Muddy Waters reports Burford Capital to watchdog as battle between the two escalates
By Mark Shapland
The row over the finances at litigation funding giant Burford heated up further today as hedge fund Muddy Waters said it will report the company and its directors to the City regulator, alleging they misled investors.
Muddy Waters intends to handover over its 25-page report on the litigation financier to the Financial Conduct Authority and ask it to launch a probe.
A spokeswoman said: “Muddy Waters is now contacting the FCA as we believe Burford uses particular accounting techniques which manipulate its financials.”
The fund wants a forensic examination of Burford’s business and will call on the FCA to go through the company’s emails to find evidence of wrongdoing. The spokeswoman added: “The FCA should obtain Burford’s emails and internal documents. They may have tripped themselves up.”
Yesterday the FCA said it would be launching a wide-ranging investigation into potential illegal manipulation last week of Burford’s shares.
Burford, whose second-biggest investor is beleaguered fund star Neil Woodford, claimed traders had been deliberately driving down its share price shortly after Muddy Waters released a cryptic tweet on Tuesday by using a technique known as spoofing.
Today Muddy Waters said it had “nothing to hide regarding our own actions”. Burford refused to comment on news of the short-seller’s FCA submission.
The battle between the two companies has divided the City. Burford has been a stock-market darling since its float in March 2014 and has fast grown to become a rare AIM success story. Today analysts at Numis, which serves as Burford’s house broker, slammed Muddy Waters’ report.
Analyst James Hamilton said: “We believe Muddy Waters’ comment that Burford is ‘arguably insolvent’ is up there with comments like the Earth is arguably flat. The group is by far the least-leveraged specialist lender that we cover.”
But Canaccord, which is Burford’s 11th-largest shareholder, wants to see changes to its corporate governance and has called for chief financial officer Elizabeth O’Connell to step down.
O’Connell is married to chief executive Christopher Bogart and Canaccord argues that the relationship does not sit well with institutional investors.
Bogart said Muddy Waters’ allegations against him and his wife were “innuendo” and that she was an experienced investment banker.