Ambulance-chasing lawyers have long been a feature of US life. But the “staggering” legal fees charged to the estate of the Boy Scouts of America – in one case, an hourly rate of $1,725 – have led to a bitter dispute with insurers, alleged victims of sex abuse and a judge, says The New York Times.
The Boy Scouts of America filed for bankruptcy protection last year after a deluge of lawsuits exposed abuse claims that date back decades. It set up a trust and ultimately expects to pay out between $2.4bn and $7.1bn, although a committee representing tens of thousands of alleged victims puts the total value of the claims at more than $100bn.
Legal advisers, however, got their oar in first. One is reported to have billed $267,435 in a single month, and the law firm hired by the Boy Scouts has 14 lawyers charging more than $1,000 an hour. In total the fees so far submitted by lawyers and other professionals exceed $100m, according to a recent filing. Our legal system has gone “off the rails” on this, says an insurance company executive.
The NYT points out that the case is “many magnitudes larger” than other recent abuse cases in the US, including those filed against the Catholic Church and USA Gymnastics. And it’s not the only example of lawyers cashing in. They’re doing it in other “big ticket” bankruptcy cases, too, says the paper, with fees of $1,000 an hour routine in this field. The attorneys and their clients get away with it because they “are essentially spending other people’s money”, says a California law professor. Companies that have to pay their own bills in standard civil litigation cases are more careful about their costs and pay substantially less.
Is Klarna a route to retail nirvana?
Europe’s most highly valued fintech company is Klarna, a “buy now pay later” business with a $31bn market capitalisation, says the FT. That’s almost six times more than it was worth 18 months ago. Set up by a Swedish entrepreneur in 2005, and backed by rapper Snoop Dogg and H&M, it enables people to shop at hundreds of online stores, from Asos to Bulgari, take delivery of a pile of clothes or other goods immediately, then pay for them up to 30 days later or in interest-free instalments. It makes money by charging merchants and (in some countries) late payers, but there are no other fees for the buyer.
Not everyone thinks it’s a win-win. The Guardian’s Kitty Drake worries that the whole sector is under-regulated – providers aren’t required to run affordability checks – and that the dangers are subtle. Unlike Wonga, which charged “extortionate” interest rates, companies such as Klarna could create “a new generation of debtors who may not realise they are in debt”, then end up saddled with more expensive forms of borrowing. Three in four users of “buy now pay later” services, she notes, are women, one in four is aged 18-24 and 90% of the transactions they enter into involve fashion and footwear.
Don’t be afraid to shoot for the moon
Moonshot investing – putting money into a narrow group of companies you think will have a meteoric rise – has a high-profile band of disciples. The “accidental high priest” of the art, says the Financial Times, is Hendrik Bessembinder, a finance professor at Arizona State University who four years ago showed that despite the equity market’s gains over the past century, most stocks are duds. Of the 26,000 or so companies listed between 1926 and 2016, more than half lost money or did worse than simply holding one-month US Treasury bills, and only 4% accounted for the almost $35 trillion of wealth created over that period.
Bessembinder’s fans include the Edinburgh money management group Baillie Gifford, which has hired him as a consultant; Cathie Wood of the US firm Ark Invest, which makes outsized bets on hot technology stocks; and Chase Coleman of Tiger Global, which has “ruffled feathers” in Silicon Valley with its gung-ho investments in an array of promising start-ups. “The winner-takes-all dynamic of the modern digital economy arguably means that lottery ticket stocks pay off far more than they have in the past, making what was once a foolhardy strategy a little more rational,” says the Pink ’Un.