Apothio LLC, a research group focused on the commercialization of hemp, is financing its civil case against California law enforcement by selling off crypto tokens in an “initial litigation offering” (ILO). This ILO appears to be the first litigation funding effort of its kind, as it is open to all investors, not just accredited traders, and features blockchain-enabled payment.
In the suit, Apothio claims that, in 2019, officials improperly destroyed its hemp crop, valued at $1 billion. Both the county and the state have filed motions to dismiss the lawsuit, alleging that Apothio’s crop was illegal marijuana, and that the organization had no legitimate property interest in the bulldozed plants. The motions hinge on the legal classification of controlled substances, and though they have been fully briefed, a decision does not appear imminent.
Individual traders can invest as little as $100 and as much as $500,000 in exchange for a portion—up to 3.5 times the original investment—of Apothio’s recovery. If the pending motions to dismiss are successful, they will get back 80% of the investment. If Apothio is unsuccessful after trial, there will be no return for the investors.
Crowdfunding web site Republic launched the offering on Tuesday, October 26. By the end of the day, the offering had raised more than 50% of its $250,000 minimum goal. By the following week, the tally was up to $221,650 from over 115 investors. These individuals appeared enthusiastic, leaving such comments as “I hate corruption and I like a good investment” and “sounds like it could be a fun ride.”
Attorneys representing Apothio in the case have lauded the rise of litigation funding in the US as providing greater access to justice by enabling plaintiffs to stand up to well-funded entities. Critics are intrigued by the ILO and the case but concerned that small investors, unlike institutional funders, lack the litigation savvy and insider knowledge to make informed funding choices and generally are likely to be tempted by risky investments in questionable cases.
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