A $606 Million Litigation Fund Eyes Moderna

FOIAengine: More Requesters Targeting Pfizer, Moderna

Sina Toussi is a New Yorker who knows his way around Wall Street.  The 54-year-old Columbia Law graduate started at Willkie Farr & Gallagher straight out of law school and spent a couple of years there.  Toussi then jumped to Skadden, where, according to his LinkedIn profile, he spent another five years as an associate before going to work as the chief of staff for one of the Street’s all-time dealmakers, Ronald O. Perelman. 

Perelman is a tempestuous, larger-than-life billionaire whose business and personal antics are the stuff of tabloid legend.  His prized holdings are Revlon, the cosmetics maker that he acquired in a hostile takeover for $2.7 billion in 1985, and a lot of expensive art by the likes of Andy Warhol, Jasper Johns, and Cy Twombly.  Today, Revlon is in Chapter 11.  His art is the subject of a contentious $410 million insurance lawsuit.  The New York Times, in a lengthy profile last year, dubbed Perelman “the Debt King,” and even that might be an understatement. 

“Here was a very rich man who, despite having a failing business, repeatedly went to the banks for billions of dollars in loans he may never fully pay back. And got them,” the Times said.  Perelman’s famously acrimonious fourth divorce was from the actress Ellen Barkin.  “The last time I saw Ellen, she threw a drink in my face,” he said.  Perelman’s fifth (and current) wife is – what else? – a psychiatrist. 

“Cannonball of testosterone,” the Times called Perelman.  A micromanager of employees.  Which might explain why Toussi stayed with Perelman for just 11 months before going back to Skadden for another three-year stint as an associate.  But with Perelman, you could probably learn a lot quickly, just by watching.  And when Toussi left Skadden again, this time in 2006, he was ready to set out on a new path that would put him at the center of the world that his former boss already inhabits.  “Distressed debt,” Toussi calls it.  “Opportunities with a particular emphasis on investments with a litigation or regulatory component.”

Today, litigation funding is a very big business, with billions of dollars in play.  In 2019, Toussi founded Two Seas Capital, an eponymous hedge fund that, among other things, engages in the financing of commercial litigation and has $606 million in assets under management.  

According to its most recent SEC filing, Two Seas is a closely held Delaware corporation – Toussi is the majority owner – with just nine employees and 10 investor clients.  It has multiple affiliates in the tax-haven Cayman Islands.  An investment brochure filed with the Securities and Exchange Commission is long on legal boilerplate but short on substantive details such as who its clients are (about half of the $606 million is from offshore) and what litigation, if any, Two Seas may actually be funding.  We got curious. 

Litigation funding exploded in recent years as pension funds, sovereign wealth funds of foreign governments, and big institutions sought out alternatives to stocks and bonds.  Not surprisingly, hedge funds figured it out.  In a variant on typical contingent-fee litigation, the fund takes a piece of the action by organizing a capital pool from big investors and then loaning out the money to a company seeking to cover the costs of major litigation.  If the company wins or the case settles, the loan is repaid, along with a share of the potential recovery.

There now are scores of funds that bundle court cases into investments that ostensibly don’t move in the same direction or have the same risk profile as traditional assets like stocks, bonds, and real estate.  One theory is that there’s more litigation in a recession, so in turbulent times there’s more potential upside for investors in these funds.

But there is also a downside risk.  In its brief history, Two Seas has gotten embroiled in multiple court cases where there’s been a dispute among the parties, or with the judge, over the settlement amount or the fee award.

Two Seas’ boilerplate warns investors of the potential risks:  Even if a litigant is ultimately successful, challenges to the fee award might lead to “difficulties.” 

That is exactly what happened when the largest litigation finance firm, Burford Capital (one of two such firms that are publicly traded) tried to block a settlement negotiated by one of its clients, Sysco Corp.  The food distribution giant had sued some of its meat suppliers for price fixing.  To pay for the case, Burford advanced more than $140 million to Sysco in exchange for a share of any settlements in the antitrust litigation.  Sysco used the money to bring in the Boies Schiller Flexner law firm, and was required to get Burford’s approval before signing any deals.  

When Sysco was ready to settle the case, Burford called the settlement “low-ball” and a “pittance,” and tried to block it.  Last month, an arbitration panel sided with Burford.  Now, Burford and Sysco are suing each other in federal court.  Sysco claims Burford is making it engage in litigation against its will. 

Almost all litigation funders are private hedge funds and thus are subject only to minimal SEC disclosure requirements.  Burford calls itself “the gold standard in legal finance,” and claims a $5.1 billion investment portfolio.  It is based in the tax-haven Channel Island of Guernsey and lists its shares on the London and New York stock exchanges.  Burford’s most recent SEC filing, dated March 31, 2023, provides the bare-minimum details required of investment advisors.  Assets under management are $3.3 billion, coming from a total of just 24 clients – meaning each of those two-dozen investors has, on average, $137.5 million in the pool.  A majority of its clients are “non-United States persons,” and collectively those from abroad have $1.2 billion invested.  Burford employs 151 people, about half of whom are performing “advisory functions, including research.”   

“Litigation financing is normally done through confidential contracts, and disclosure generally isn’t required,” George Mason University law professor Donald J. Kochan explained recently in the Wall Street Journal. “Researchers are mostly in the dark about the extent of control by funders or the number and types of cases they influence.”

Two Seas caught our attention because it’s a frequent requester under the Freedom of Information Act.  FOIA requests can be an important early warning of bad publicity or litigation to come.  That is why PoliScio Analytics’ competitive-intelligence database FOIAengine tracks FOIA requests in as close to real-time as their availability allows.  Of particular interest are requests that may significantly affect stocks and markets once the stories hit. 

Among Two Seas’ 11 FOIA requests to the Food and Drug Administration and the Centers for Disease Control in the past year was one concerning Moderna’s Covid-19 vaccine.  Moderna, as well as Pfizer, is a prime litigation target, as previously reported by FOIAengine.  Other Two Seas FOIA targets over the past year included Pharmaceutics International (five requests), Fennec Pharmaceuticals (two requests), Braeburn Pharmaceuticals (two requests), Sharp Packaging Solutions, and drug maker Indivor PLC. 

Two Seas said through a spokesperson that the FOIA requests were made “as part of the firm’s research” into companies in its investment portfolio, including two drug makers (Roivant Sciences and Arbutus Biopharma) that “have claims against Pfizer and Moderna.”  The spokesperson didn’t answer other questions about Two Seas’ investments and investors, or about litigation Two Seas is funding.

Among the more than 135 other FOIA requests in the past year concerning Pfizer or Moderna, at least two others warrant a closer look:  Last month, Children’s Health Defense (CHD), the anti-vaccine non-profit founded by newly-announced Presidential candidate Robert F. Kennedy, Jr., requested “all emails, including attachments, sent between Kathryn M. Edwards, MD, and anyone on the FDA’s Vaccines and Related Biologics Program Advisory Committee (VRBPAC) between March 2020 and the present that include the term Pfizer-BioNtech, Pfizer, Moderna, and/or mRNA vaccine in any portion of the email, including the body, metadata, sender line, or recipient line.”  Edwards is a professor of pediatrics in the division of infectious diseases at Vanderbilt University School of Medicine, where she is also vice-chair for clinical research.  She is a renowned researcher on the safety of vaccines, and is not a member of the FDA advisory committee.  Last year, CHD was removed from Facebook and Instagram for spreading misinformation about vaccines.  CHD didn’t respond to a question asking why it made the request. 

Also showing up in the FOIAengine database was an unusual request from Moderna – asking about itself.  The Covid-19 vaccine maker’s request referenced a medical journal article about a worst-case-scenario FDA study that modeled the safety of the mRNA vaccines for people aged 16 to 29.  The FDA’s mathematical model tested the benefits of the mRNA vaccine against the reported higher risk of myocarditis/pericarditis associated with vaccination, particularly in adolescents and young adults.  The result was that “benefits outweigh the risks for all scenarios including the high-risk subgroup, males 16–17 years old.”  That was good news for Moderna.  Still, in trust-but-verify mode, Moderna wanted to have its own look.  The vaccine maker asked the FDA to provide the actual model, in Microsoft Excel, please.

Coming next from FOIAengine:  Abortion and Mifepristone

John A. Jenkins, co-creator of FOIAengine, is a Washington journalist and publisher whose work has appeared in The New York Times Magazine, GQ, and elsewhere.  He is a four-time recipient of the American Bar Association’s Gavel Award Certificate of Merit for his legal reporting and analysis.  His most recent book is The Partisan: The Life of William Rehnquist.  Jenkins founded Law Street Media in 2013.  Prior to that, he was President of CQ Press, the textbook and reference publishing enterprise of Congressional Quarterly.  FOIAengine is a product of PoliScio Analytics (PoliScio.com), a new venture specializing in U.S. political and governmental research, co-founded by Jenkins and Washington lawyer Randy Miller.  Learn more about FOIAengine here.  To review FOIA requests mentioned in this article, subscribe to FOIAengine.