Betting on Big Verdicts

In one class-action suit by Exxon service stations, Stone Street advanced $10 million to 60 dealers. Stone Street got its money back, plus 25 percent.

The company has trained several staffers to pore over databases and other sources of information, such as legal newsletters, looking for specific pending court cases, and it is about to launch a direct-mail campaign to civil attorneys. The company makes advances not at the beginning of a lawsuit but further along in the case, when its professionals can apprise the risk and make large advances.

"We engage in cases where there is a high probability of some sort of payment," Lewis said.

Stone Street also makes sure the defendant has the resources to pay the judgment. A defendant such as an insurance company or a corporation is more likely to pay than an individual who does not have significant resources.

Stone Street was founded in 1989 by Lee Jundanian, a Bethesda businessman. He sold the company last year to a Long Island financial firm called New World. Stone Street has 115 employees on the fifth floor of a Wisconsin Avenue office building. Lewis said it is profitable but declined to provide numbers.

The firm had been steaming along profitably for two decades, in a niche business buying years of annual payments from lottery winners and plaintiffs in return for up-front cash.

Experts estimate that Stone Street does more than 1,000 transactions a year, including the lottery, plaintiffs settlements and now the purchase of lawsuits, which it calls "large verdict funding." Most of the business comes from people who respond to its advertisements, which appear on television and the Internet and through direct mail.

Until now, however, the biggest growth area had been built on the purchase of payments from people who have settled lawsuits, commonly known as "structured settlements." Stone Street is a small player in structured settlements, compared with J.G. Wentworth and Peachtree, which have been the market leaders.

J.G. Wentworth said it is also in the field of paying advances to plaintiffs, but that is a small part of its business.

"We provide advances to plaintiffs in a limited number of cases, adhering to strict underwriting policies," said Wentworth spokesman Ken Murray. "We believe it's good for consumers [plaintiffs in this case] to have more financial services options, which this business can provide."

Stone Street hopes to make the advances on court settlements a big growth area of its business and become a leader in the field.

The structured-settlement industry has drawn some fire. Patrick Hindert, who has co-authored a legal textbook on the settlements, said the industry has been criticized for discounting too much of the value of the client's income stream when making lump-sum payments.