Initial Litigation Offerings (ILO) show that blockchain is not a solution in search of a problem

The case of Apothio, a hemp grower involved in a billion-dollar lawsuit against a California county, has brought Offerings for Initial Litigation (OGI) to the limelight.

And while not new to the blockchain world, IMOs show the potential that technology can have when used as a solution to a very persistent and very costly problem: lawsuits.

Apothio and the problem with litigation financing

Apothio LLC, a vertically integrated hemp company based in California, is the star of a lawsuit that has the potential to revolutionize the litigation business in the United States.

In April 2020, the company filed a lawsuit against its home county of Kern and the Kern County Sheriff’s Office, accusing them of destroying $ 1 billion worth of hemp crops. The company claims it suffered the largest total destruction of personal property by government entities in U.S. history and is suing the county for damages worth $ 1 billion.

However, despite its very valuable harvest, the company is cash strapped and was struggling to finance the costly litigation process it was about to embark on.

Since October 2021, the company has been trying to raise funds from the public to finance the lawsuit in exchange for a portion of any eventual recovery it receives from the court. As such, litigation financing is nothing new, especially in the United States, where lawsuits like this can cost millions of dollars. Litigation funders receive a multiple of their investment if a case is resolved, but they get nothing if the case is dismissed.

According to Business InsiderThe field of litigation financing has grown significantly in recent years, with publicly traded companies and private asset managers collectively invested more than $ 2 billion in litigants between 2019 and 2020.

LexShares, a leading US litigation fund, has invested in 103 cases since 2014. Of the 43 cases resolved to date, 70% had a success rate, providing investors with an average annualized return of 52%.

However, litigation funding is limited to accredited investors only, all of whom must meet the rigorous accreditation criteria of the U.S. Securities and Exchange Commission. In addition to excluding many smaller investors from the potentially lucrative business of Litigation financing also dramatically reduces the pool of investors from which plaintiffs can seek financing.

To raise the money for his lawsuit against California County, Apothio turned to crowdfunding. But, instead of reaching out to a small group of accredited investors, the company decided to take a more decentralized route: a litigation offer.

The term was coined by Apothio’s attorneys, Roche Freedman, known for representing David Kleiman’s estate in the controversial case against Craig Wright. The office is an industry pioneer and has experience navigating the vague regulation surrounding cryptocurrencies and blockchain technology.

Roche Freedman worked with Republic, a crowdfunding website, to launch Apothio’s $ 5 million public offering in October 2021. Last week, its minimum fundraising goal was reached when a family office contributed $ 150,000. to effort. A total of 151 investors have so far contributed more than $ 344,000 to the litigation.

Replicating the success of Apotio’s OIT with Ryval

The huge interest in Apothio and the success of his ILO quickly made headlines, prompting Roche Freedman to embark on a rather ambitious endeavor: launching a proprietary ILO platform.

Kyle Roche, a partner at Roche Freedman, said they have been working with various technology and financial partners to move forward with the launch of Ryval, a marketplace for initial litigation offerings.

“It’s almost as basic as a GoFundMe,” Roche told Business Insider.

The marketplace, launched on the Avalanche blockchain, would tokenize litigation offerings and allow users to trade the tokens. All offers would be registered with the Securities and Exchange Commission (SEC) and allow investors to accept demands with as little as $ 100. Accredited investors would be able to exchange the tokens immediately, while those without proper accreditation would be subject to a period. of a one-year lockdown, Roche said.

“Our goal is to have 5-10 OGIs faster relatively quickly once the platform is up,” he noted, adding that Roche Freedman would not be involved in most of those cases.

Nonetheless, the law firm is currently working with Ava Labs, the company behind Avalanche, and Republic, the crowdfunding website run by OpenDeal.

The success of the Apothio case also revealed some of the ILO’s shortcomings. Roche said they have received a lot of feedback from offering participants and will include new features and options in Ryval.

In other words, the majority of participants said that they would prefer a model that allows more advantages in the event of large recoveries. Apotio’s current model subsidies investors 1 ILO token for every dollar invested, which will remain locked for one year. If the case is resolved, the returns will depend on how much time has passed between the time the tokens were issued and the time the case was closed, ranging from 200% to 350%.

Apothio ILO returns

Roche saying that the company was exploring how to offer a model with higher returns in future IGOs ​​and even allow investors to recoup some of their money if the case is dismissed early.

Since OGIs are a fairly new product, even in the crypto world, Ryval will focus on providing better education about the US legal system and will introduce some of the analytical tools used by attorneys in the country. . These include statistics on the results of the cases, which Roche said would help investors assess the risks of each lawsuit.

Kevin Sekniqi, founder of Ava Labs, saying that IMOs were a breakthrough for both repair seekers and retail investors, who are often excluded from most high-yield asset classes.

“They are fundamentally unique from any other investment, and the creation of the ILO marks the first time that blockchain technology will be used to democratize financial products on a billion-dollar scale.”

We have yet to see if IMOs become a user-friendly asset class in the real world. Judging by the size of the market they are targeting and the perfect fit between the product and the market they offer, IMOs have the potential to be successful. And if they do, they will be a perfect example of truly useful blockchain integration, one that demonstrates that technology is not a problem-seeking solution, but a very efficient way to bring the world of traditional finance into the new age. .

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