Can IMF Bentham Ltd win big with its Volkswagen case?

Credit: Pixabay

This morning litigation funder IMF Bentham Ltd (ASX: IMF) announced its European subsidiary has agreed to fund a class action against German car maker Volkswagen on behalf of Volkswagen shareholders.

In 2015 the German car maker owned up that it had been cheating emissions tests in the US by installing software in its diesel vehicles that created a fraudulent result for the actual output of emissions.

After being busted in the US, Volkswagen admitted that around 11 million cars globally had been installed with the cheat software and its shares’ value collapsed in half over the course of 2015.

This train of events is music to the ears of fee-hungry litigation lawyers everywhere who effectively agree to fund a legal action in exchange for a share of any amounts rewarded in compensations to claimants.

The case against Volkswagen is presumably strong and the claim relates to breaches of The Securities Trading Act in Germany over Volkswagen’s failure to inform investors about its cheat software.

IMF Bentham investors have suffered a tough run themselves recently, with the shares down 36% over a past year period that included a Federal court ruling in favour of Australia & New Zealand Banking Group (ASX: ANZ) and against IMF Bentham.

The case was over late payment and over-limit fees on credit cards issued by ANZ and the defeat for IMF Bentham was embarrassing, as litigation funders will never take on cases unless they have a high conviction in the likelihood of success.

The verdict in an appeal of the ANZ decision is expected before the end of 2016 and the result is something for investors to keep an eye on as defeat will be bad news, while victory could open the door to more large actions against the likes of Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd. (ASX: NAB).

However, over the six months to December 31 2015, IMF Bentham lost three out of five matters completed, which means it’s no surprise investors have headed for the exits and demonstrates the considerable risks around backing the long-term growth of this kind of business.

Other legal operators on the ASX include personal injury specialist Shine Corporate Ltd (ASX: SHJ) and patent specialist IPH Ltd (ASX: IPH). Personally, I think there are far better investment opportunities on the ASX than any of these legal operators. Including the red-hot dividend stock identified below….

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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