Friday 30 August 2019 11:02 am

Hargreaves Lansdown drops Burford Capital after Muddy Waters short attack

Hargreaves Lansdown has sold its holdings in Burford capital following a short attack on the litigation funding firm by US short-seller Muddy Waters earlier this month.

The investment supermarket has dropped Burford from its Select UK Growth, Select UK Income and Select Global funds, said fund manager Steve Clayton in a statement on Hargreaves’ website.

“We don’t know whether or not [Muddy Waters] are right about Burford,” Clayton said, adding that Burford “did a pretty good job in demolishing many of Muddy Waters’ claims.”

Read more: Burford Capital’s shares fall on fresh criticism from Canaccord analysts

Muddy Waters, which is led by Carson Block, launched a short attack on Burford earlier this month, issuing a scathing report into the company that criticised aspects of its accounting and governance.

Burford shares fell 40 per cent in one day following the the report’s publication, having already fallen 20 per cent the previous day after speculation the company was about to suffer a short attack.

Around £1.8bn was wiped off the value of the company by the falls, although it has since recovered some ground.

Burford has hit back at Muddy Waters’ claims and said it has found evidence of “illegal market manipulation” in the runup to the short attack.

The ongoing argument over whether Burford was overvaluing its litigation cases cannot be resolved unless Burford runs down its portfolio and settles all cases to “see what the eventual value turned out to be”, said Clayton, adding: “That’s not going to happen”.

Because this dispute cannot be resolved, the row is “keeping the stock under a cloud”, he said.

Clayton said that while Burford has made some governance changes in response to Muddy Waters’ allegations, Hargreaves feels “they are happening slowly and with insufficient impetus”.

One of Muddy Waters’ criticisms had been that Burford’s chief executive, Christopher Bogart, was married to its chief finance officer, Elizabeth O’Connell, which the shortseller described as “unforgivable” from a governance perspective. 

O’Connell has since been replaced by former Morgan Stanley Investment Banking’s former vice chairman, Jim Kilman.

Read more: Muddy Waters accuses Burford Capital of deceiving investors

“We may have been wrong to have sold out, or we may have been wrong to have bought in the first place. Either way it’s disappointing to see what had been a big winner for all of the funds turn sour,” he added.

Burford’s shares were trading 2.48 per cent up in late morning trading. Burford declined to comment.

Main image credit: Getty