Litigation funder Burford today sought to reassure investors after a US research company questioned the company’s accounts reporting.
A report from self-styled ‘activist short seller’ Muddy Waters shorted the funding giant and alleged that investment data showed Burford has been ‘egregiously misrepresenting’ its returns on invested capital and rates of return. In a statement posted on its website, Muddy Waters said Burford was a ‘perfect storm for an accounting fiasco’ and that its governance structures were ‘laughter-inducing’.
The report has had an immediate effect on Burford’s value on the London Stock Exchange, with the share price plummeting almost 38% today to 699p. This followed a similar drop yesterday, with the share price having started the week at 1,381p per share.
In a statement issued today, the Burford board of directors noted the release of the ‘short attack’ document by Muddy Waters but said it had never been contacted by the group and had no prior sight of its work.
Burford said its cash position and access to liquidity was ‘strong’ and its returns ‘robust’.
The statement said: ‘To be sure, Burford will need to take on additional external capital to continue its growth as it has done successfully throughout its history, but this is a cause for celebration, not for alarm, because it means the business is growing rapidly.
‘We have discussed our capital structure at length in the past. Burford has a wide variety of capital sources available to it and significant ability to manage its cash outflows, and has over $400m of cash and cash equivalents on hand as of 5 August 2019.’
Burford explained it uses the same accounting system that is widely used across the financial services industry and has employed consistent accounting policies for many years. It states the company has been audited by Ernst & Young since 2010 with clean audit opinions each year.
‘Burford provides cash-based investment reporting in extraordinary detail, including providing line-by-line investment detail about every litigation finance investment we have ever made,’ added the statement. ‘We just put the latest instalment of that reporting on our website yesterday. We are transparent about how we analyse and report on that data; our approach has been consistent for many years.’
Until this week, Burford had been at the vanguard of litigation funders becoming established in the UK and US legal sectors and recording big profits to go with increasing awareness.
In March, Burford Capital reported to the London stock exchange that operating profit increased 23% in calendar year 2018 to around £248m. The New York-headquartered investor also reported that income increased at the same rate to £318m.