Litigation finance firm Burford Capital has come under attack from short seller Muddy Waters, which has accused Burford of “egregiously misrepresenting” returns.
In a report out this morning, Muddy Waters confirmed that it now holds a short position on Burford, which it describes as “a poor business masquerading as a great one”.
Shares in the law suit funder have plunged today, and were down 47 per cent by lunchtime.
Burford’s shares already dropped 20 per cent yesterday following a tweet from Muddy Waters saying it would be announcing a new short position this morning.
In a statement issued in response, Burford said it “notes the release of a "short attack" document by Muddy Waters”, and said it will “review the report thoroughly and respond to it as rapidly as possible”.
Burford’s board of directors previously said that it “believes that yesterday's share price movement relates to a rumour of a potential ‘short attack’ or ‘bear raid’, a tactic where short sellers take on a short position in a company's stock and then engage in claims about the company in an effort to alarm investors, depress a company's stock and profit from the decline.”
In this statement, Burford’s board said “there is a clear line between appropriate commentary and market manipulation”, and added that it will take legal action if it discovers “actionable misconduct”.
In its report, Muddy Waters, 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”.
In its statement, Burford said 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 Ernst & Young (EY) since 2010 with clean audit opinions every year,” it added.
Burford’s woes mark another blow for beleaguered stock picker Neil Woodford, whose funds own over seven per cent of Burford.