Burford responds to Muddy Waters鈥� short attack
09 August 2019 New York
Image: Shutterstock
Burford Capital has responded to short attack report which accused Burford of actively misleading investors.
In its report, Muddy Waters said: 鈥淔or years, it was the ultimate 鈥榯rust me鈥� 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.鈥�
鈥淭his has all recently changed though. Just this year, Burford began publishing more detailed investment data.鈥�
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: 鈥淭he Muddy Waters report is false and misleading.鈥�
The Muddy Waters report continued to say Burford鈥檚 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 鈥淏urford is a perfect storm for an accounting fiasco. BUR鈥檚 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鈥�.
Elsewhere in the report, Muddy Waters claimed that Burford鈥檚 liquidity is risky and is 鈥渁rguably insolvent.鈥�
Responding to the report, Burford wrote: 鈥淏urford is solvent, generates strong cash flow and has good access to expansion capital.鈥�
Burford continued: 鈥淭he suggestion that Burford is 鈥榓rguably insolvent鈥� is baseless. Presumably, the reason 鈥榓rguably鈥� is inserted is because Muddy Waters knows they would lose a lawsuit if they accused Burford of insolvency, and they know they can鈥檛 support such a claim.鈥�
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: 鈥淏urford鈥檚 accounting and financial reporting is transparent, appropriate and has been consistent for many years.鈥�
鈥淏urford鈥檚 governance is robust and serves the business well鈥擝urford has been listening to investors and is actively considering their feedback.鈥�
In its concluding remarks, Burford wrote: 鈥淪hort 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.鈥�
鈥淏urford 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.鈥�
Meanwhile, it has been noted that since the Muddy Waters report, Burdford鈥檚 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: 鈥淪hort 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.鈥�
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鈥檚 stock price rebounded yesterday as both the CEO, Christopher Bogart, and co-founder, Jonathan Molot, responded by calling Muddy Water鈥檚 characterizations 鈥渇alse & 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: 鈥淲ith Burford鈥檚 stock price rebounding, we may see a quick reversal in short seller鈥檚 inclinations as some will start buying to cover their short positions in order to lock in their short term profits before they evaporate.鈥�
In its report, Muddy Waters said: 鈥淔or years, it was the ultimate 鈥榯rust me鈥� 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.鈥�
鈥淭his has all recently changed though. Just this year, Burford began publishing more detailed investment data.鈥�
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: 鈥淭he Muddy Waters report is false and misleading.鈥�
The Muddy Waters report continued to say Burford鈥檚 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 鈥淏urford is a perfect storm for an accounting fiasco. BUR鈥檚 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鈥�.
Elsewhere in the report, Muddy Waters claimed that Burford鈥檚 liquidity is risky and is 鈥渁rguably insolvent.鈥�
Responding to the report, Burford wrote: 鈥淏urford is solvent, generates strong cash flow and has good access to expansion capital.鈥�
Burford continued: 鈥淭he suggestion that Burford is 鈥榓rguably insolvent鈥� is baseless. Presumably, the reason 鈥榓rguably鈥� is inserted is because Muddy Waters knows they would lose a lawsuit if they accused Burford of insolvency, and they know they can鈥檛 support such a claim.鈥�
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: 鈥淏urford鈥檚 accounting and financial reporting is transparent, appropriate and has been consistent for many years.鈥�
鈥淏urford鈥檚 governance is robust and serves the business well鈥擝urford has been listening to investors and is actively considering their feedback.鈥�
In its concluding remarks, Burford wrote: 鈥淪hort 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.鈥�
鈥淏urford 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.鈥�
Meanwhile, it has been noted that since the Muddy Waters report, Burdford鈥檚 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: 鈥淪hort 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.鈥�
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鈥檚 stock price rebounded yesterday as both the CEO, Christopher Bogart, and co-founder, Jonathan Molot, responded by calling Muddy Water鈥檚 characterizations 鈥渇alse & 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: 鈥淲ith Burford鈥檚 stock price rebounding, we may see a quick reversal in short seller鈥檚 inclinations as some will start buying to cover their short positions in order to lock in their short term profits before they evaporate.鈥�
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