How to make money off someone else’s pain

Audio By Carbonatix

In 2023, money-men who gamble on lawsuits were on a conference call with a lawyer who needed cash. Fortunately for them, a client had “the whole megillah” – a neck injury so bad they could make millions in court if they put down a $15,000 ante.

New York courts give better odds than casinos, drawing the attention of finance companies like Cartiga that give relatively small loans at the beginning of litigation, often brought by illegal immigrants injured while working, in exchange for a huge chunk of the payoff.

In fact, court records obtained by Legal Newsline show an illegal immigrant whose workers’ compensation barely covered his rent won a $3.75 million settlement but, at most, will get to pocket 13% of it. The lender that helped with his living expenses, meanwhile, took $1.8 million (more on that below).

"Generally, what we see is a very predatory and almost exploitative industry,” said Rachel McCarthy, executive director of the Milestone Foundation, a non-profit provider of consumer litigation loans. “Funding companies extend finance to plaintiffs at astronomical interest rates.”

Hedge funds, banks pay for ‘street arrangement’ to play the lawsuit-market

The transcript of a teleconference between Cartiga and a lawyer known only as “Richard” reads like some type of secret code, sprinkled with terms like “the old street arrangement,” “C3, C2,” and “15-33.”

Describing one plaintiff as “the same type of one that we’ve done a million times,” the lawyer says: “He came to us three days after the accident. He went to the hospital. He sent his C3, the whole megillah.”

Translation: The plaintiff was a good bet, having provided an X-ray or MRI showing injury to a spinal disc in his neck. Under the “street arrangement,” the plaintiff might get an immediate loan of $15,000, with another few thousand going to the “investigator” or runner who brought him into the lawyer’s office, and thousands more to doctors willing to sign off on an injury report.

The loan is secured by the plaintiff’s signature on a legal document establishing a lien against any money he or she recovers in a settlement. Such loans bear interest rates of 50% or more a year because most states consider them to be investments based on the outcome of a case and thus exempt from consumer-lending rules.

When the case finally settles – and 95% or more of injury lawsuits end in settlement – the plaintiff gets to keep whatever is left after paying everybody else including the litigation funders and his or her own lawyers.

Without a steady flow of money, many of the thousands of workplace-injury, auto accident and slip-and-fall cases working through U.S. courts would be nearly worthless. In New York, for example, courts are flooded with lawsuits filed by undocumented immigrants that insurance companies say include oftentimes false claims of workplace injury supported by sometimes fraudulent medical diagnoses. Few lawyers would be willing to take such cases – and wait years for them to settle – without outside investors who were willing to wager on the outcome.

Backing this industry are hedge funds, banks, wealthy individuals and even publicly traded companies. Variant Alternative Income Fund, a mutual fund based in Oregon, has lent millions of dollars to Best Case, a New York funder accused by insurance companies of lending against fraudulent injury lawsuits.

Cartiga, which claims to have done $1.6 billion in business since 2020, is currently involved in what its bankers describe as a $540 million merger with publicly traded Alchemy Investments.

Esquire Bank has a “Law Firm Growth Team” that specializes in lending against the portfolio of liens contingency-fee lawyers place against client settlements to guarantee their fees. Esquire, whose shares trade on the Nasdaq exchange, boasts a 24% annual growth rate and $1.5 billion in loans outstanding, a billion of which are “litigation related.”

Another lender drawing large amounts of Wall Street cash is Golden Pear Funding, which announced it sold $25 million worth of lawsuit liens and raised another $100 million to finance litigation in a deal managed by Bryant Park Capital. Golden Pear is named in a proposed class action in New Jersey by an unhappy borrower who said a $1,500 case advance has ballooned into a debt of $3,557 in two years at 66% annual interest. Golden Pear didn’t respond to a request for comment.

The details of this financing stream are usually a closely held secret, thanks to judges who refuse to require plaintiffs to disclose who has invested in their case. (Defendants have no such right and must disclose all their insurance after being sued.) Cartiga is a rare exception, thanks to a lawsuit by Kristopher Hassett, a former employee who claims he was fired after telling superiors the firm financed more than $5 million in fraudulent workplace-injury lawsuits.

On the call transcript included in Hassett’s lawsuit, Richard the personal-injury lawyer is heard saying “a lot of these guys were off the boats,” while a Cartiga executive says “our underwriting team is getting a little skittish based on things they’re seeing.” Many of an early wave of cases were associated with a runner named Jorge Lupi, who recruited uneducated migrant workers to file workplace-injury suits.

The call participants discuss how workers soon figured out they didn’t need to give Lupi a third of their $15,000 advance but were demanding the whole amount for themselves, a lawyer says.

“We tell them things are different. Funding companies are looking into things more closely. Maybe that gravy train is ending, blah, blah, blah,” the lawyer says. “Maybe if somebody doesn’t have to give five grand to someone else of their initial funding, then maybe they only need ten, because ten is what they were going in the old version.”

Hassett declined a request for comment made to his attorneys. Cartiga attorney Kiren Choudhry said: “Cartiga unequivocally denies the baseless allegations in the lawsuit brought by a former employee who was terminated as part of a reduction in force in October 2023. Cartiga is committed to operating with integrity and in full compliance with the law.”

“Incredibly easy marks”

The American dream of Santo Sanchez Fuentes never included a wooden beam falling on his head and knocking him unconscious for 20 minutes. Surrounded by coworkers who thought he was dead, Fuentes eventually awoke and later, allegedly on the advice of a stranger who saw him struggling to walk, made his way to a doctor.

He also visited a lawyer’s office at some point. He’d come to America illegally in 2013 from El Salvador, where he had dropped out of school at 17 years old and was making $5 a day as a laborer. In New York, he made $30 an hour.

But he could no longer work, he said. During several days of depositions in his lawsuit filed by Ginarte Gallardo Gonzalez Winograd, he admitted to not knowing what year it was and not being able to discern black-and-white photographs of the accident site.

Defense lawyers worried about his condition to the point they called a break to ask the Ginarte lawyer if Fuentes was fit to testify. The second day of his deposition ended early because of a bad headache.

Workers’ comp was paying him about $2,000 a month at the time of his deposition, which is about what his rent cost. His girlfriend left her job to take care of him, leaving a need for money. The solution came in the form of a loan from Case Cash.

Though court records don’t show how much he received to pay his bills while his case was pending, they do reveal how much lenders can make in this arrangement. Fuentes’ case settled for $3.75 million, and Case Cash took $1,783,000.

The Ginarte firm, which at this point had been replaced, called the amount “staggering.” After lawyers and doctors took their cuts, Fuentes was left with $500,000, which is far below what his lawyers had estimated his medical costs for the rest of his life are – $3.5 million.

“In the current ICE environment none of these migrants are going to come forward,” said Tom Stebbins, executive director of the Lawsuit Reform Alliance of New York. “It makes them incredibly easy marks.” 

Critics of the funding industry say these loans create a perverse incentive to drag out proceedings, since the interest tab only grows and plaintiffs are often poorly educated immigrants who don’t understand how much the initial advance will cost them in the end. The rising tab also gives attorneys incentive to resist early settlement offers and invest in expensive medical procedures, including unnecessary surgeries, that boost the value of a case.

But the immigrants apparently aren’t the only ones getting shortchanged by legal funders. The Ginarte firm, owed half of the attorney fees in Fuentes’ case from his new lawyers at William Schwitzer & Associates, are asking why they were $300,000 lower than they should have been, chalking it up to the massive haul that Case Cash received.

Lenders now dragged into court

Insurance companies that have filed racketeering lawsuits against plaintiff attorneys and others they accuse of orchestrating fraudulent lawsuits claim to have found close ties between lawyers and funders. Best Case, for example, is owned by Neal Magnus, who co-owns a patent on software for tracking medical bills with attorney Herbert Subin, who is also named in racketeering suits.

Tanvir Chaudhry owns Top Law Capital, which insurers say is registered to an address shared by a Subin employee. Wall Street Case Advances operates out of the 14th floor offices of the Subin firm, said Union Mutual Fire Insurance in a lawsuit. Subin declined requests for comment.

Case Cash Funding is owned by Greg Elefterakis, a former attorney and uncle of a partner with EEP, a big New York plaintiff firm. New York legal ethics rules allow attorneys to own litigation-funding firms, but they cannot refer their own clients to funders they control.

“Massive levels of infrastructure have been laid,” Union Fire’s lawsuit says, “and every aspect of the scheme – from the recruitment efforts, to the treatment protocols and number of doctors willing to compromise their reputation, to the funding entities not just making outrageously usurious levels of returns, but developing enough inventory to securitize and cross-collateralize assets to front load their returns and bring in outside capital – is operating on a scale never before seen.”