Investing in a lawsuit by yantingting


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              April 5, 2009                                                            article, respectively.

              If buying shares in order to bet on a company’s financial                   View reprint options
              performance doesn’t provide enough of a kick, try buying                    Order a reprint article now
              shares to bet on the outcome of a lawsuit.

              Investors who want to take such a risk may consider the initial
              public offering from VR Holdings Inc. of Linthicum, Md., which is expected soon.

              As reported in InvestmentNews in November, VR Holdings is a private holding company whose
              sole asset is a 13-year-old lawsuit. The company is planning to merge with IJJ Corp. (IJJP.PK), a
              Capital Heights, Md.-based shell company that used to provide information technology services
              to federal, state and local governments.

              The merger is seen as a more efficient alternative to going through the process of listing VR
              Holdings as an over-the-counter stock, which was the original plan.

              The stock-for-stock deal, which could close this month, is designed to provide liquidity for more
              than 2,500 claimants, 2,000 of whom are over age 65 and are concerned they may not live to see
              the suit settled.

              The lawsuit, which involves racketeering charges against a half dozen hedge funds and money
              managers, is still awaiting a court date.

              Because so much still hangs in the balance, potential investors should approach this situation
              with their eyes wide open.

              It was almost a year ago that the U.S. District Court for the Northern District of Illinois dismissed
              the case, based on the expiration of a four-year statute of limitations.

              The claimants are challenging the dismissal.

              According to the claimants, the lawsuit issue boils down to how and why a six-month $23 million
              bridge loan made in 1996 by some of the money management firm defendants was allowed to
              lapse, giving lenders an 80% ownership stake in the company.

              Morton Lapides, a 79-year-old plaintiff in the case, said his company, MML Inc. of Baltimore, was
              brought down in the “domino effect” of the failure of all four of its subsidiaries through the

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              financing structure.

              Mr. Lapides, a cancer patient, is participating in the two-pronged charge to get the case before a
              judge and provide some liquidity for the claimants.

              The merger deal is expected to create approximately 550 million shares, which breaks down to
              about one share for every $13.50 worth of lawsuit claim.

              The shares — which will be issued to claimants, minus a 50-million share dilution to
              accommodate the merger — will start trading in the range of $1 or less.

              “We’re taking a 10% dilution to save the time and money of going through the whole filing
              process,” said Mr. Lapides. “IJJ Corp. will increase their authorized shares, and they will offer us
              one share for every share we would have outstanding.”

              Quirky as it might seem, the general structure is not without some precedent.

              As Mr. Lapides pointed out, during the savings and loan crisis 20 years ago, there were a few
              thrifts that folded lawsuit claims into their equity offerings.

              But this is believed to be the first time a company’s sole asset is identified as a legal settlement.

              For investors, the appeal is expected to be the potential return from a successful lawsuit or

              Based on the projected total size of the lawsuit and $1 initial trading range of the shares, the
              ultimate return could exceed 1,200% — or it could be considerably less.

              It is almost impossible to determine at this point when that final payout would likely arrive or what
              it might ultimately look like.

              But assuming the claimants do get their desired level of liquidity, there is always the chance that
              the shares could eventually trade almost like futures contracts in which the price would fluctuate
              based on new information related to the projected outcome of the lawsuit.

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