New York Times – On a summer day in 2003, Anthony DiMartino was helping pour concrete on a construction job in Manhattan when he tripped on a cable sticking out of the ground and fell, injuringhimself. While the operations on Mr. DiMartino’s back and knee were mostly covered by insurance, other bills piled up as a lawsuit against Consolidated Edison, which he says did not properlybury the cable, made its way through the courts.
So Mr. DiMartino recently visited a small finance company in Brooklyn; a few days later, the company, LawCash, advanced him $6,000. What Mr. DiMartino did not know was that he had another benefactor: SageCrest, a $1 billion hedge fund in Connecticut, which has provided financing to LawCash.
On the surface, LawCash looks like a risky venture for SageCrest. If Mr. DiMartino receives a settlement, LawCash will get its money back, plus 30 percent interest. But if there is no settlement, Mr. DiMartino will not pay back a dime. (Con Ed declined to comment on the litigation.)
Indeed, no collateral backs any of the advances LawCash makes. Lawsuits and claims can easily drag on for years, which means there can be a huge time lag before payment is received. And if there is no settlement, there is no repayment of the original advance or interest.
Yet SageCrest is not the only hedge fund in this business. So why are hedge funds  supposedly the sophisticated money, making bold, broad bets  rushing into lending?
