[ By Larry Goldfarb ] Medical malpractice lawsuits may become the next "hot ticket item" on Wall Street.  Class action suits, as well.  The more, the merrier.  That's because an endless stream of such lawsuits are sourcing a new type of investment - the financing by some firms and funds of cases in exchange for a piece of the potential winnings. How the Business Operates. Litigation fund managers comb the dockets of a number of white shoed firms on Wall Street  - e.g., Skadden Arps, Simpson Thatcher, Latham Watkins - looking for cases that appear very straight forward or open and shut, and very winnable.  The firm or fund's money will go toward funding the litigation efforts - and ostensibly will be repaid out of fees paid to the law firms. It's a win-win situation.  Law firms win because they don't have to lay out firm capital to finance a suit that they're representing, then wait months for a case to drag through the courts.  Contingency fee arrangements add to a law firm's suspense because, if they don't win the case, they collect no fees and are out all that money.  The funds financing the lawsuits stand to make double digit returns on their investments. Players in the Business. Investment firms  in this space include Burford Capital and Jurdica Capital Management.  Burford opened nearly 3 years ago, is the largest player in the industry, and is set to make $32mn on 9 cases that were resolved last year - a return of 91%, according to the firm. BlackRobe Capital and Fulbrook Management, 2 litigation investment firms run by former lawyers, started last year.  In January, the litigation finance team at Credit Suisse left the bank to form Parabellum Capital, after a former colleague left move to start a similar firm, Bentham Capital, a few months earlier. Akin to Corporate Finance. Proponents of these types of deals say they're really just a corporate finance transaction.  But instead of the underlying asset being a copier or an airplane,  it is the litigation claim.  These transactions also appear to be a lot like insurance viatical settlements - where the financier pays the insured for the proceeds of his / like insurance policy.  The faster the insured dies, the better the return is for the investor.  Congress is taking a close look at the form of these transactions. In the case of litigation financing, investors team up with law firms and thus are increasing the stakes that prevail in these suits.  The deals, though, come with some open questions, such as:

• will the legal process be undermined by the excessive attention and money within these cases?
• are these cases, which may have significant impact on corporations and the lives of individuals be impacted by an investment firm’s "win at all cost" mentality?
• Will corruption be rife?

We saw how the win at all costs mentality in the mortgage market almost took down the financial system.  Stay tuned - the "fat lady has yet to sing." For further details, go to [Dealbook, 4/30/12].