Can the claimant and funder prefer different settlement outcomes?

Yes, often. Priority of payment, multiples and step-ups give them different shares of any offer, so an offer one accepts the other may reject. GAO cites concern that funding 'may deter plaintiffs from accepting a settlement offer because they may want to make up the amount they will repay the funder.' Time-based step-ups add a timing conflict: the claimant gains from settling before a step date, while the funder's entitlement grows after it.

What conflicts can lawyers have?

Lawyers owe their duty to the client, but their pay can depend on the funder. A firm with a portfolio funding facility depends on that funder for future deals, which can pull its advice toward the funder's interests. Burford's 10-K treats the reverse as a risk to itself: lawyers 'may be required to act in accordance with their clients' instructions and interests rather than ours.'

Do arbitrators and judges face funder conflicts?

They can, which is why disclosure rules exist. ICSID's 2022 Arbitration Rule 14 requires a party to file the name and address of any third-party funder and the persons that own and control it, so the information can be sent to arbitrators 'for purposes of completing the arbitrator declaration.' The New York City Bar report cited by GAO notes that federal courts' financial interest disclosure rules exist to help judges assess recusal.

What about related-party funding?

It concentrates conflicts in one person. AmBase's funder is its chairman and chief executive; its 2019 amendment was entered 'after receiving approval from the Special Committee,' and its 2026 agreements are with him and an affiliate owned by two directors and their sibling, per its 10-Q for June 30, 2026. The same people then sit on both sides of decisions about the litigation and the company's share of any proceeds.

Can a fund manager be conflicted against its investors?

Yes. A manager that invests its own balance sheet alongside its funds, or sells assets between vehicles it manages, has to allocate cases and price transfers between parties it controls. AltStreet's Omni Bridgeway review notes that in 2025 the company sold most of its own co-investments to Fund 9, a continuation fund it advises, with Ares buying 70%, which raises questions about how the price was tested.

How are conflicts managed?

Through disclosure, independent decision-makers and terms that align payoffs. Examples include claimant minimums that keep the claimant's stake meaningful, independent counsel to resolve disputed offers, special committees for related-party deals, allocation policies between a manager's funds and balance sheet, and court or tribunal disclosure rules. None eliminates the conflict; each makes it visible or narrows it.

Litigation Funder Conflicts of Interest

Litigation Finance & Legal Claims

Definition

A conflict of interest in litigation funding arises when the parties to a funded case, or the people managing the capital behind it, are better off with different outcomes or decisions. Typical conflicts are between claimant and funder over settlement timing and amount, between lawyers and either of them, between a fund manager and its investors, and between a funder and a decision-maker it has ties to. GAO lists the risks that a funder 'may exert control over the case' and that funding 'may lead to conflicts of interest between attorneys and their clients.'

Why it matters

Litigation funding puts several parties with different payoffs around one decision, usually whether to settle, and the funding agreement is what sets those payoffs. Conflicts are therefore structural, not occasional: priority, multiples, step-ups and portfolio relationships all create them. They also extend beyond the case, to managers that invest alongside their funds or move assets between vehicles, and to decision-makers with ties to funders. For an investor, the question is not whether conflicts exist but how they are disclosed and resolved. Ask how settlement disputes are handled, how cases are allocated between the manager's own capital and its funds, and who prices any transfer between them.

Common misconceptions

•A conflict is not misconduct, because it describes different payoffs, which are built into most funding structures.
•Client control does not remove conflicts, because the client's choice is made under terms that give it and the funder different shares.
•Lawyers are not conflict-free, because a firm's portfolio relationship with a funder can affect its advice to individual clients.
•Related-party funding is not automatically unfair, but it puts the same people on both sides, which is why AmBase used a special committee in 2019.
•Manager co-investment is not pure alignment, because it also creates allocation and transfer-pricing questions between the manager and its funds.

Technical details

Worked example (illustrative): a step date changes who wants to settle

Fund amount $5.0 million; entitlement $7.5 million (+50%) before a step date, $10.0 million (+1.0x) after it.

Offer of $15.0 million before the step: funder $7.5 million, claimant $7.5 million.

Same offer after the step: funder $10.0 million, claimant $5.0 million.

The claimant gains $2.5 million by settling before the date; the funder gains $2.5 million if the case runs past it.

A claimant minimum or a cap on the later tiers narrows the gap.

Where conflicts arise

Claimant vs funder: amount and timing of settlement; priority; step-ups.

Lawyer vs client: firm's dependence on a funder relationship; fee structure.

Manager vs investors: co-investment, allocation, transfers between vehicles, carry timing.

Decision-maker vs funder: arbitrator or judge with ties to a funder.

Related parties: insiders funding the company they run.

What AltStreet's reviews and filings show

GAO-23-105210: risks that a funder 'may exert control over the case' and of 'conflicts of interest between attorneys and their clients'; funding may deter settlement.

ICSID Arbitration Rule 14 (2022): funder identity disclosed and passed to arbitrators for their declarations.

AmBase 10-Q (June 30, 2026): funding agreements with the chairman and chief executive and with BARC Investments, an affiliate of two directors and their sibling; the 2019 amendment approved by a special committee.

AltStreet's Omni Bridgeway review: 2025 sale of most of the company's own co-investments to Fund 9, a continuation fund it advises, with Ares buying 70%.

Questions about conflicts

How are settlement disagreements between client and funder resolved?

Does the claimant keep a minimum share at every step date?

Does the manager invest its own capital alongside the funds, and how are cases allocated?

Have assets been transferred between vehicles the manager controls, and who priced them?

Is the funding disclosed to the court or tribunal?

How investors apply the term

Investors usually apply this term by tying the definition back to the controlling documents and then asking which cash flows, rights, restrictions, or valuation assumptions it changes. A useful review looks at the term alongside fees, leverage, liquidity, reporting frequency, and manager discretion rather than treating it as a standalone concept.

The practical diligence test is simple: identify who benefits if the assumption is wrong, who has control when conditions change, and what evidence the investor receives after closing. Terms that cannot be reconciled to documents, cash movements, and monitoring data should be treated as marketing shorthand until proven otherwise.

Frequently asked questions

Can the claimant and funder prefer different settlement outcomes?: Yes, often. Priority of payment, multiples and step-ups give them different shares of any offer, so an offer one accepts the other may reject. GAO cites concern that funding 'may deter plaintiffs from accepting a settlement offer because they may want to make up the amount they will repay the funder.' Time-based step-ups add a timing conflict: the claimant gains from settling before a step date, while the funder's entitlement grows after it.
What conflicts can lawyers have?: Lawyers owe their duty to the client, but their pay can depend on the funder. A firm with a portfolio funding facility depends on that funder for future deals, which can pull its advice toward the funder's interests. Burford's 10-K treats the reverse as a risk to itself: lawyers 'may be required to act in accordance with their clients' instructions and interests rather than ours.'
Do arbitrators and judges face funder conflicts?: They can, which is why disclosure rules exist. ICSID's 2022 Arbitration Rule 14 requires a party to file the name and address of any third-party funder and the persons that own and control it, so the information can be sent to arbitrators 'for purposes of completing the arbitrator declaration.' The New York City Bar report cited by GAO notes that federal courts' financial interest disclosure rules exist to help judges assess recusal.
What about related-party funding?: It concentrates conflicts in one person. AmBase's funder is its chairman and chief executive; its 2019 amendment was entered 'after receiving approval from the Special Committee,' and its 2026 agreements are with him and an affiliate owned by two directors and their sibling, per its 10-Q for June 30, 2026. The same people then sit on both sides of decisions about the litigation and the company's share of any proceeds.
Can a fund manager be conflicted against its investors?: Yes. A manager that invests its own balance sheet alongside its funds, or sells assets between vehicles it manages, has to allocate cases and price transfers between parties it controls. AltStreet's Omni Bridgeway review notes that in 2025 the company sold most of its own co-investments to Fund 9, a continuation fund it advises, with Ares buying 70%, which raises questions about how the price was tested.
How are conflicts managed?: Through disclosure, independent decision-makers and terms that align payoffs. Examples include claimant minimums that keep the claimant's stake meaningful, independent counsel to resolve disputed offers, special committees for related-party deals, allocation policies between a manager's funds and balance sheet, and court or tribunal disclosure rules. None eliminates the conflict; each makes it visible or narrows it.