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Burford Capital crashes 60% after attack from US short seller Muddy Waters

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Burford Capital's share price crash. Graph: Yahoo Finance UK

An AIM-listed litigation financing company has seen its share price crash 48% after a well-known US short seller attacked the company.

Muddy Waters Research said on Wednesday that AIM-listed Burford Capital (BUR.L) is “a perfect storm for an accounting fiasco” and claimed the company “actively misleads investors” on its accounting policies.

Muddy Waters issued a 25-page report detailing its claims. The short seller said that Burford is “aggressively marking cases in order to generate non-cash fair value gains” and said governance at Burford is “laughter-inducing,” given that the current CFO is the wife of the founder and CEO.

The public attack sent Burford’s stock crashing. The share price was down 48.7% at 11am UK time. At 3pm it tanked 60.7%.

Burford said it “has never been contacted by Muddy Waters and has not had any prior sight of its work.”

“We will review the report thoroughly and respond to it as rapidly as possible,” the company said in a statement.

Burford added that it has just reported its best ever set of results and its plans to raise additional capital are “a cause for celebration, not for alarm, because it means the business is growing rapidly.”

The company said it is audited by EY in line with normal standards.

“Short sellers of this ilk are not long-term investors,” Burford said in an earlier statement. “Rather, their goal is to panic investors into selling their holdings and thereby to drive down the share price. If investors oblige them, then the attack succeeds, long-term investors are harmed and the short sellers pocket a quick payday.”

Founded in 2009, Burford Capital provides specialised financing for legal cases. The company’s share price has risen more than 1,000% over the last four years and it is a favourite of retail investors. Investment blog The Motley Fool dubbed it a “super stock” after its last set of results, which showed a 40% rise in first half income to $287m and a 41% rise in pre-tax profit to $231m.

Muddy Waters is one of the best-known short selling firms in the world. Short sellers place bets that companies’ share prices are going to decline. Muddy Waters and other firms like it take short positions before releasing aggressive reports aimed at exposing what it sees as weaknesses within its targets.

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Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at@OscarWGrut.

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