Selling Securities Class Action Claims to Realize Value

Considerations for managers winding down a hedge fund

David P. Abel, Managing Attorney, U.S. Market Advisors Law Group PLLC
Originally published in the June | July 2020 issue

The coronavirus chaos spreading through the financial markets is driving some hedge funds and other private funds to shut down.1 During this tumultuous time, managers tasked with liquidating funds must nonetheless dutifully conduct value realization due diligence. This note is intended to aid affected managers by providing considerations for the disposition of certain illiquid assets—specifically, the selling of future securities class action (and related legal) recovery claims. 

The information may also be useful for funds continuing as a going concern but still have a need for returning outside capital.2 In any event, selling the rights to legal claims can aid fund managers by providing immediate liquidity while lessening ongoing administrative burdens. Fund stakeholders can likewise benefit by receiving adequate compensation without incurring the downside risk of a prospective claim. 

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