(Photo credit: Ryval / Roche Freedman LLP)
A new tech startup plans to become “the stock market of litigation financing” by allowing everyday Americans to bet on civil lawsuits through the purchase (and trade) of associated crypto tokens. In doing so, the company hopes to provide funding to individuals who would otherwise not be able to pursue claims.“Ryval’s goal is to make access to justice more affordable,” said Kyle Roche, a trial lawyer and one of the startup’s founders. “What I want to do is make the federal court system more accessible for all.”
Roche believes the U.S. federal court system is one of the best in the world, but that navigating it is cost prohibitive for the average American. As a result, he believes, potential whistleblowers are too often hesitant to defy “well-resourced” corporations and other entities due to the potential cost of legal action. Through Ryval, Roche wants to “make lawsuits happen that maybe might not have happened.”However, on its website, Ryval focuses all of its attention on the potential return for investors. “Buy and sell tokens that represent shares in a litigation and access a multi-billion dollar investment class previously unavailable to the public,” the company states. Ryval also promises “50%+ Annual Returns,” though Roche admitted the figure “may be a little high” when Motherboard asked him about it.
“What we do is: tell the story, vet the legal claim, and then allow the public to invest and give you the funds to go and litigate your case,” Roche explained. “And what does the public get in return? The public gets an interest in the outcome of your suit.”The way it works is a little like a crypto-infused and lawsuit-focused GoFundMe, if the crowd stood to profit from their investment. The company takes advantage of a rule created through former President Barack Obama’s JOBS Act, which allowed a private company to crowdfund up to $5 million from Americans, regardless of their wealth. Using the Avalanche blockchain, Ryval will allow “all investors regardless of accreditation status” to purchase tokens associated with a specific case and then hold or trade them on the open market. Whoever owns the token at the time of a settlement or verdict then cashes in.
The team has dubbed the sale of tokens an “initial litigation offering,” and Roche has compared Ryval to Robinhood, but for the law. (A caveat: While wealthy and sophisticated “accredited investors” will be able to trade lawsuit tokens immediately, the non-rich will be legally required to agree to a year-long lockup period, according to Insider.)
The concept of litigation funding isn’t unique. An industry built around the concept has been growing in popularity in recent years. Between June 2019 and June 2020, investors plowed $2.5 billion into the litigation funding sector, according to the finance advisory firm Westfleet Advisors. But up until now, only so-called “accredited” wealthy investors could put their money into the sector. Through the use of crypto tokens, Ryval claims, it can legally open up access to the industry to all. The tokenization of U.S. law will benefit users in a few other ways, including by providing the market with liquidity that previously wasn’t available in litigation funding, Roche claims. If someone with a token needs money or believes a case is heading south, they can sell their token to the highest bidder and cash out. Such tradeability will also allow the value of a token to rise or fall as the case develops. “Let's say, the plaintiff gets a big ruling from the court—not a win, but a big ruling. The price may go up,” he said.
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Roche’s law firm, Roche Freedman, has been working with the financial technology company Republic and smart contacts platform Ava Labs, which created the Avalanche blockchain and whose tagline is “Digitize All The World’s Assets,” to develop the Ryval. While still in the early going, Roche expects a full team will be announced in the first quarter of the year. The ILO already has a test case in Apothio, a hemp grower whom Roche began to represent after the Sheriff's Department in Kern County, California, unlawfully destroyed 500 acres of a crop field, according to the suit. “The destruction of that crop was catastrophic to their business,” Roche said. “I had presented the idea of the ILO to [Apothio’s CEO], and he liked it as a way to sort of get some visibility to what had happened to him and his case—and also to raise funds to help him rebuild his business.” The ILO, which was registered with the SEC and required a minimum $100 investment, subsequently raised nearly $350,000. (Roche clarified that his law firm will not be involved in most Ryval-vetted lawsuits and that he sees it more as a national platform for other law firms and clients.) But it wasn’t until after the initial Apothio ILO was launched that Roche realized the potential of the platform. That occurred in January of last year, when the online trading platform Robinhood temporarily suspended trading of GameStop shares after a massive surge of meme-related interest. The decision led some to accuse the trading platform of unlawful manipulation. “There was an explosion of ‘When can we ILO Robinhood? We want to hold Robinhood accountable,’” Roche said.
Roche understands that messaging will be “very important” in the early going, which is why for the first few years, Ryval will be “focused on access to justice and taking on claims that we believe are good claims,” he said. “But at the end of the day, I don't think anybody should be the gatekeeper to who has access to the courts. I think access to the court system, access to the legal justice system should be something that is given to as many people as the justice system can handle.” Roche believes Ryval lawsuits will “run the full gamut” and include antitrust, securities claims, and wrongful termination. Asked if there were any types of cases Ryval would avoid, Roche replied, "I don't see anything that I wouldn't categorically not go near."To help novices navigate such a complex industry and decide where to place their bets, Ryval will provide users with the basic facts of the case and the procedural elements necessary in order to win, as well as other relevant information like how often a particular type of case is successful. “One of the real responsibilities we have in building this platform is to educate the market,” Roche said. But Roche said retail investors stand to gain more than they stand to lose by entering the legal market. “These investments have been very lucrative over the course of the last five to 10 years,” Roche said, adding that some top law firms average an “astronomical” annual percentage rate of 30-to-40 percent. He expects interest will be especially high in the event of a downturn, since litigation outcomes are largely “market agnostic,” providing people with an alternative form of investment.While Roche expects many people to invest in cases purely focusing on the potential return on investment, he hopes there will be a “pro bono element” of Ryval as well, in which people raise legal funds “for those who need it” without as much concern for their personal finances. He isn’t particularly concerned about the prospect of his company creating an explosion of frivolous lawsuits in a famously litigious country, not only because they plan to vet the claims, but due to the fact that Ryval will have a comments page where people can voice their concerns. “Exposing the idea and the lawsuit to the market serves as a good gating function,” Roche said, adding at another point, “I believe that access to capital creates a better justice system.”