The Disclosure Reckoning Comes for Litigation Finance: Rule 26, the Grassley Bill, and Georgia's New Playbook

Three separate regulatory efforts are converging on the litigation finance industry in 2026, and together they represent the most significant transparency push the sector has ever faced. In the span of six weeks, Senator Chuck Grassley introduced new federal legislation, the U.S. Chamber Institute for Legal Reform submitted a formal proposal to amend the Federal Rules of Civil Procedure, and Georgia began enforcing one of the most aggressive state-level disclosure regimes in the country. The confidentiality moat that has defined third-party litigation funding for two decades is eroding -- and the implications for returns, capital allocation, and investor behavior are substantial.

The Three-Front Pressure

The federal legislative push came first. On February 11, Senator Grassley, alongside Senators Tillis, Kennedy, and Cornyn, reintroduced the Litigation Funding Transparency Act. The bill requires parties in mass tort and class action suits to publicly disclose third-party litigation funding, including foreign funding, and prohibits any third-party funder from influencing litigation strategy or settlement negotiations. The legislation also bans funders from accessing discovery material subject to protective orders. It has been endorsed by the U.S. Chamber of Commerce, the American Property Casualty Insurance Association, and the National Insurance Crime Bureau.

On March 10, the Institute for Legal Reform and Lawyers for Civil Justice jointly submitted a specific rule proposal to the Advisory Committee on Civil Rules. Their proposed amendment to Federal Rule of Civil Procedure 26(a)(1)(A) would require mandatory initial disclosure of any nonparty providing funding to a litigation and a financial interest in its outcome, along with production of the underlying funding agreements. The proposal is modeled on the Northern District of California's Local Rule 3-15. On April 17, the Advisory Committee on Civil Rules discussed the subcommittee's work at its meeting. Judge R. David Proctor, who chairs the subcommittee, said: "The issue for us is not third-party litigation finance, good or bad, that's beyond the scope of what we're looking at. What we're almost assuredly looking at if we go forward is a disclosure rule."

Meanwhile, state-level regulation is already operational. Georgia enacted the Courts Access and Consumer Protection Act in 2025, which requires disclosure of any litigation financing agreement involving $25,000 or more in civil actions filed after the enactment date. Funders operating in Georgia must now register with the Georgia Department of Banking and Finance, disclose ownership information and any criminal history, and certify the absence of affiliations with foreign adversaries. Failure to register may constitute a felony punishable by up to five years in prison and a $10,000 fine. Funders who provide $25,000 or more also face joint and several liability for any sanctions or costs entered against the funded party.

West Virginia, Wisconsin, Montana, Indiana, and Louisiana have all enacted complementary disclosure or funder-influence restrictions. At least 21 other states have bills pending. The patchwork is becoming a mosaic.

Why This Is Different from Past Disclosure Debates

Litigation finance has faced disclosure pressure before. What makes this wave different is the combination of three factors: legislative momentum, judicial receptivity, and industry consolidation.

On the judicial side, a recent study by the International Legal Finance Association found that federal district courts now grant roughly 40 percent of disclosure motions in cases involving funded litigation -- up significantly from the near-universal refusal of prior years. The District of Delaware has issued standing orders in patent cases requiring disclosure and has rejected privilege claims it viewed as a device to conceal who ultimately controls litigation decisions. The Federal Circuit declined to vacate those orders by mandamus, effectively ratifying the approach. The U.S. Court of International Trade adopted its own mandatory disclosure requirement earlier this year.

On the legislative side, the bipartisan coalition supporting the Grassley bill -- which includes insurance trade associations and the Chamber of Commerce -- reflects a level of political alignment that previous reform efforts did not have. Combined with the ILR-LCJ proposal's formal status before the Advisory Committee, there is now institutional momentum moving in a single direction.

Industry Response: Geographic and Product Diversification

The leading legal finance platforms are not sitting still. Burford Capital's Q2 2026 Quarterly, released April 15, explicitly highlighted the geographic expansion of legal finance into new jurisdictions. David Perla, Burford's Vice Chair, noted: "As jurisdictions adopt more sophisticated approaches to dispute resolution, businesses and law firms are recognizing legal finance as a strategic resource." The issue featured expansion into Spain, South Korea, and evolving European patent frameworks -- a portfolio strategy that reduces concentration in any single regulatory regime.

The parallel trend is product innovation. Counsel Financial recently served as underwriter and collateral monitoring agent on a $95 million bank credit facility for a plaintiff law firm -- a structure that blends traditional bank credit with litigation finance expertise. These hybrid products may face different regulatory treatment than classic single-case funding arrangements, and sophisticated funders are exploring them precisely because the regulatory outlook for traditional structures is unclear.

Patent monetization, historically a controversial corner of litigation finance, is also evolving. IP Edge founder Gautham Bodepudi told Bloomberg Law last week that the firm has shifted strategy after federal judicial investigations concluded with no findings of misconduct, refocusing on what he called "high quality cases" backed by insurance and litigation funding. The pivot reflects how individual firms adapt when the regulatory spotlight intensifies.

What Disclosure Actually Changes

Mandatory disclosure does not prohibit litigation finance. It changes the economics and the strategy. Five specific effects are worth understanding.

• Settlement dynamics shift. When defendants know a case is funded, they gain information about the plaintiff's capital constraints and the funder's return requirements. That information influences settlement offers and timing. Funded plaintiffs may still prevail, but the bargaining landscape changes.
• Deal terms get scrutinized. Funding agreements that remain private can be structured aggressively. Funding agreements subject to court review -- or opposing counsel review -- tend to be cleaner, with more standardized fee waterfalls, cleaner control provisions, and fewer side letters.
• Concentration risk in court selection grows. Funders will gravitate toward jurisdictions with more favorable disclosure regimes, concentrating deal flow geographically. That can create operational efficiencies but also single-point-of-failure risk if those jurisdictions tighten rules.
• Foreign capital faces scrutiny. The Grassley bill specifically targets foreign funding, and Georgia's law requires certification about foreign adversary affiliations. Funders with international LP bases face new compliance layers and potential capital flow restrictions.
• Distressed asset opportunities emerge. Every regulatory transition creates distressed positions -- firms that cannot comply, portfolios that need restructuring, and claims that cannot find funding under the new rules. Sophisticated investors watching these transitions identify acquisition opportunities that did not exist in a more confidential market.

What This Means for the Research Community

The intersection of litigation finance and distressed assets sits squarely within AdValorem's research coverage. The current moment is precisely the kind of structural shift that defines vintage years in alternative asset classes. The sector is moving from a cottage industry with confidential bilateral relationships to a more institutionalized market with standardized disclosure, bankable collateral structures, and state-level compliance regimes. Some funders will not make the transition. Others will thrive under the new transparency.

Understanding which funders, which case types, and which jurisdictions will capture the upside of this transition requires following the rulemaking process closely, reading the quarterly disclosures from public players like Burford, and tracking the state-level experimentation. That is the work of research, and it is exactly where serious investors build conviction before entering an asset class. Access alone never produced an edge. Understanding what you are accessing, and why the market is misunderstanding it, is where returns come from.