Andrew Stolper eyes the foam running down the glass of the craft beer he just took a swig from at the SideDoor in Corona del Mar as he launches into an explanation of his noble experiment.
The former federal prosecutor and his ex-FBI agent business partner recently opened Crux Capital, a new Irvine litigation-finance firm.
What is litigation finance? Imagine you own a small company that was screwed royally by a large corporation. You want to go to court to right that wrong, but the cost may be prohibitive because the corporation has legal teams that, even if they can't beat you on the case's merits, they can drag the proceedings out for years to bleed you dry financially and make you go away worse off than when you started.
Litigation-finance firms, which are relatively new to the United States, can look at your case, judge its merits and invest in your legal team in exchange for a percentage of a jury award or financial settlement. Conceptually, Stolper tells me, litigation finance is an old idea that has been practiced with gusto the past 25 years in the United Kingdom and Australia. He believes it can help level the playing field in court and lead to more justice.
But the United States Chamber of Commerce is pushing back hard to stop litigation finance from flourishing here. Lisa Rickard, president of the U.S. Chamber's Institute for Legal Reform, tells the Weekly her office is calling for “commonsense safeguards to prevent third-party financing from undermining our justice system.”
Interestingly, the U.S. Chamber routinely opposes government regulation of businesses, saying it should be up to industries to police themselves. But Rickard maintains that relying on the legal community to monitor litigation finance “will further turn our courthouses into cash machines while bogging down our legal system in a continuing flood of lawsuits.”
“Third-party litigation financing encourages merit-less lawsuits, since one windfall can subsidize many losses, and investors verify a lawsuit's 'jackpot' potential, not its legitimacy,” Rickard says.
This is nothing Stolper has not heard before. But he finds it curious the U.S. Chamber, which is supposedly all about protecting small businesses, is essentially siding with big corporations who might've screwed over, say, a mom and pop shop.
“My clients are members of the U.S. Chamber of Commerce,” Stolper notes. “My clients are not likely to be big businesses. They have their own lawyers. What does the U.S. Chamber have against smaller American businesses?”
Rickard counters that companies like Crux Capital will not help small businesses as advertised.
“At its core, third-party litigation financing is about making money off of the little guy,” she claims, “not benefiting him or advancing justice.”
Stolper calls it “fair criticism” to fret about more junk cases clogging our courts, but he adds the idea behind Crux Capital is not to generate more litigation only to help offset mounting legal costs.
Now that Crux Capital is up and running full-time, Stolper and partner Peter Norell are dealing less with critics than they are potential investors and hedge fund managers. Anyone can invest but that won't give you a vote in which cases Crux Capital gets behind, Stolper notes.
“They are betting on us to make the right calls”—or, to put it in baseball terms, those investments will reap dividends overall if Stolper and Norell “have one or two outs, five or six doubles and triples and one or two homers.”
He is certain that Crux Capital will get behind—now we're switching from round ball to horse racing—the wrong thoroughbred in some situations. The success of his company, he says, will hinge on being right more often than being wrong.
Controversy is not new to Stolper, who left the U.S. Attorney's office in Santa Ana earlier this year.
He's originally from La Jolla, went to George Washington University and got a B.A. in political science and history, and he planned to go into politics. But he soon discovered that Washington, D.C., makes one "very cynical very quickly.”
He returned home and discovered some of his peers had gone off to law school. "I thought, 'I have good debate skills, I'll give it a shot.'” He wound up at USC's law school.
One summer took him back east to "Skadden Arps,” the prestigious New York law firm of Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates, where Stolper worked as an associate in transactional law (think the section of law where lawyers research a company before a merger). After 12 weeks there, summer associates are pretty much guaranteed jobs with law firms, but Stolper left after a couple weeks because he discovered he did not like transactional law … and is it becoming obvious yet he really prefers the West Coast?
"I never wanted to go back,” he says after ordering another round of dark ales.
Stolper would instead be steered by a USC professor into litigation law (think the section of law where you square off against a foe in court), and he soon discovered he loved getting up and arguing cases.
This led to his becoming an associate at Irell & Manella LLP in Century City, where he stayed for three years before joining the Department of Justice in 2002. He was 27 at the time, making him one of the youngest prosecutors in the U.S. Attorney's office. He specialized in white collar crime cases.
"I never really thought about it, it's just something I'm good at,” he says. "I always liked it. It's the most challenging work a prosecutor can do, but it's not the most important.”
Fraud defenses generally come down to a defendant either claiming s/he didn't do it or s/he was unaware that what s/he did was criminal. Stolper enjoyed that most defendants he squared off against were highly educated and well represented. It raised the stakes, in his mind, made it a chess match. Many he prosecuted never thought of themselves as criminal, and they reminded him a lot of upper crusters he ran across in shi-shi La Jolla.
Turns out he was good at winning convictions against these folks. Four years into his U.S. Attorney's career, while still a junior prosecutor in Santa Ana, Stolper was asked to go to Houston to help with the Enron trial.
"I was super excited to do it. It was an honor,” he said of joining the biggest case going for federal prosecutors in 2006. "This was the Super Bowl of white-collar cases.”
He was tasked with handling a part of the massive case dealing with accounting. For two months before the trial opened, he spent 24/7 in Houston working on the trial and living in a hotel room. "It was probably one of the best experiences I had,” he recalls.
The highlight was getting to cross-examine Ken Lay's lead accountant. Stolper found rising to address a witness in the case for the first time "nerve wracking,” "surreal” and "terrifying.” Television news cameras were covering every minute.
Stolper wound up spending six months working on that trial—and notes that even though this was during the Bush administration and Lay was a pal of George W. Bush, he never received anything but DOJ support, resources, and manpower to try his part of the case. He even wound up receiving an Attorney General's award from Alberto Gonzalez for his efforts. "They flew me and my dad out to Washington for the ceremony,” he says, still amazed.
Speaking of flying, Stolper could not wait to leave Houston. "Have you ever been there?” he asks. One good thing did come out of his time in Texas. "On my honeymoon I used the Hilton points I accumulated in Houston to stay in Paris.” (He and his wife are now raising two boys in CdM.)
Shortly after he returned to Southern California, he was assigned to the highest profile white-collar case on the West Coast at the time, the fraud prosecution of Irvine chip maker Broadcom. His bosses figured his experience in the Enron case made him a natural.
Broadcom's stock price had reached all-time highs, which translated into huge bonuses for upper management and some employees. Later came a restatement of the company's value that drove the stock price down, even though the bonuses had already gone out based on the higher value. Known as backdating, this mechanism can be rife for fraud if, as the government alleged, company officials knowingly cashed in on fraudulent reports of the company's wealth.
To Stolper, he was prosecuting a classic insider trading case, which was necessary to preserve investor faith in the market. But in an unusual move, the federal judge not only dismissed the counts against the defendants Stolper was prosecuting but a company co-founder who had already pleaded guilty.
Which brings us to the "controversial” part of Stolper's career as a federal prosecutor—and how we met and came to be clinking SideDoor glasses because of it. I had cast him as a villain in these posts that have since been updated to reflect his side to these stories because doing so here would make it even more unwieldy than it is now:
As you can see from the update in the first of those three links, Stolper's former DOJ colleagues described him as "fearless,” "funny,” "intelligent,” "valuable,” "dedicated,” "gifted” and "passionate.” These do not sound like the descriptions one would apply to a—how'd I put it in those earlier posts?—shamed overzealous misdeed maker.
(Click here to read the views of Stolper from the Chief of the U.S. Attorney's Santa Ana Branch Office Dennise D. Willett, Assistant U.S. Attorneys Charles Pell, Brett Sagel and Joseph McNally and a current FBI agent.)
Stolper insists he was not run out of government service but that after a decade he'd pretty much seen all there was to see from these cases. He was hearing (and making) the same arguments and witnessing the same outcomes.
"It was a lot less fun,” he said of his final months there.
He does now miss the camaraderie of the office and "going to court, for sure.” He discovered how much he missed that when he accompanied his partner in court for a case a few weeks ago. "It was nice to be back,” Stolper says.
He has "a sneaking suspicion” he will always be remembered as a federal prosecutor but that won't stop him from doing all he can to make people know him for his new venture—whether the U.S. Chamber tries to stop him or not.
"It's nice to be able to do what I want. It's nice being accountable to myself instead of someone else. The downside is it is absolutely terrifying [starting a private business]. Calling people to ask them for money is an entirely different experience for me now. It is definitely humbling and challenging. But when someone says yes, it is unbelievably gratifying.”