Liti Capital pledges 5–10% of money raised to chase crypto scammers

Ashton Addison: What is litigation finance, and how is Liti Capital involved?▶ 01:52

David Kay: Litigation finance is a process by which we help finance the cost of litigation for people who couldn't otherwise afford it. In exchange, we get a percentage of the upside. Say you started a company and a buyer agrees to pay you $15 million for it. The contract has a clause saying they can terminate if you do anything that could hurt the brand. You post something small, like a silly Twitter picture, and they claim you violated the contract. They take your company and don't pay you, and they're willing to spend three to five million dollars fighting you in court for two to three years. Most people walk away. The idea that the bad guys don't win is actually not true. Often the buyer will offer two or three million dollars to go away, and almost everybody takes it. What we do is different. We finance the full cost of the litigation. If we lose, you have no liability. If we win, we take a percentage, say twenty percent. A lot of the time, not every time, we win. You walk away with $12 million, we get our three, and everybody walks away happy.

Ashton: How do you choose cases, and what makes one likely to win and pay out?▶ 09:10

David: That's the easy part for me. For the better part of the last decade I've been diligencing, working on and collecting on litigation finance cases. The new part for me is the crypto and blockchain side. It's a little bit of art and a little bit of science. First, who is the plaintiff and who is the defendant? You'd be surprised how many cases, even before experienced judges and juries, are decided on who they think is the good guy and who is the bad guy. Second, where it's being litigated. Western Europe or the United States is much more attractive than sub-Saharan Africa, although we've taken on cases successfully in all of those places. Third, and one of the most overlooked, is the defendant. A judgment is just the single most expensive piece of paper you've ever bought, and our job is to get people paid. The odds of that depend materially on the credit quality of the defendant. So the secret sauce is a good plaintiff with a good story, in a jurisdiction that makes sense, against a defendant that can ultimately pay.

Ashton: How is Liti Capital different from a traditional litigation finance company?▶ 04:46

David: One of the things that really upset me about the private equity space in the US is that my parents couldn't invest in my fund because they don't have a million dollars of liquidity. My siblings couldn't either. Outside of DeFi, you can't invest unless you're an accredited investor, which means having about a million dollars. To me that was ridiculous. I've always been proud to defend the little guy. Historically I've done that and made thirty to fifty percent cash-on-cash returns every year, but only for the one percent. Some of the absolute stupidest people I know have more than a million dollars of liquidity, and some of the smartest people I know don't. That being the dividing line for who gets these returns never sat right with me. Providing private equity for everyone is my passion, and that's what Liti Capital is about. We want to offer these returns to everybody around the world, whether you have fifty dollars, five dollars or five million dollars.

Ashton: How can retail investors actually take part?▶ 07:11

David: We've set up two tokens. There's an equity token, which is the equivalent of a share in the company. We're a real company with an experienced management team that has done this before. Crypto is flooded with people who have ideas and with scammers, but we're set up in Switzerland, and we're one of only a handful of companies that has received a letter of approval from the Swiss regulatory authority confirming that what we're doing is acceptable. That equity token is then broken down into what's called a wrapped Liti. The wrapped Liti is what trades on the exchanges we're listed on, and it's what the 99 percent can buy and sell. Hold it for a minute or for three years, whatever you want to do. It's the liquid mechanism that lets people participate.

Ashton: You closed a $12 million private round. What is that capital being used for?▶ 12:04

David: My job as CIO is to build a portfolio of assets that can generate the kind of returns this industry has produced over the last ten years, and that I've delivered personally: thirty to fifty percent cash-on-cash is the target. The way to do that is to take the cash we raise, buy litigation assets and manage them. We've done that with three cases, and we've spent $10 million of the $12 million on those three litigations. This is an important point I want your viewers to understand: we are not a cryptocurrency. We are an asset-based company. If Bitcoin goes to a hundred thousand, the value of the assets in our portfolio hasn't changed. If Bitcoin goes to five thousand, it hasn't changed either. The outcome of each case is still the outcome, and the cash dividends and proceeds going to token holders will be the same irrespective of what's happening in currencies. We also have a large portfolio of cases that meet my criteria. We're actively diligencing them, we have a couple of term sheets out, and we expect to announce additional cases in the near future.

Ashton: Beyond returns, what else should token holders know about the project?▶ 14:23

David: I'm so glad you asked. What really got me to jump in with both feet is that the founders and I have agreed that five to ten percent of every dollar we raise will go back into the community, to find, prosecute and recover money taken by crypto scams and frauds. If we raised as much as in my last fund, a billion dollars, that would be $50 to 100 million. Our goal there is not to make money. We take our expenses plus ten percent for overhead, and the remaining ninety percent goes back to the people who were scammed. Crypto scams are a scourge on this community. Governments aren't incentivized to act because crypto isn't regulated, and individuals either can't afford to or it isn't profitable. The only way it happens is if some organization stands up and says it's not doing this to make money but because it's the right thing to do. We know how to go and find people, and we know how to bring money back. We've already had our first successful case. Coach K, a relatively well-known person in the crypto space, lost $250,000 to a scammer. Within 48 hours we had located the scammer and what he had done with the money. Words are one thing, actions are another.

Ashton: Fear of scams deters many newcomers from crypto. How big a problem is it?▶ 17:24

David: I really believe it is one of the primary things holding back this industry. That fear of being scammed, and the number of people who have been scammed, is poison, and we've got to stand up and say enough is enough. You'd be shocked. When we go after people to repay for wrongs they've done, they generally make at least some attempt to hide themselves and their assets. These scammers don't. They aren't hiding and they aren't going anywhere, because they don't believe anyone is coming. On July 9th we're going to announce the next three cases we're potentially going after, and only wLiti holders get to decide which of those we prosecute. The minimum effect we want is to make these people afraid. It's a deep-rooted problem, but a chunk of it exists simply because nobody's afraid of getting caught. There's no downside, and we're going to change that.