Even before hedge fund Muddy Waters released its short report on Burford Capital (BUR) on 7 August, the litigation finance group was alleging movements in its share price were the result of “market manipulation”, and “actionable misconduct”. Since then, it has stuck by the claim, implying the heavy share price fall at the time of the report’s publication was the work of malign market actors. This week, the Aim-traded firm escalated its claim to the High Court.
Having scoured the publicly available trading data, Burford – together with Columbia law professor and market trading specialist Joshua Mitts – has concluded that various so-called ‘spoofing’ and ‘layering’ trades led to “an artificial decline” in the group’s shares.
Burford is now petitioning the High Court to force the London Stock Exchange to disclose the identities of those behind the trades. It has hired Richard East, a partner at law firm Quinn Emanuel and one of the City’s top litigators, to fight its corner.
Should it prove successful in its claim, the litigation funder hopes that having the traders’ details will help it “to seek redress from those responsible (directly or as conspirators) for the unlawful manipulation of its share price” through civil litigation and/or criminal prosecution.
Muddy Waters, whose report accused Burford of “egregiously misrepresenting” its financial metrics and lax corporate governance standards, has previously said it has nothing to do with the type of high-frequency trading alluded to in the spoofing accusation, which it called preposterous.
Efforts to uncover those involved in the alleged market manipulation come as Burford’s share price has shown some signs of life, having risen 25 per cent in the past month. But the stock still trades at just over half its market value prior to the Muddy Waters’ intervention, suggesting investors’ view on the Aim group has dimmed.
“Even if Burford does obtain an official investigation that finds evidence of wrongdoing, the bigger issue is why the share price has not recovered,” asks Peel Hunt, whose analysts believe the Muddy Waters report – while containing “some fair points” – does not say enough to materially affect the company’s fundamental value.
