The Financial Conduct Authority (FCA) is looking into claims that the share price of Burford Capital – the second-largest holding in Neil Woodford’s suspended fund – was illegally manipulated around the time of an attack by US hedge fund Muddy Waters.
Burford, which provides funding for legal action and takes a cut of the resulting settlements, saw its share value nosedive over the past week after Muddy Waters took a short position on the stock, betting that its value would fall, before publishing a damning report on the company’s financial health.
On Monday Burford said it examined trading data covering 6 August, when Muddy Waters tweeted about a forthcoming but unidentified short target, and 7 August, when the hedge fund released its report and started shorting the stock. The data suggested trading was “consistent with material illegal activity”.
An FCA spokesperson responded: “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.”
Burford said it detected signs of spoofing and layering – illegal methods of driving down share prices, which have resulted in convictions previously.
For example, trading data showed that there was “an unusual flood” of order cancellations beginning shortly before Muddy Waters’ original tweet. Burford also said: “While Muddy Waters was suggesting that Burford was insolvent, it was at the same time buying Burford shares.”
In its report, Muddy Waters labelled Burford a “poor business masquerading as a great one”. Burford’s shares plunged by 65 per cent over the course of 6 and 7 August, with almost £2bn wiped off the firm’s value.
The following day, Burford hit back against the report, accusing Muddy Waters of peddling “factual inaccuracies” and “fallacious insinuations”.
Christopher Bogart, chief executive of Burford, said the company’s “market-leading” business is the same as it was a week ago.
He said: “What has changed is that a substantial amount of market value was wiped out by activity we believe is consistent with illegal market manipulation that has nothing to do with Burford’s business. That is wrong and that is illegal.”
PA
