Publications
Discovery Trends in Litigation Finance Arrangements
Bloomberg Law
April 23, 2018
With the rise in third-party litigation funding, questions have been raised as to the arrangements, including their legality, practicality, terms and — importantly for investors wishing to remain behind the scenes — the extent to which the arrangements must be disclosed. As more lawsuits are funded by third parties, courts have been faced with novel discovery questions. Those include whether and to what degree discovery is appropriate with respect to the parties involved in the litigation funding, the specific funding arrangements and the information provided to funders to aid in their assessment of the potential investment. Currently, there are few rules that specifically address disclosure of litigation funding arrangements, leaving courts to deal with disclosure questions on a case-by-case basis. The results sometimes have been conflicting, as partner William Gussman, associate Hannah Thibideau and former Schulte lawyer Alan Glickman discuss in this article.
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On Aug. 19, 2024, the US Securities and Exchange Commission (the “SEC”) charged Obra Capital Management, LLC (“Obra Capital”) with violations of Rule 206(4)-5 under the Investment Advisers Act of 1940, otherwise known as the “Pay-to-Play Rule” (the “Rule”), arising out of a $7,150 campaign contribution made by an individual prior to joining Obra Capital.[1] This campaign contribution was made to a government official in Michigan who had influence over hiring investment advisers for the Michigan Public Employees’ Retirement Fund (the “Michigan Pension Fund”), which was an investor in a fund managed by Obra Capital (the “Obra Fund”). Notably, the Michigan Pension Fund had been an investor in the Obra Fund for several years prior to the hiring of the individual who made the contribution. And perhaps even more notably, this campaign contribution was made several months prior to the individual becoming a “Covered Associate” (as defined by the Rule[2]) of Obra Capital. By virtue of Obra Capital continuing to provide investment advisory services for compensation to the Obra Fund in which the Michigan Pension Fund was invested after hiring the individual, Obra Capital violated the Rule and agreed to pay a $95,000 fine to settle the charges.
Alerts
On Sept. 12, 2024, the Commodity Futures Trading Commission (“CFTC”) adopted amendments (“Final Rule”)[1] to CFTC Rule 4.7, which is the primary disclosure, reporting and recordkeeping relief relied upon by CFTC-registered commodity pool operators (“CPOs”) and commodity trading advisors (“CTAs”). The Final Rule only partially adopted the proposals advanced by the CFTC nearly a year ago (“Proposal”). Importantly, the CFTC has elected to double the financial thresholds required for investors to be Qualified Eligible Persons (“QEPs”) suitable to invest in a Rule 4.7 pool or fund. However, the CFTC decided not to adopt the time-consuming and detailed disclosure requirements included in the Proposal. Operators of Section 3(c)(1) pools and funds that rely on Rule 4.7 will need to adjust their documents to accommodate the new QEP financial thresholds. We do not anticipate any substantive impact on operators of Section 3(c)(7) pools and funds.
Alerts
On Aug. 19, 2024, the US Securities and Exchange Commission (the “SEC”) charged Obra Capital Management, LLC (“Obra Capital”) with violations of Rule 206(4)-5 under the Investment Advisers Act of 1940, otherwise known as the “Pay-to-Play Rule” (the “Rule”), arising out of a $7,150 campaign contribution made by an individual prior to joining Obra Capital.[1] This campaign contribution was made to a government official in Michigan who had influence over hiring investment advisers for the Michigan Public Employees’ Retirement Fund (the “Michigan Pension Fund”), which was an investor in a fund managed by Obra Capital (the “Obra Fund”). Notably, the Michigan Pension Fund had been an investor in the Obra Fund for several years prior to the hiring of the individual who made the contribution. And perhaps even more notably, this campaign contribution was made several months prior to the individual becoming a “Covered Associate” (as defined by the Rule[2]) of Obra Capital. By virtue of Obra Capital continuing to provide investment advisory services for compensation to the Obra Fund in which the Michigan Pension Fund was invested after hiring the individual, Obra Capital violated the Rule and agreed to pay a $95,000 fine to settle the charges.
Alerts
On Sept. 12, 2024, the Commodity Futures Trading Commission (“CFTC”) adopted amendments (“Final Rule”)[1] to CFTC Rule 4.7, which is the primary disclosure, reporting and recordkeeping relief relied upon by CFTC-registered commodity pool operators (“CPOs”) and commodity trading advisors (“CTAs”). The Final Rule only partially adopted the proposals advanced by the CFTC nearly a year ago (“Proposal”). Importantly, the CFTC has elected to double the financial thresholds required for investors to be Qualified Eligible Persons (“QEPs”) suitable to invest in a Rule 4.7 pool or fund. However, the CFTC decided not to adopt the time-consuming and detailed disclosure requirements included in the Proposal. Operators of Section 3(c)(1) pools and funds that rely on Rule 4.7 will need to adjust their documents to accommodate the new QEP financial thresholds. We do not anticipate any substantive impact on operators of Section 3(c)(7) pools and funds.
Alerts
On Aug. 19, 2024, the US Securities and Exchange Commission (the “SEC”) charged Obra Capital Management, LLC (“Obra Capital”) with violations of Rule 206(4)-5 under the Investment Advisers Act of 1940, otherwise known as the “Pay-to-Play Rule” (the “Rule”), arising out of a $7,150 campaign contribution made by an individual prior to joining Obra Capital.[1] This campaign contribution was made to a government official in Michigan who had influence over hiring investment advisers for the Michigan Public Employees’ Retirement Fund (the “Michigan Pension Fund”), which was an investor in a fund managed by Obra Capital (the “Obra Fund”). Notably, the Michigan Pension Fund had been an investor in the Obra Fund for several years prior to the hiring of the individual who made the contribution. And perhaps even more notably, this campaign contribution was made several months prior to the individual becoming a “Covered Associate” (as defined by the Rule[2]) of Obra Capital. By virtue of Obra Capital continuing to provide investment advisory services for compensation to the Obra Fund in which the Michigan Pension Fund was invested after hiring the individual, Obra Capital violated the Rule and agreed to pay a $95,000 fine to settle the charges.