ASSOCIATED PRESSThe new high watermark in financial alchemy using special purpose acquisition corporations, or SPACs, was unlocked this week with a deal that aims to conjure tens of billions of dollars almost entirely out of thin air.
MSP says it owns nearly $50 billion in billed claims from its clients, including doctors, hospitals and Medicare Advantage insurers, and projects it can generate a 12-times return on recoveries and then earn extra cash from interest and fines. In a, MSP suggests it can possibly recover up to $27 billion from its portfolio of claims.
The firm was created in 2014 by Ruiz, a Coral Gables, Florida-based attorney, as a medical reimbursement litigation firm. Its creation has coincided with institutional investors pooling capital to pursue asymmetric legal claims, an industry now called “litigation funding.” Numerous litigation funds have cropped up in recent years as a way to earn returns uncorrelated with the stock market .
MSP buys the rights to claims from healthcare providers or agrees to represent them for a 50/50 split of any proceeds. Another group of clients are the private insurers that administer the Medicare Advantage program who may have paid out claims that another insurer was actually responsible for. MSP then files lawsuits against the other insurance companies it believes should have paid instead of Medicare, and tries to collect the full billed rate, or, in certain cases, double damages.
But past performance in the courtroom doesn’t guarantee future results—or generate concrete revenue. And the SPAC deal itself carries a number of red flags. Even more eye-opening is the fact that Lionheart is offering stockholders who do not redeem their shares an unheard of 35 warrants per share if they participate in the merger, up to about a billion warrants. MSP says in a footnote the exercise price of its existing warrants may be reduced to “as low as $0.0001 per share,” a warning sign that it may trade poorly in the aftermarket.