Legal Business Blogs

Disputes heavyweights weigh in as Burford Capital alleges ‘illegal manipulation’ of shares after Muddy Waters attack

Freshfields Bruckhaus Deringer, Quinn Emanuel Urquhart & Sullivan and Morrison & Foester have all been enlisted by litigation funder Burford Capital to pursue claims of illegal market manipulation by short-seller Muddy Waters.

Burford today (12 August) said in a statement that a preliminary finding of its analysis of trading shares last week displayed ‘evidence consistent with illegal market manipulation.’ The statement came after more than £1bn was wiped off the company’s value last week after San Francisco-based Muddy Waters published a report suggesting Burford was ‘a perfect storm for an accounting fiasco.’

This morning’s statement added: ‘While Burford continues to analyse the data, it has made regulatory authorities and criminal prosecutors aware of these preliminary conclusions and Burford is considering its own options.’

This is the latest hit as the pair continue to exchange blows. Burford had looked at trading its shares on 6 August, the same day that Muddy Waters tweeted about an upcoming short target. The next day, Muddy Waters published a report which delivered a diatribe against Burford, describing the litigation funder as a ‘poor business masquerading as a great one.’ Burford responded by calling the report ‘disgusting.’

The Financial Conduct Authority (FCA) confirmed today via a statement that it is looking into the matter: ‘The FCA has been aware of these matters since the first tweet and price movements on Tuesday of last week and at that point we began undertaking wide-ranging enquiries. We will continue to make enquiries using the wide range of data and resources at our disposal.’

Moreover, Muddy Waters is unlikely to be the last short-seller to launch a broadside on the company. Fellow short-seller Gotham City Research – which notoriously helped sink technology provider Quindell in 2014 – has since added pressure by suggesting Burford was ‘inappropriately financed.’

The controversy falls against a backdrop of considerable growth in third-party litigation funding over the last decade, with low interest rates and investor demand to gain access to professional services both accelerating the industry. However, the circling of short-sellers around Burford will fuel many critics who believe the industry requires greater oversight and transparency, while a prolonged legal dispute between Burford and Muddy Waters looks increasingly likely.