A new line of business: Legal funding
Two attorneys and a COO start a legal funding firm in Boca Raton.
During the three years she worked as a workers’ compensation and personal injury attorney in Chicago, Elizabeth Pekin remembers frantic calls from injured clients “begging” her to help them find a way to make their rent or car payment. Pekin would sometimes phone landlords and bill collectors, asking them to be patient just a little longer.
It didn’t always help. “A lot of people settled their cases short because they couldn’t wait it out,” says Pekin, a Clearwater native and University of Florida law school grad who stepped away from law in 1995 after the birth of her first son.
Six years later, her husband, Michael, also a personal injury attorney, came home from work and told her he’d been approached with a business idea to start a legal funding company that would provide pre-settlement funding to personal injury plaintiffs. Under the business model, plaintiffs owe nothing if they lose their case. If they win a judgment or settle, the funding company makes its money back — plus a return.
Elizabeth Pekin was sold. “I said ‘You have to leave your law firm. This is the best business I’ve ever heard of.’”
Michael Pekin left his law practice and in 2002 co-founded Oasis Legal Finance, where as executive vice president of operations, he oversaw the company’s underwriting, operations and sales team. Elizabeth joined the company as executive director of legal funding, concentrating on marketing and building a network of brokers across the country.
The company targeted consumers, promising access to cash in as little as 24 hours. The Chicago-based company quickly grew to be one of the biggest players in the $100-million-plus legal finance industry.
But as it grew, so did scrutiny of the company’s practices. Stories emerged of customers like Larry Long, who according to the New York Times, received $9,150 from Oasis Legal Finance while waging a suit against the makers of the anti-inflammatory drug Vioxx. Long, who suffered a stroke while using Vioxx, was unable to work and “facing eviction” from his Georgia home when he sought the money from Oasis — but by the time his case was settled, he owed Oasis nearly $24,000. After paying his legal fees, case expenses and Oasis, Long walked away with just $4,000.
In 2014, the Pekins left Oasis and returned to Elizabeth’s home state of Florida. Sidelined by a 15-month non-compete, the couple settled in Boca Raton and began pitching their ideas for a new and improved legal funding model to private equity and family funds.
They raised $30 million in funding from Victory Park Capital, a Chicago-based private equity firm, and in 2015 launched Momentum Funding, which targets attorneys in auto injury cases. “We left two years ago with the idea if we could do it differently, then it would be a much better product for the clients because we wanted the pricing to go down,” Pekin says. “It’s an expensive product for the plaintiff, and we had a large overhead with the other company.”
Their first tweak: Rather than market directly to consumers with expensive late-night advertising like many legal funding companies, Momentum markets directly to personal injury attorneys. Without paying for TV ads, Momentum has been able to lower its pricing and “be more competitive,” Pekin says. “We used to put millions into advertising, pay-for-click SEO, but that drives the business in a very different way.”
Another key change: Creating a “very transparent agreement” so consumers understand exactly how much they’ll owe at a given time. Pekin says Momentum can generally offer about 10% of an expected settlement to plaintiffs with meritorious claims. The average funding amount Momentum provides is $2,700. The money the plaintiffs pay back, she says, is “based on a multiplier” on how long the money is out. “So if we gave them $1,000 and the case is settled in six months, they’d pay us back approximately $1,400 — a 1.4 multiplier,” she says.
While that multiplier increases with the length of time a case takes to settle, Pekin says the company strives to be fair. “I want the client to walk with a nice check and be happy at the end of the case, and that’s (what happens) when it’s done correctly.”
Educating attorneys about how the funding works has helped change attitudes toward the industry, Pekin says. “At the beginning of the industry, I was told to leave offices. I would go into firms that I knew from when I was practicing law and tell them all about legal funding, and they just looked at me like I was from another planet.”
“Firms that even five years ago wouldn’t have picked up phone, now they’re all giving out our name to their clients.”
Elizabeth Perkin, husband Michael, and Elisa Moss started Momentum Funding in 2015, creating “very transparent agreement” with consumers.