Thursday 8 August 2019 12:01 am

Burford left reeling as shortseller takes aim at business

Shares in London-listed litigation funder Burford Capital crashed 45 per cent yesterday following a scathing report from shortseller Muddy Waters. 

The incendiary document confirmed that Muddy Waters now holds a short position on Burford, which it described as “a poor business masquerading as a great one”.

Read more: Shares crash as short seller Muddy Waters savages Burford Capital

The shortseller, which is led by Carson Block, criticised the accounting practices used by Burford to value its litigation cases, which it says it is “aggressively marking”.

Burford’s shares closed on 605p, a 46 per cent drop on the previous close. Burford’s shares had already fallen 20 per cent on Tuesday following a tweet from Muddy Waters that said it would be announcing its new short position. 

Almost £1.8bn has been wiped off the value of the Aim-listed litigation finance company since Tuesday.

It marks another blow for trader Neil Woodford, whose funds own just under seven per cent of Burford. 

Burford hit back at Muddy Waters yesterday, saying the company “believes that the report’s criticisms are without merit”. It also said it would issue a more detailed response to what it called the “short attack report” as “soon as practicable”, and plans to hold an investor conference call following such a statement.

Burford chief executive Christopher Bogart and chief investment officer Jonathan Molot  moved to shore up confidence in the company, saying they both intend to purchase Burford shares once the full response to the Muddy Waters report has been published. 

The California-based shortseller’s report also accused Invesco portfolio manager Mark Barnett of “having acted highly unethically” in relation to a legal case financed by Burford. 

Invesco said: “We categorically refute any accusation of improper or unethical behaviour on behalf of Invesco or fund manager Mark Barnett.”

The investment manager added that its investments in Burford “were made and overseen in line with our robust investment and independent oversight processes”. 

Jefferies analyst Julian Roberts suggested that, after issuing a detailed reply, Burford should seek longer-term remedies related to its communication and governance. 

Roberts said he expects Burford’s response to “deal with the points in the [Muddy Waters] report in greater detail”, which “should allow investors to assess the most important parts of the short argument better”.

Read more: Burford Capital attacks short sellers as shares plunge 40 per cent

Burford defended its accounting practices in a statement issued to the London Stock Exchange immediately after the release of the Muddy Waters report, saying it “uses the same IFRS accounting that is used widely across the financial services industry and has used consistent accounting policies for many years. Burford has been audited by EY since 2010 with clean audit opinions every year,” it added. 

EY said it did not comment on the companies it audits.