said.
Further, in Malaysia and many other jurisdictions – champerty and maintenance continue to forbid any aspect of litigation funding.
Finally, protection of retail investors – the need for sufficient regulation and oversight to protect investors. But with anyone already able to create the next sh*tcoin or to mint NFTs, will we be able to fully regulate ILOs or similar types of coins or tokens?