The Secondary Market for Legal Claims

How litigation finance positions change hands before a case resolves, and what that requires structurally.

A secondary transaction in litigation finance is the sale or transfer of an existing funding position — the economic rights to a specific case or portfolio of cases — from one capital provider to another before the underlying litigation resolves. This is distinct from primary origination, where a funder advances new capital directly against a claim; a secondary trade simply changes who holds the economic exposure to a position that already exists, without altering the underlying litigation itself.

Secondary trades happen for reasons on the selling side that have little to do with the underlying case's merits. A fund approaching the end of its investment period may need to exit positions to return capital to its own limited partners rather than waiting for natural case resolution. A capital provider may want to rebalance concentration, reducing exposure to a case type, jurisdiction, or vintage that has grown too large relative to the rest of its book. And some participants specialize by stage — an originator focused on early case development may prefer to sell a position once it reaches a more advanced, de-risked stage to a buyer whose mandate is specifically to hold later-stage, lower-volatility positions.

Structurally, a secondary transaction is typically an assignment of the economic rights under the original funding agreement — the right to receive repayment from case proceeds — rather than a restructuring of the underlying deal with the claimant or firm. Many funding agreements require notice to, or consent from, the claimant, the firm, or both before the position can be assigned, since the identity of the capital provider can matter to the underlying relationship even where the buyer has no role in case control. Pricing a secondary position requires the buyer to conduct its own updated case assessment — how the matter has progressed since original underwriting, revised duration expectations, and any developments affecting liability or damages — and typically applies a discount reflecting both that updated risk assessment and the inherent illiquidity of trading a position with no public market or standardized pricing reference.

Secondary transactions are not always structured as a complete transfer of the entire position. Participation structures allow the seller to retain a partial interest in the case's ultimate proceeds while transferring the remainder to the buyer, letting the seller access partial liquidity now while preserving some exposure to further upside if the case resolves better than the price at which the secondary trade was struck. This structure requires clear documentation of how the two parties' interests are calculated and paid from the same underlying case proceeds, since both are now economically exposed to a single resolution event. Sellers also need to account for the tax and accounting treatment of a secondary sale, since recognizing a gain or loss on the transfer — and the character of that gain or loss — depends on how the original position was structured and held, an analysis sellers typically undertake with their own tax advisors before agreeing to a sale price, since after-tax proceeds can differ meaningfully from the headline sale price depending on the seller's specific facts.

Legal-claim secondaries face constraints that most structured finance secondary markets do not. Attorney-client privilege and work-product protections limit how much case detail can be shared with a prospective buyer during diligence, since the underlying litigation file itself is not freely transferable information the way a loan tape might be in a conventional secondary trade. Non-interference principles continue to apply after a transfer — the buyer acquires economic rights, not any role in case strategy or settlement authority. And because the asset class lacks the volume and standardization of most other secondary markets, pricing benchmarks are thin, and each trade is negotiated largely on its own facts rather than against an observable market price.

Criterica Capital participates in the secondary market for litigation finance positions, applying the same outcome models trained on court records to updated case assessment that we use in primary underwriting, so secondary pricing reflects the position's actual current risk profile rather than a static discount off the original terms. This applies equally to full transfers and partial participation structures, since both require the same rigor in updated case assessment before a price can be fairly set. Funds and capital providers evaluating a secondary sale or acquisition can contact our institutional team to discuss structure.

Discuss your matter with our institutional team.