When most people think about lawsuits, they picture a plaintiff, a defendant, and their lawyers going toe to toe in court. What many don’t realize is that there’s often a hidden player at the table: outside investors. These financiers— Wall Street investment firms and even foreign entities—fuel lawsuits not for justice, but for profit. This practice is called third-party litigation funding (TPLF).
Under TPLF, investors pay a plaintiff’s legal costs in exchange for a cut of any eventual settlement or judgment. On the surface, it may sound like a way to help people access the courts. But in reality, it often hands control of lawsuits to powerful outsiders, letting them treat legal cases like risky bets on Wall Street. Funders can pressure attorneys to drag cases out, reject fair settlements, or make strategic decisions that prioritize investor returns over a client’s best interest. And because these deals are usually secret, the public, the courts, and even opposing parties rarely know who is truly driving the case. That lack of transparency has opened the door to abuse. Multi-billion-dollar hedge funds and foreign interests have been treating America’s justice system like a casino, while communities and businesses absorb the economic costs.
This year, Colorado led a bi-partisan effort to stop this practice. In June, Governor Jared Polis signed HB 25-1329, Concerning Foreign Third-Party Litigation Financing for Civil Actions, designed to bring greater fairness and transparency to Colorado’s courts. For the first time in the state, hidden lawsuit investors will be forced out of the shadows and held to greater account.
For years, Wall Street hedge funds and foreign interests have quietly financed lawsuits across the country, including in Colorado. As Colorado Newsline explains:
“Wall Street hedge funds and foreign interests have recently found another way to expand their influence and profit lines by financing lawsuits lawyers would typically decline. These third-party funders are then repaid by receiving a substantial amount of a lawsuit’s settlement funds.”
This practice has turned courts into playgrounds for the wealthy, with cases pursued not because justice demands it but because they promise big returns.
“This blatant tactic to exploit our nation’s legal system for financial gain comes at the economic expense of everyday businesses, including those in Colorado.”
Secret funding deals create deep conflicts of interest, letting outsiders control case strategy and pressuring lawyers to act against their clients’ best interests.
“These agreements have enabled third-party funders to exploit cracks in our legal process to weaken the integrity of our judicial system. A reporting segment from 60 Minutes last year notes that third-party funders create a conflict of interest between a lawyer and the plaintiff. Although attorneys maintain that they are working in their client’s best interests, the funds required to bring a lawsuit are being financially paid for by the outside, third-party funder who demands a return on their investment. This fact grants them major leverage over the direction of a case, as these financiers can prioritize their own objectives over that of the actual client.”
Funders even drag out lawsuits to keep the money flowing.
“Third-party funders have used this influence to improve their bottom line at the expense of our economy…these financiers have prolonged cases for nearly a year and a half for their own financial benefit, even if the parties involved want to negotiate a reasonable settlement on a short timeline.”
Colorado has seen the damage firsthand.
“Colorado has especially felt the economic impact of third-party litigation. This industry has effectively bolstered mass-tort litigation in the state, now amounting to an estimated $8.5 billion annually—significantly increasing legal risk and costs for Colorado businesses…This takes away resources that would otherwise be used by businesses to expand their products and services, employ additional workers, and contribute to and invest in their local economy and communities. Instead, these costs are being passed on to our communities resulting in higher prices on everyday items.”
While HB 25-1329 doesn’t ban litigation financing outright, it takes an important first step and establishes long-overdue transparency and oversight. Under the new law, foreign funders must disclose their involvement, including who they are and where they’re based; investors cannot direct attorneys or access sensitive case information; undisclosed agreements are invalid, with fines and penalties for violators; and the Colorado Attorney General will also track agreements and report on their impact each year.
This law is about defending the integrity of Colorado’s courts and protecting communities from exploitation by hidden financiers. When cases are manipulated for profit, Coloradans pay the price through higher costs of goods, lost investment, and weakened local economies. By shining a light on these practices, Colorado has made a statement: justice must serve people, not profits. And in doing so, Democrats are showing that closing legal loopholes to protect constituents from abuse isn’t just possible—it’s essential. HB 25-1329 is a first and critical step toward bringing greater transparency to Colorado’s legal system.