Chicago Tribune - As law clerks to U.S. Supreme Court Justice Anthony Kennedy in 2008, Travis Lenkner and Ashley Keller helped draft opinions on significant legal disputes. Now they are placing bets on big lawsuits.
Lenkner and Keller have teamed up with Adam Gerchen, a former hedge fund portfolio manager, to open a nontraditional investment firm that will formally launch Monday in Chicago. What makes the firm unusual is the type of investments it plans to make — not stocks, bonds or anything else that can be traded on an exchange.
Gerchen Keller Capital LLC joins a handful of specialized investment funds that bankroll lawsuits, providing millions of dollars in exchange for a share of the eventual recovery. The firm is starting with deep pockets, with more than $100 million of committed capital, Gerchen said.
So-called litigation financing is similar to what personal injury lawyers have been doing for years. Personal injury lawyers finance lawsuits for clients by not charging by the hour but by taking 30 percent to 50 percent of the recovery if they win.
But traditional financiers have generally avoided gambling on lawsuits because the decisions of judges and juries can be hard to predict. The uncertainty makes pricing risks very difficult.
In addition, litigation financing has generated controversy. The U.S. Chamber of Commerce opposes the practice, saying it will to lead to more lawsuits in an already litigious society.
"It's not as easy to make money doing this as people hypothesized," said Anthony Sebok, an adjunct law professor at the Benjamin N. Cardozo School of Law in New York, who is an ethics consultant for the Burford Group, a litigation-financing company in London.
With backgrounds in law and finance, the trio behind Gerchen Keller Capital say they understand the risks of litigation as well as the nuances of valuing assets.
After earning a law degree from Harvard University, Gerchen, 31, worked as an investment banker at Goldman Sachs before spending four years at Alyeska Investment Group, a Chicago-based hedge fund.
At Alyeska, he met Keller, 34, who worked as an analyst studying publicly traded companies involved in litigation and regulatory matters. Before Alyeska, Keller was a partner at Bartlit Beck Herman Palenchar & Scott, a Chicago-based law firm. He received a law degree and an MBA from the University of Chicago.
Keller and Lenkner, 33, worked together for a year as clerks for Justice Kennedy. Most recently, Lenkner was a lawyer for Chicago-based Boeing Co. He went to law school at the University of Kansas.
They also recruited Terry Carlson, the former general counsel at Medtronic Inc., to advise them on investments, which will average $5 million and focus on a variety of disputes, from antitrust to intellectual property.
"It really crystallized at Alyeska that traditional financiers are not well equipped to value legal claims or make investments in the litigation space," Keller said. "The risks in litigation are very particular."