For example, days after news broke of the Hollywood mogul Harvey Weinstein’s history of sexual harassment, LawCash, a settlement-advance company, was trying to cash in. “Sexual abuse is a crime #HarveyWeinstein,” read a LawCash tweet. The Brooklyn company offered cash upfront to sexual abuse plaintiffs “if you or someone you know is in need of financial help.”
The settlement-advance firms get paid back only if a plaintiff collects money from a lawsuit. They make money by charging interest rates as high as 100 percent, which they are able to do because technically the money is considered an advance — not a loan — and therefore is not subject to state usury laws.
Consumer groups call the industry predatory. The companies counter that they are providing a vital service to people without other options.
Legal and business experts said there are scores of firms providing advances to tens of thousands of plaintiffs each year. The largest firms make cash advances totaling up to $40 million a year, according to an unpublished 2014 report by Diligence, a business intelligence firm.
Legal Bay of Fairfield, N.J., is one of the settlement-advance firms trawling for sexual harassment clients.
In one October news release, Christopher R. Janish, its chief executive, said he had “set aside a large portion of their presettlement cash advance funding specifically for plaintiffs of sexual harassment cases.” The next month, the firm trumpeted its “special focus for victims of unwanted sexual advances.”
Mr. Janish said he did not know if the pitches had landed any clients. “It just really is more of a public awareness and branding thing,” he said.
The firms advertise on television and include hot-button search terms on their websites to lure traffic. That was how Heather Rothermund of Redding, Calif., learned of Nova Legal Funding in Los Angeles last summer. She had sued her employer, an adult care facility, for failing to discipline a co-worker who she said had groped her breasts and forced his hands down her jeans. Along with a state civil rights agency, she sought $250,000 in damages. The facility’s owner did not respond to a request for comment.
Ms. Rothermund, 41, said the alleged assault left her with bills for therapy and anxiety medications that she couldn’t afford. Her car was about to be repossessed when she came across Nova’s online advertisement. The company advanced her $2,000 against an anticipated future legal settlement, she said.
The money got her out of a financial hole and helped her avoid having to accept a lowball settlement offer. She said that if the case settled within the year she might owe $4,000 — double what she borrowed. If the case drags on, she will owe more.
“It is expensive, but it does help and it is available,” Ms. Rothermund said.
Credit Talia Herman for The New York Times
For the past two decades, settlement-advance companies have been chasing the hottest — and most lucrative — trends in litigation. They have provided advances to victims of surgical vaginal mesh products; those suffering from ailments related to the Sept. 11, 2001, terror attacks; and former National Football League players with brain injuries.
“There are some companies that are trying to ride that ‘me too’ thing, and we are not doing that,” said T. Thomas Colwell, chief executive of TriMark Legal Funding in Oregon. “That is just opportunistic.”
Mr. Colwell said his firm had been providing cash advances to women with sexual harassment claims for 15 years. He said many clients worked in less glamorous industries than Hollywood and needed money to cover basic living expenses.
Only a handful of states regulate or license the settlement-advance firms, and little more than a website is necessary to get into the business.
Mr. Janish formed Legal Bay in 2014, a few years after getting out of state prison in New York for orchestrating a $13 million stock manipulation scheme.
Legal Bay’s promotional materials don’t mention Mr. Janish’s past. He said his legal history wasn’t relevant to customers. “My only obligation is to disclose to them the terms of the money they seek,” he said.
Last year, the Consumer Financial Protection Bureau and the New York attorney general sued R. D. Legal, claiming the New Jersey firm took advantage of former N.F.L. players who expected to receive money in the league’s landmark concussion settlement. The authorities claimed that R. D. Legal had tricked the players “into costly advances on settlement payouts.”
Just last week, Colorado’s attorney general announced a $2 million settlement with LawCash and another settlement-advance firm, Oasis Financial, saying they charged personal injury plaintiffs “predatory interest rates.”
The industry says it charges high fees to compensate for the risk of not being repaid.
But the industry’s lucrative model has attracted mainstream financial institutions. The D. E. Shaw hedge fund, the private equity firms Parthenon Capital and Victory Park Capital, and Germany’s DZ Bank have either bought stakes in or lent money to settlement-advance firms. D. E. Shaw has sold its stake in Oasis Financial.
In addition to providing cash upfront to sexual harassment plaintiffs, some firms are pursuing the more traditional form of litigation finance, providing money to law firms in exchange for a cut of potential settlements.
Nova — the same company that advanced money to Ms. Rothermund — plans to announce that it will provide financing for lawyers pursuing Hollywood sexual harassment cases.
“We’re trying to level the playing field in cases against big Hollywood players,” said Ron Sinai, Nova’s founder.
And Legalist, a San Francisco litigation finance start-up, said that a Weinstein-related marketing pitch had attracted new clients, and that the company was now bankrolling three lawsuits against alleged sexual abusers.
The practices used by the settlement-advance industry have proved particularly controversial, uniting consumer groups and big business in opposition. Consumer activists argue that recipients don’t understand how quickly the costs accumulate. Business groups, including the U.S. Chamber of Commerce, argue that cash advances artificially drive up litigation costs.
“I would never recommend an individual finance his or her recovery,” said Robert Kraus, a New York employment lawyer. “It is inconsistent for a lawyer, if he believes in a client’s case, to recommend that he or she should limit their recovery.”
Some of the larger settlement-advance firms use lawyers to drum up business. The firms recruit lawyers in much the same way that pharmaceutical companies woo doctors: with perks such as holiday gift baskets and invitations to year-end parties.
At Oasis, one of the industry’s biggest players, employees who got a lawyer to send at least three clients in a year were celebrated as “hunters,” according to court documents in an employment dispute.
Oasis, which spends millions of dollars each year on TV advertising, said it had provided funds to 200,000 customers since it opened in 2003.
Michael Gibson, a former case manager at Oasis, said he had worked on up to 70 cases a day. The typical customer, he said, borrowed less than $2,000 but paid a fee that was the equivalent of an 80 percent annual interest rate.
“My personal opinion is that legal financings are predatory loans,” Mr. Gibson said.
Some customers say the cost is worth it.
Nickie Burdick, 28, had been unable to work for two years after she was injured in a car accident. Ms. Burdick, of Batavia, N.Y., said her attorney had suggested she take out a loan against a potential settlement in her case.
She knew the rates were steep, but she didn’t see another viable option, she said. She recently has been borrowing $2,000 a month from Oasis, accruing $220 in fees each time.
“It was either that or I lose my house and be homeless,” she said.