Shares in litigation funder Burford Capital were last week trading at half their July value as the London-listed, Guernsey-registered and New York-based business struggled to contain allegations about its profitability and governance.
Burford, which describes itself as the world’s largest provider of arbitration and litigation finance, came under attack at the beginning of August when a US shareholder activist, Muddy Waters, published an apparently damning analysis. This included allegations that the fund was ‘arguably insolvent’ and described its governance as ‘laughter inducing’.
Burford responded by strongly denying any financial difficulty and accused Muddy Waters of illegal share price manipulation, which Muddy Waters in turn denied. Burford also announced the immediate replacement of its chief financial officer, who was married to its chief executive, along with plans to replace two long-serving board members.
Last week however Muddy Waters ramped up its attack by accusing Burford of ‘deception and evasion’ in stating the outcome of a pharmaceutical industry case it funded in 2011.
Meanwhile, a New York firm specialising in investor rights action announced that it has filed a lawsuit on behalf of stockholders hit by the fall in Burford shares. The action alleges that ‘statements about Burford’s business, operations, and prospects were materially false and/or misleading and/or lacked a reasonable basis’.
Burford’s troubles have prompted wider scrutiny of the litigation funding market, including questions about whether its business model is appropriate for a publicly traded company. Burford is the largest stock listed on the London alternative investment market.