How to Register and Operate a Litigation Finance Fund in the U.S.

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Litigation finance is the practice of funding legal claims in exchange for a portion of the potential recovery.

It allows plaintiffs, law firms, or corporate entities to pursue cases without upfront legal fees.

Funds typically target commercial litigation, mass torts, or international arbitration cases with high potential returns.

The most common U.S. structures include:

• Delaware Limited Partnerships (LPs)

• LLCs with management agreements

• Offshore feeder funds for international investors

Ensure proper allocation of limited partner interests, management fees, and performance-based carry provisions.

While litigation funds are typically exempt from Investment Company Act registration, they must still comply with:

• Reg D Rule 506(b)/(c) for private placements

• Blue Sky laws at the state level

• Form D filings with the SEC for accredited investor offerings

Funds offering tokenized participation or cross-border pools must also comply with FinCEN and AML obligations.

• Establish a due diligence committee to vet claims for funding

• Use litigation insurance or outcome-based risk assessments

• Offer investor dashboards with case updates and milestone tracking

• Communicate clearly about the non-guaranteed nature of returns

• Avoid champerty violations in jurisdictions that restrict third-party funding

• Maintain confidentiality agreements with claimants and attorneys

• Disclose funding relationships in jurisdictions where courts require it (e.g., Delaware, California)

• Consult with outside counsel on conflicts of interest and attorney control issues

Keywords: litigation finance fund, legal funding registration, fund structure, Reg D offering, case funding compliance