Litigation Finance Firm Founder Pleads Guilty to Securities Fraud

The founder of a bankrupt New York City litigation funding firm has pled guilty to securities fraud and admitted to using investor funds for his personal use and to double-pledging the same case recoveries as collateral to multiple parties.

According to court documents filed with the US District Court for the Southern District of New York, Jaeson Birnbaum solicited and obtained more than $3 million in promissory notes for Cash4Cases based on fraudulent misrepresentations between 2017 and 2019. The notes, called “investor security agreements” (ISAs), claimed to provide investors with a security interest in the recoveries associated with lawsuits that were ostensibly purchased by Cash4Cases. The ISAs also purportedly provided that Cash4Cases would repay investors with interest, regardless of the outcome of the lawsuits pledged as collateral.

However, Birnbaum pledged as collateral lawsuits that he had previously pledged to other investors or lenders, or had previously assigned or sold. He also directed an employee to falsify the company’s books and records to make it appear that certain cases were available to be pledged as collateral to new investors, when they had in fact already been concluded or dismissed and any related settlement payments had already been paid out.

Birnbaum also admitted to misappropriating a large portion of investors’ funds for his personal use and to make promised payments to earlier investors. For example, an investor gave Birnbaum $1 million under the erroneous belief that Cash4Cases would use the money exclusively for advances to litigants. But on the day Cash4Cases received the $1 million investment, Birnbaum used the money to send a $530,000 wire toward the purchase of a house in New Jersey.

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“Jaeson Birnbaum conned investors through a series of lies about his litigation finance business, Cash4Cases,” Audrey Strauss, US Attorney for the Southern District of New York, said in a statement. “He used Cash4Cases to steal cash for himself and then tried to cover up his scheme by directing a subordinate to falsify books and records.”

Birnbaum, 47, is scheduled to be sentenced in January 2022 and faces a maximum of 20 years in prison.

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Tags: Audrey Strauss, Cash4Cases, Jaeson Birnbaum, litigation funding firm, Securities Fraud

Beware of a recession, chaotic global markets, and a weakened US going forward, if the federal spending cap isn’t raised, economist Zandi admonishes.

As the budget battle grinds on in Congress, there’s a lot of generalized talk about what failure to raise the federal debt ceiling would mean to the economy. A government default on its bonds and other obligations, for sure. But then what?

Mark Zandi, chief economist at Moody’s Analytics, said it would lead to “a catastrophic blow” to the economic recovery from the pandemic and a weakened US after that. “Global financial markets and the economy would be upended, and even if [the debt ceiling issue were] resolved quickly, Americans would pay for [it] for generations,” he wrote in a report. Because, he continued, “global investors would rightly believe that the federal government’s finances have been politicized.”

From then on, he predicted, investors would demand much higher interest rates on US debt. “That will exacerbate our daunting long-term fiscal challenges and be a lasting corrosive on the economy, significantly diminishing it,” he warned. Plus, he added, the resulting chaos in world financial markets “will be difficult to bear.”

According to Zandi, delaying about $80 billion in payments due Nov. 1 to veterans, active-duty military, and Social Security recipients would be a severe “hit to consumer, business and investor confidence.” Should the debt-limit stalemate last through November, he wrote, “the Treasury will have no choice but to eliminate a cash deficit of approximately $200 billion by slashing government spending.” He figured that is the equivalent of more than 10% of gross domestic product (GDP). To Zandi, “The economic blow would be devastating.”

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A similar threat occurred in 2013, when partisan brinkmanship almost led to a default, only to be resolved at the last minute. The nasty budget conflict between the Obama White House and congressional Republicans slowed the recovery from the financial crisis, Zandi contended. The recovery back then would have been a lot more robust without that standoff, and the tiff prevented 1.2 million more jobs from being created, he estimated.

With an even split in the Senate, the Democrats face high odds of passing a debt ceiling raise against a united GOP opposition. The House, which has a Democratic majority albeit a slender one, already has passed the debt ceiling increase, on a partisan vote.

The Dems’ one conceivable out in the Senate is that they could turn to a procedure called reconciliation, where they could win with Vice President Kamala Harris casting the deciding vote in the 50-50-divided chamber. Otherwise, they would never muster the 60 votes to overcome a Republican filibuster.

The question then becomes whether the Senate Democrats would include the Biden administration’s $3.5 trillion boost in domestic spending—the plan includes universal kindergarten, paid family leave, Medicare expansion, and climate change aid—in reconciliation. Zandi pointed out, though, that Senate Parliamentarian Elizabeth MacDonough has shown reluctance in the past to OK a broad interpretation of reconciliation, which is supposed to be directly concerned with spending and revenue.

And yes, Zandi used the R-word. He declared that failure to raise the ceiling will mean that the “US and global economies, which still have a long way to go to recover from the recession caused by the pandemic, will descend back into recession.”