Litigation funder Burford Capital has drafted in lawyers and alerted the authorities over what it claims to have been illegal market manipulation by short-sellers, the company revealed today.
Burford's shares went into freefall on the London stock exchange's junior market last week after a report from US research group Muddy Waters questioned its accounting policies and governance structure. At one stage, Burford has stated, the company’s value dropped by £170m in just 28 minutes.
In a lengthy statement, Burford last week denied accusations that it has misrepresented its financial performance. The company has now alerted regulatory authorities and criminal prosecutors in the light of its own data analysis. Burford has retained the City firms Quinn Emanuel Urquhart & Sullivan LLP, Freshfields Bruckhaus Deringer LLP and Morrison & Foerster LLP in connection with these matters.
Christopher Bogart, chief executive of Burford, said: ‘We are committed to working with investors to address any questions and concerns they may have about Burford and its business and we are grateful for their feedback.
‘Burford’s market-leading business today is the same as Burford was a week ago. What has changed is that a substantial amount of market value was wiped out by activity we believe is consistent with illegal market manipulation that has nothing to do with Burford’s business. That is wrong and that is illegal.’
A spokesperson for Muddy Waters today rebutted the allegation, saying: 'The only manipulation is that of Burford’s return metrics, accounts, and disclosures.'
Shares recovered to 824.5p today following the tumult of last week, when shares dropped to 605p at their lowest.
Muddy Waters tweeted on 6 August about a forthcoming, but unidentified, short target, before disclosing the Burford name in its report the following day.
Burford alleges that trading patterns prior to it being named are consistent with market manipulation. Its announcement to the stock market today explains the process of ‘spoofing and layering’, where a trader places a bid or offer on a stock with the intent to cancel before execution. This affects pricing by suggesting falsely that a large volume of shares is for sale.
Burford also said there was no factual basis for Muddy Waters' statement that the company was ‘arguably insolvent’. To reach such a conclusion, says Burford, the short-sellers ‘needed to engage in an entirely contrived and unrealistic analysis that we do not believe it has defended or reiterated since’.
In a statement today, Muddy Waters said: 'Spoofing and layering are issues that have arisen in the high frequency and computer-driven trading world and Muddy Waters has neither the capability nor the incentive to engage in these practices. They have nothing to do with us.
'The only manipulation is that of Burford’s return metrics, accounts, and disclosures. We posted an innocuous tweet the day prior to publishing our report. We were very surprised by the share price fall, so felt we had to de-risk our position given how significant a proportion of our fund it was until we fully understand what was happening. This is entirely normal and there is no market manipulation.'
Reports over the weekend suggests it may not be the last organisation to publish damning assessments of the Burford model. The Times reports that Gotham City Research, which made a scathing report into the legal services providers Quindell in 2014, is understood to be preparing to publish its own criticism of Burford.