Business with Burford: Burford Capital alleges “illegal manipulation” of shares

August 26, 2019

2 min read

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What's going on here?

The litigation funder claims illegal manipulation of its shares after Muddy Waters attack.

What does this mean?

Muddy Waters is a US investment firm that makes money from short selling. This is when investors make profit by betting against a share price. The US firm published a report which said Burford Capital was a “perfect storm for an accounting fiasco”. Burford’s company value lost £1bn. Burford, after analysing the trading of their shares before and after the report was published, claim the only explanation for the fall in share price is illegal manipulation of the market. Two methods were used to depress the prices. The first of these was “spoofing” which is when many orders are made to sell shares cheaply, which makes it seem like there are more sellers thus driving the price down. “Layering” was the other method which is where share prices offered are higher and it is suggested that lots of shares are up for sale, decreasing their value. Muddy Waters has claimed these practices have nothing to do with them.

What's the big picture effect?

This is the latest in an ongoing fight between the two companies. In the report Muddy Waters had criticised Burford’s accounting and described its corporate governance as “laughter-inducing”. Boss Christopher Bogart said after the drop in price “Burford’s market-leading business today is the same as Burford was a week ago”. It also argues it has had the same accounting practices for years and is common across the industry. This highlights the conflict between Burford and those betting against its business model.

This story comes as third-party litigation has grown over the past decade. With low interest rates and investor demand to gain access to professional services, the sector has increased rapidly. However, critics say the industry needs more transparency and this fresh controversy will only add to these worries. The FCA confirmed it is aware of these matters and is making wide-ranging enquiries. It is likely the dispute between Muddy Waters and Burford Capital will not end soon.

Report written by Elizabeth Marshall

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