High Yield Litigation Bonds for Mis-Sold PPI and MPPI

Capturing Growth in Adverse Times

On-line Informational Presentation

Ian FinlaysonInstitutional Sales Manager

ADJUSTLaw Capital

Chris MillerConsultant / TPLF Investment Strategy

Presented By:

ADJUSTLaw Capital

Background

Between 2006 and 2011 numerous financial firms were fined by the Financial Services Authority (FSA) for mis-sold PPI

In April 2011, the Royal Courts of Justice imposed standards requiring banks to compensate customers who were mis-sold Payment Protection Insurance (PPI) retrospectively

Claims for mis-sold PPI can be processed as far back as 6 years. MPPI can be processed as far back as 12 years

On 9 May 2011, the British Bankers’ Association (BBA) chose not to appeal against the High Court’s payment protection insurance (PPI) judgment

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Background

The amount paid out for mis-sold PPI since January 2011 is £5.9 Bn

The FSA estimates that issuers and advisers overcharged customers by more than £1.4 Bn a year

PPI Claims Paid (in Millions)

Mis-selling happens in all countries – there are several, interconnected reasons why the UK industry has been made to pay so heavily for it

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100

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Common Examples of Mis-Sold PPI

The high court has ruled that PPI is mis-sold when Claimant:

Did not Understand The Terms

Was Told It Was Compulsory

Did Not Have a Full Time Job

Had Certain Medical Conditions That Made Them Exempt

Was sold Under False Pretences

Having to Opt OUT of the Policy (online) Was Already covered elsewhere

Paid Up Front

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Scale of the PPI Reclaim Market

PPI Payments Hit over £1.9bn in 2011 according to FSA

Following the High Court ruling on 6 April 2011, Barclays, Lloyds, HSBC, RBS and others have collectively set aside over £11Bn

Almost two thirds of all the disputes sent to the FOS relate to mis-sold PPI

Complaints totaled 85,562 between January and June - an increase of 75% compared to the final six months of 2011

Average payout per customer is £2,400

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PPI complaints have increased substantially following the April 2011 ruling…

Complaints to the Financial Ombudsman Service (FOS) surged by 50% in first half of 2011, with PPI complaints accounting for over 60% of total complaints in the period

2007 2008 2009 2010 2011 2012 Q1 2013 est0

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100000

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200000

250000

300000

350000

Banking and Credit Investment and Pensions Insurance ex. PPI PPI

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Third Party Litigation Funding (TPLF)

Nothing new (Insurers, Banks, Unions, Legal Aid Funds, etc.) In the US, banks, special TPLF funds and hedge funds are investing substantial capital

Australia has been using TPLF for over 15 years; the UK since 2005; emerged as an asset class in the US in 1997 and has since become a growing phenomenon for mass tort cases outside the US

In 2004, nine lenders specializing in litigation loans to tort plaintiffs formed a trade association known as the American Third-Party Financing Association

Today, basically all top law firms are using or assessing external funding for litigation or arbitration

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TPLF Has Entered the Mainstream

The market in the US and UK for litigation financing is estimated to exceed $1 billion in 2012 1

TPLF is categorized as an “uncorrelated investment” because the returns are not correlated to the price movements of the stock, bond, commodity or traditional markets

Current economic conditions have provided fertile ground for the growth of TPLF. Returns are typically high regardless of the performance of traditional asset classes

TPLF has emerged worldwide as a way to increase access to justice, “level the playing field” and mitigate the costs and risks involved in pursuing claims

1. N.Y.C. Bar Ass’n Comm. on Prof’l and Judicial Ethics, Formal Op. 2011-2 (2011)

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Fund Strategy

Adjust Law Capital aims to create a fund valued at £200M+

The Fund will enable Adjust Law Solicitors to acquire and pursue 150K to 200K cases

The average claim value of a case that Adjust Law Solicitors will conduct is £4,000

Each case has an average net return to Adjust Law Solicitors of £3,500

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Operating Structure

All cases are screened by a Ministry of Justice (MoJ) regulated claims referral company to ensure they meet strict vetting criteria

After The Event (ATE) insurance policy enables Adjust to recover court fees, disbursements and other costs in the rare event of a lost case

No up front fee for client - client receives 100% of their award in every single case

Adjust Law Solicitors have developed a proprietary software system that allows the practice to process a large volume of cases in a rapid and cost efficient manner

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Transaction Structure

ClaimantsAssets

Purchased

Funding

Claims

Settlements£ Return

£££

Litigation

MoJ CompliantClaims Registrant

Adjust LawSolicitors

Adjust Law CapitalFund

Claim Assets >£800M

InvestorInvestor Investor

Adjust Law CapitalFund

Adjust Law CapitalFund

£200M+

Adjust Law CapitalFund

Claim Assets >£800M

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Risk Factors

Risk MitigantValidity of Claim/ Win Rate All claims purchased from MoJ regulated claims

management company (CMCs); all cases meet strict vetting criteria. Win-rate = 98%

Possible obstacles to recovering award

To maintain compliance with the FSA banks have collectively set aside over £11bn in provisions for those who were mis-sold PPI

Reduction in claims due to either competition with CMCs or self processing of claims

Complaints are mounting against many CMCs that are not regulated by the MoJ and many have been forced to shut down. Less than 50% of claimants self process claims

Expense of Lost Cases/ Negative Returns

After-the-Event Insurance eliminates any negative return due to any lost cases

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Efficiency

Average duration of 9 months to judgment

Trial costs cause last minute settlements

Use of mediation increases probability of early settlement

Use of MoJ registered CMCs and Adjust Law Solicitors’ bespoke software ensures a 98% win rate

ATE Insurance mitigates loss

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Total Settlement= £7,700

Investor

Adjust Law Capital Fund

Appellant

Investment example of £10M

Adjust acquires and processes 10,000 pre validated PPI Claims

Cases at a cost of < £1,000 each;

£600.00 to purchase claim £400.00 for processing fees, e.g: Court Filings & Brief to

Senior Counsel

Average Claim £4,200.00

Adjust Law has 98% Win Rate

Solicitors Professional Indemnity

covers investment

capital

ATE Insurance

covers court fees in the event of a lost case

Claimant Paid OutFrom Successful Claim 100% of initial claim

£4,200.00

Adjust Law Solicitors

Court awarded legal costs to Adjust Law

Group average £3,500.00 per claim

Claimant

Invested capital £I,000.00

Int @ 9.1%pa £91.00TOTAL: £1,091.00

100% of initial claim paid. No Upfront fees or success fees.

£4,200.00Balance = £2,410.00Less Ave Costs; £2150.00Per Case Profit = £260.00

Example Investment Flow

£1,091.00 X 10,000 Cases= £10,910,000.00

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Example of £10M Investment(Not Compounded)

Year 1 Year 2 Year 3 Year 4 Year 5 ROI

Guaranteed 6.60% 10,660,000 10,660,000 10,660,000 1,980,000

Quarterly 8.70% 10,870,000 10,870,000 10,870,000 10,870,000 10,870,000 2,610,000

Annual 9.10% 10,910,000 10,910,000 10,910,000 10,910,000 10,910,000 2,730,000

Guaranteed 6.60%

Quarterly 8.70%

Annual 9.10%

£0 £500,000 £1,000,000 £1,500,000 £2,000,000 £2,500,000 £3,000,000

1,980,000

2,610,000

2,730,000

ADJUSTLaw Capital

Guaranteed 6.60%

Quarterly 8.70%

Annual 9.10%

£2,113,555

£5,175,665

£5,456,948

Year 1 Year 2 Year 3 Year 5

Guaranteed 6.60% 10660000 11363560 12113554.96 NaN

Quarterly 8.70% 10870000 11815690 12843655.03 15175664.6301421

Annual 9.10% 10910000 11902810 12985965.71 15456948.2512645

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£ M

illion

s

Example of £10M Investment(Compounded)

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The Firm

Offices in Liverpool and Manchester

Regulated by the Solicitors Regulation Authority (SRA)

Incorporated May ‘06; bought out by the current directors in ’09

Specialist in securing successes against high street lenders, including Lloyds Banking Group, Barclays, HSBC, Santander, RBS Group, and sub-prime lenders and finance houses such as Welcome

Significant experience operating in Mis-Sold PPI market, settled 541 cases by early May 2011 with 539 having successful outcomes for claimants

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The Board

Colin Downie has 17 years of post qualification experience as a solicitor in private practice. He trained with Pannone Solicitors in Manchester and after qualification has gained considerable experience in a wide variety of litigation and as an advocate. Mr Downie is the Chief Executive Officer of Adjust.

Mike Wilson qualified in 2001 having trained with Paul Rooney & Co, a leading litigation practice. He worked with Colemans Solicitors in Manchester specialising in personal injury claims and has worked closely with Colin Downie since 2003.

David Brown has practised in law since 1994 and in that time has gained considerable experience and expertise in different areas of litigation. He has brought multi Claimant proceedings in consumer credit cases against a wide variety of banks and has represented Government agencies in litigation proceedings.