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Litigation funder says it has evidence of market manipulation

Burford Capital (BUR:AIM) 745p

Loss to date: -20% (stopped out)

Original entry price: Buy at £15.62, 25 Oct 2018

Shareholders in litigation finance provider Burford Capital (BUR:AIM) have been through the mill in the last week or so thanks to the appropriately-named US short-seller Muddy Waters.

On 6 August, Burford shares were trading around £14 for most of the day before suddenly sliding 19% to just above £11 at the close. The catalyst for the sell-off was a Twitter announcement by Muddy Waters that it would announce a new short position the next day.

The tweet didn’t name Burford but several commentators jumped on the stock in anticipation and on 7 August the short-seller confirmed it was targeting the company, sending the stock down a further 46% to just over 600p.


Muddy Waters issued a report accusing Burford of ‘egregiously misrepresenting its ROICs and IRRs, as well as the state of its overall business’ and described it as ‘arguably insolvent’, with a ‘high risk of having a liquidity crunch’.

The report also accused its largest shareholder, US-owned asset manager Invesco, of ‘unethical behaviour’ designed ‘purely to perpetuate a mythical ROIC and IRR’.

In its response on 8 August, Burford gave a detailed rebuttal of the report which highlighted its many factual and analytical errors as well as its selective use of information to paint a negative image of the firm.

The contrast between the two sides couldn’t have been starker. If Muddy Waters had done its research properly – indeed if it had contacted Burford and raised its concerns, which it never did – there would have been no report and no ‘bear raid’.


Some commentators have suggested that Burford’s model isn’t suited to the public market and that the firm – and its retail shareholders, who have suffered and continue to suffer considerable harm at the hands of the short seller – would be better off if it were in private hands.

Strangely none of these concerns were heard when the shares were trading at £15 and above before the ‘bear raid’.

More to the point, Burford believes that it has identified a pattern of trading in its shares leading up to the release of the Muddy Waters report which is consistent with ‘market manipulation’ in its shares.

Given the high priority which the Financial Conduct Authority (FCA) puts on protecting investors and enforcing market integrity, it is reassuring to learn that the agency is already undertaking ‘wide-ranging enquiries’ into the short sale and looking for evidence of illegal activity.

SHARES SAYS: A disappointing outcome, whatever the cause, and shareholders should watch from the sidelines for the time being.

Disclaimer: The author owns shares in Burford Capital

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