How Wall St. Profits When Personal Injury Lawsuits Pay Out
Personal injury cases have exploded, in number and magnitude, funded by companies betting on a win — and offering investors a piece of the action.
By Ellen Gabler Robert Gebeloff and Julie Tate
Personal injury cases like his can take years to resolve, so to support himself, Mr. Anguisaca-Morales turned to a company known as a consumer legal funder.
Such firms float cash advances to plaintiffs to cover expenses like rent, food and medical care while their cases go through court. The advance is similar to a loan, except that if a case fails, the plaintiff doesn’t have to pay it back.
But most of the time, insurance companies settle personal injury cases, and the plaintiffs repay their advances — plus fees and interest of 35 to 45 percent a year, on average. One woman in New York who said she turned her ankle on a sidewalk, for example, received $76,500 in advances and ended up owing at least $1.4 million to her funder by the time her case settled, court records show.
Behind the scenes, The New York Times found, Wall Street has figured out how to profit from it all.