Who Really Wins? The Debate Over Litigation Financing

by | Sep 2, 2025 | Blogs, Uncategorized

By: Brooke Burschlag

Who Really Wins?

Ever stopped to think about who’s footing the bill for those ‘headline grabbing’, multi-million-dollar lawsuits? Behind the scenes, there’s a growing player in the legal world; third-party litigation financing. Despite spending the past nine years in litigation practices, the concept of litigation financing had never occurred to me until this summer, when I had the opportunity to attend multiple events while working under leading professionals in the field.

Litigation funders are investors who provide the critical capital that allows plaintiffs to take on deep-pocketed opponents in court. Without them, many of these cases would never see the light of day. Third Party Litigation Financing is when an outside investor provides money to fund a lawsuit in exchange for a share of any settlement or judgment.1 These funders are often private equity firms, hedge funds, specialized finance companies, or even high-net-worth individuals.

The funding industry has boomed in the past few years, and has become a major investment opportunity for many. Buford, which is the largest publicly traded litigation funder, reported a $7.2 billion portfolio in March. In that same month, Westfleet Advisors revealed that more than 42 active funders collectively managed $17.1 billion in assets.2 These examples demonstrate just how rapidly litigation financing has risen to prominence in the United States.

Once a niche concept reserved for select law firms, it’s now making waves across the industry and even catching the attention of elected officials nationwide. But now this vital industry is under attack, as mounting regulations threaten to dismantle the system that makes access to justice possible.

Regulatory Landscape

Across the country, states are starting to crack down on third-party litigation financing. Some have passed rules requiring full disclosure of who’s funding a case, while others have gone as far as banning foreign investors altogether. The concern? Lawmakers worry that outside money, especially from overseas, could open the door to foreign influence and give other countries a hand in shaping our legal system.3

When Fear of Foreign Money Drives Policy

Many lawmakers have expressed concerns about influence of foreign entities in third-party litigation funding. This concern extends beyond the U.S. to many other countries as well. However, there is a sweeping push in the U.S. to make sure foreign entities and countries do not influence our ongoing litigation. Lawmakers are cautious about outside parties affecting legal decisions because it is often difficult to trace the source of some litigation funding. The U.S. Chamber of Commerce has highlighted that foreign entities might exploit third party litigation funding to undermine national security by targeting critical industries or infrastructure through litigation.4 Many questions remain, though: Are these measures truly making a difference in litigation? Do funders have enough influence to impact outcomes, or are they simply helping those in need? In response, several states have moved forward with their own regulations to increase transparency regarding funders and the countries from which they originate.

States Crack Down on Litigation Funding5

Many states on both sides on the political spectrum have now enacted litigation funding regulations. It shows that there is a push and a concern no matter what political party you align with. As shown on the map above, as of July 2025, the majority of U.S. states have implemented or introduced regulations.

Two major state players who have recently enacted laws are Kansas and Georgia. They both are very focused on the disclosure of who the funders are and how outside influence is impacting ongoing litigation. Kansas now requires disclosure if the funds are from “foreign countries of concern”, this includes countries federally designated as foreign adversaries or terrorists’ organizations.6

Georgia has taken it one step further and does not allow anyone with affiliated with a foreign government or adversary to register as a funder within the state. Additionally, Georgia requires disclosure of any agreement of $25,000 dollars while also having to register with the Georgia Department of Banking and Finance as a funder.7

New York’s Senate and the Capitol’s Answer

New York’s senate recently approved the Consumer Litigation Funding Act.8 New York’s bill focuses more on regulating the consumer litigation funding rather than commercial litigation as other states focus on. One of the major factors in the New York bill is disclosure requirements where the contracts “must feature specific language to ensure transparency and complete consumer awareness of the transaction’s terms.”9 Although many states have moved to regulate the industry, Washington, D.C. has joined the effort.

The Capitol’s Answer: A Sweeping Bill on Litigation Finance

Amid a major push for a further crackdown, two bills were introduced in the first few months of 2025 to regulate financing. S.1821 – Tackling Predatory Litigation Funding Act was introduced in February of 2025 where Senator Tillis sought to impose a tax rate of 40.8% on qualified litigation proceeds and the litigation financers who would be benefiting from the outcomes out these litigations.10 This had the whole industry terrified that if this bill went through, that could be an end to litigation financing as we know. If enacted, many funders would pull their backing throughout the United States, leaving individuals who relied on this out in the cold during litigation.

This bill never made it to committee but then in June at the last second was added to the “Big Beautiful Bill”, which was Congress’s way of pushing their earlier agenda through swiftly without making waves. The House version of the Big Beautiful Bill, passed on May 21st, did not include the litigation-funding proposal.11 When the Senate released its draft text for the bill on June 16th, many were stunned to see that this tax provision was added.12

Although the tax provision was removed from the final bill just days before enactment, it served as a major wake-up call. Scrutiny of the funding process is escalating, and many are eager to take action against it.

Call to Action

For many it is hard to determine what is the right call here. Do we entrust that the government has our interest at heart and wants to protect the country from outside foreign influence or is it a way for the government to have control themselves on the litigation?

The wave of regulations being proposed across the country should serve as a wake-up call for every investor and funder in the litigation finance space. If we sit on the sidelines, we risk seeing state after state move toward outright bans, an outcome that would be devastating not only for funders, but also for plaintiffs who depend on this industry for access to justice.13

The message is clear: funders cannot afford to act alone. We must stand together as an industry and push back against overreaching regulations that threaten the future of litigation finance. That means closely monitoring state and federal legislation and actively supporting industry coalitions that are shaping the conversation and defending our interests.14

There are many different coalitions working to fight these regulations, but one of the most influential right now is the International Legal Finance Association (ILFA). ILFA is a non-profit trade association that was founded to represent the legal finance community.15 They are working hard to keep the industry alive.

This is not the time for complacency, it is the time for vigilance, collaboration, and decisive action to protect the very survival of litigation finance.

Footnotes

  1. Institute for Legal Reform, What You Need to Know About Third-Party Litigation Funding (June 7, 2024), link ↩
  2. David Thomas, Litigation Funders Get a Boost in Budget Bill Drama, Court Wins, Reuters (July 3, 2025), link ↩
  3. Institute for Legal Reform, What You Need to Know About Third-Party Litigation Funding (June 7, 2024), link ↩
  4. Institute for Legal Reform, Tackling Foreign Manipulation: The Urgent Need for Reform in Third Party Litigation Funding, ILR Blog (Apr. 1, 2024), link ↩
  5. Map found at: link ↩
  6. Dai Wai Chin Feman, Breaking Down the First Legislative Compromise on Commercial Litigation Funding, National Law Review (May 5, 2025), link ↩
  7. Patrick Reagin & MacKenzie Gansert, Litigation Funding in Georgia: New Registration and Disclosure Requirements, Holland & Knight (May 7, 2025), link ↩
  8. The Milestone Foundation, The Consumer Litigation Funding Act: Empowering Consumers and Promoting Fairness (June 10, 2024), link ↩
  9. Ibid. ↩
  10. S. 1821, Tackling Predatory Litigation Funding Act, 119th Cong. (2025), available at link ↩
  11. Sarah J. McNeill & Andrea Mandell, Proposed Bill Would Create New Tax Regime Introducing Uncertainty and Threatening Broad Credit Markets and Beyond, Schulte Roth & Zabel LLP (June 18, 2025), link ↩
  12. Dr. Christian Brause & Andy J. Lau, U.S. Senate Draft of the Reconciliation Bill Introduces New Punitive Excise Tax Regime for Litigation Financing, Sidley Austin LLP (June 20, 2025), link ↩
  13. Erika Levin, Senate Sidelines Tax on Litigation Finance, But the Fight Goes On, Fox Rothschild LLP (June 30, 2025), link ↩
  14. Ibid. ↩
  15. International Legal Finance Association (ILFA), About ILFA, link ↩
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