News : Economy
- Published: Monday, 24 March 2014
Wall Street Journal- A U.S. hedge fund plans to bet as much as $100 million that it can collect on a court judgment against Iran for one of the deadliest terrorist attacks ever aimed at Americans, according to marketing documents and people familiar with the matter.
Three decades after an Iranian-linked car bomber killed 241 American servicemen at a Marine barracks in Beirut, RD Legal Capital LLC is seeking to raise that sum from investors to buy stakes in the protracted litigation related to the attack, according to the people.
In 2007, a U.S. federal court judge in Washington found Iran liable for the bombing and a judge last year ordered a $1.8 billion payment to the families of the victims. However, that payment hasn't been collected due to an appeal by the Iranian central bank, and it could be years before the families see any money.
RD already is buying rights to some of the payments received by victims' families, as well as fees earned by their attorneys involved in the case, at a discount to face value. If the judgment is collected, the fund will earn millions of dollars, the people familiar said.
"It is not our policy to discuss cases that are active in the portfolio," said RD Legal Managing Director Katarina Markovic.
The fund would be RD Legal's first to bet directly on the outcome of a single judgment, the people familiar said.
RD's fund is one of the more ambitious examples of litigation finance, a growing industry that bankrolls lawsuits and settlements in the hopes of collecting if damages are paid. The industry is self-regulated.
Some victims' families welcomed the firm's involvement.
Ron Perron, 77 years old, whose 19-year-old son Thomas was killed in the bombing, said he was part of a group of families that met with representatives of RD Legal in Washington and voted to allow the hedge fund to buy stakes in the judgment. The vote passed "overwhelmingly," he said.
The average family is owed about $8 million from the judgment, according to a person familiar with the matter, but the fund is buying only slices of each of the 151 claims.
Mr. Perron, of Davenport, Fla., said he used a portion of the money he was paid by RD Legal to buy a house and help care for his autistic son. His son who was killed in the bombing was a third-generation Marine.
"We want to see Iran pay for this, the injustice that they did to our boys," Mr. Perron said. "Every time I go to Washington, every year I go to Arlington [National Cemetery], and it hurts all over again. It never goes away."
A New York-based spokesman at Iran's permanent mission to the United Nations declined to comment.
RD Legal, based in Cresskill, N.J., is one of a host of hedge funds, including Paul Singer's Elliott Management Corp., that have expanded into litigation finance in recent years. Other hedge funds also have bought claims owned by victims of Bernard L. Madoff's Ponzi scheme.
Founded by personal-injury attorney Roni Dersovitz, RD Legal has invested in cases ranging from the BP PLC oil spill in the Gulf of Mexico to individual lawsuits over dog bites. RD Legal's flagship fund has produced a gross average annualized return of about 22%, before fees, since it was founded in 2007, according to marketing documents.
This quarter, the firm is set to launch the RD Legal Special Opportunities LP fund to bet solely on the Beirut-bombing judgment, according to marketing documents and people familiar with the firm.
RD Legal will charge investors in the fund a 30% performance fee on any earnings, according to marketing documents. That is nearly double the average performance fee for hedge funds tracked by research firm HFR, and 10 percentage points more than in RD Legal's flagship fund, which has also devoted a slice to the Beirut case.
The investments could face big losses if the victims don't receive their judgment and the lawyers are never paid.
The deals are private and don't have to be publicly disclosed. The hedge fund typically receives about an 18%-24% discount to face value on a claim for each year the litigation is expected to last, one person said. It likely received a far cheaper price in this case, given the difficulty in collecting, said experts.
The two lead counsels on the Beirut case, Washington-based Perles Law Firm PC, and Fay Kaplan Law PA, haven't been paid any money from RD Legal in this case, according to people with knowledge of the situation, and don't plan at present on accepting any payment from the firm in the future.
Several other firms are involved, and none of them responded to requests for comment.
The lawyers are working on a contingency basis, with fees based on any judgment collected.
Thomas Fay, who represents many of the families, cautioned that it is no sure thing that the money will ever be paid.
"Optimistic? I would not put that out," Mr. Fay said.
Jocelyn Sommerhof, 80, of Edwardsville, Ill., whose 25-year-old son Scott was killed in the bombing, said she turned down an offer of several hundred thousand dollars from RD Legal for a portion of her family's claim. "Maybe that would have been a smart move, I don't know," she said. "I just wanted to hang in there and see what would happen."
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