Burford responds to Muddy Waters’ short attack
09 August 2019 New York
Image: Shutterstock
Burford Capital has responded to Muddy Waters Research’s short attack report which accused Burford of actively misleading investors.
In its report, Muddy Waters said: “For years, it was the ultimate ‘trust me’ stock. Thanks to a light disclosure regime, the esoteric nature of its business, and unethical behaviour by its largest shareholder, Invesco, it turned Enron-esque mark-to-model accounting into the biggest stock promotion on the AIM.”
“This has all recently changed though. Just this year, Burford began publishing more detailed investment data.”
According to Muddy Waters, this data proves that Burford has been misrepresenting its return on invested capital and international rate of returns, as well as the state of its overall business.
However, in response to the short attack report, Burford said: “The Muddy Waters report is false and misleading.”
The Muddy Waters report continued to say Burford’s top management is in effect primarily compensated for aggressively making cases in order to generate non-cash fair value gains.
In addition, Burford was accused of actively misleading investors over how it's accounting for realised gains works.
It was stated that “Burford is a perfect storm for an accounting fiasco. BUR’s governance structures are laughter-inducing. The CFO is the wife of the founder/CEO. Under the best of circumstances, this should alarm investors; however, with a company that consistently books non-cash accounting profits, it is unforgivable”.
Elsewhere in the report, Muddy Waters claimed that Burford’s liquidity is risky and is “arguably insolvent.”
Responding to the report, Burford wrote: “Burford is solvent, generates strong cash flow and has good access to expansion capital.”
Burford continued: “The suggestion that Burford is ‘arguably insolvent’ is baseless. Presumably, the reason ‘arguably’ is inserted is because Muddy Waters knows they would lose a lawsuit if they accused Burford of insolvency, and they know they can’t support such a claim.”
Burford further highlighted in their response that the company has a low debt level, a strong cash position and the capacity to take on more debt as desired.
The company wrote: “Burford’s accounting and financial reporting is transparent, appropriate and has been consistent for many years.”
“Burford’s governance is robust and serves the business well—Burford has been listening to investors and is actively considering their feedback.”
In its concluding remarks, Burford wrote: “Short attacks such as this are a fundamental menace to an orderly market and to the value inherent in long-term investing in companies such as Burford that are revolutionising industries.”
“Burford is well equipped to investigate and pursue market manipulators, and as stewards of investor capital, we are exploring doing so here, cognisant of the substantial losses our investors have suffered. Our early investigation already shows the hallmarks of market manipulation.”
Meanwhile, it has been noted that since the Muddy Waters report, Burdford’s stock price has fallen by 48 percent.
Ihor Dusaniwsky, managing director predictive analytics, S3 Partners, found that BUR LN short interest is $101 million; 10.93 million shares shorted; 5.44 percent of its float; stock borrow fee is 0.30 percent fee (general collateral).
Dusaniwsky observed: “Short selling responded as expected, with a surge of selling over the last few days. Shares shorted has increased by +7.7 million shares, +240 percent over the past week as investors quickly reacted to the research report.”
According to Dusaniwsky, short sellers are up $18.1 million in year-to-date mark-to-market profits, of which $9.8 million was generated over the last week.
Burford’s stock price rebounded yesterday as both the CEO, Christopher Bogart, and co-founder, Jonathan Molot, responded by calling Muddy Water’s characterizations “false & misleading.
He also observed that shorts were up +$33.1 million from Monday through to Wednesday but down -$23.3 million yesterday and today.
Dusaniwsky commented: “With Burford’s stock price rebounding, we may see a quick reversal in short seller’s inclinations as some will start buying to cover their short positions in order to lock in their short term profits before they evaporate.”
In its report, Muddy Waters said: “For years, it was the ultimate ‘trust me’ stock. Thanks to a light disclosure regime, the esoteric nature of its business, and unethical behaviour by its largest shareholder, Invesco, it turned Enron-esque mark-to-model accounting into the biggest stock promotion on the AIM.”
“This has all recently changed though. Just this year, Burford began publishing more detailed investment data.”
According to Muddy Waters, this data proves that Burford has been misrepresenting its return on invested capital and international rate of returns, as well as the state of its overall business.
However, in response to the short attack report, Burford said: “The Muddy Waters report is false and misleading.”
The Muddy Waters report continued to say Burford’s top management is in effect primarily compensated for aggressively making cases in order to generate non-cash fair value gains.
In addition, Burford was accused of actively misleading investors over how it's accounting for realised gains works.
It was stated that “Burford is a perfect storm for an accounting fiasco. BUR’s governance structures are laughter-inducing. The CFO is the wife of the founder/CEO. Under the best of circumstances, this should alarm investors; however, with a company that consistently books non-cash accounting profits, it is unforgivable”.
Elsewhere in the report, Muddy Waters claimed that Burford’s liquidity is risky and is “arguably insolvent.”
Responding to the report, Burford wrote: “Burford is solvent, generates strong cash flow and has good access to expansion capital.”
Burford continued: “The suggestion that Burford is ‘arguably insolvent’ is baseless. Presumably, the reason ‘arguably’ is inserted is because Muddy Waters knows they would lose a lawsuit if they accused Burford of insolvency, and they know they can’t support such a claim.”
Burford further highlighted in their response that the company has a low debt level, a strong cash position and the capacity to take on more debt as desired.
The company wrote: “Burford’s accounting and financial reporting is transparent, appropriate and has been consistent for many years.”
“Burford’s governance is robust and serves the business well—Burford has been listening to investors and is actively considering their feedback.”
In its concluding remarks, Burford wrote: “Short attacks such as this are a fundamental menace to an orderly market and to the value inherent in long-term investing in companies such as Burford that are revolutionising industries.”
“Burford is well equipped to investigate and pursue market manipulators, and as stewards of investor capital, we are exploring doing so here, cognisant of the substantial losses our investors have suffered. Our early investigation already shows the hallmarks of market manipulation.”
Meanwhile, it has been noted that since the Muddy Waters report, Burdford’s stock price has fallen by 48 percent.
Ihor Dusaniwsky, managing director predictive analytics, S3 Partners, found that BUR LN short interest is $101 million; 10.93 million shares shorted; 5.44 percent of its float; stock borrow fee is 0.30 percent fee (general collateral).
Dusaniwsky observed: “Short selling responded as expected, with a surge of selling over the last few days. Shares shorted has increased by +7.7 million shares, +240 percent over the past week as investors quickly reacted to the research report.”
According to Dusaniwsky, short sellers are up $18.1 million in year-to-date mark-to-market profits, of which $9.8 million was generated over the last week.
Burford’s stock price rebounded yesterday as both the CEO, Christopher Bogart, and co-founder, Jonathan Molot, responded by calling Muddy Water’s characterizations “false & misleading.
He also observed that shorts were up +$33.1 million from Monday through to Wednesday but down -$23.3 million yesterday and today.
Dusaniwsky commented: “With Burford’s stock price rebounding, we may see a quick reversal in short seller’s inclinations as some will start buying to cover their short positions in order to lock in their short term profits before they evaporate.”
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