Jan 20, 2016
With investors starved for yield and unnerved by volatility, Mighty Group Inc. offers a tantalizing proposition: earn 25% to 30% interest on an asset that has zero correlation with anything else in your portfolio.
The catch? Mighty lends money to plaintiffs in personal injury lawsuits. You collect only if they do. Plus, the head of this online electronic investment platform recommends that only personal-injury lawyers, or investors who have such lawyers helping them evaluate cases, plunk down their money at this early stage.
"We are not a platform for gambling on cases," warns Mighty's CEO and cofounder, Joshua Schwadron, 34, an Emory University law school grad who runs the 21-employee firm out of industrial-chic offices on the edges of New York City's financial district. "In order to properly understand these investments, you have to have legal expertise. We don't want people throwing darts."
Not yet, anyway. Schwadron's ambition is to generate enough data about the risk and returns of lending small amounts of money to plaintiffs in personal injury suits to turn litigation finance into a respectable alternative investment--one predictable and large enough to draw affluent investors who don't chase ambulances for a living. Right now such loans are made mostly by small local outfits operating in the shadows.
Schwadron's dream isn't so far-fetched. The potential market is sizable; in 2014 insurance companies paid out more than $140 billion for lawsuits, including $72 billion for car accidents alone, according to financial industry analyst SNL Financial, a unit of McGraw Hill Financial based in Charlottesville, Va. And there's precedent in peer-to-peer lending sites like Lending Club and Prosper, which make small unsecured personal loans and were also once considered iffy. Now those sites are dominated by institutional investors; individuals seeking yield can invest in packages of peer-to-peer loans, and new venture-capital-backed lenders like Earnest are using novel data sources and algorithms to lend online.
We are not a platform for gambling on cases.
Joshua Schwadron, Mighty's CEO and cofounder