An attack by Muddy Waters on Burford Capital’s complex accounting just vaporized half the litigation finance firm’s value. Less red tape and disclosure attract listings, but can also make it easier for investors to panic, writes rob_cyran.
Burford Capital’s stock fell by 60% at one point on Aug. 7 following a report by Muddy Waters Capital claiming the litigation finance firm had used aggressive accounting on the value of cases it had invested in to present a misleading picture of investment returns. The short-selling fund also said that Burford was at a high risk for a liquidity crunch, and is “already arguably insolvent.”
The company responded by saying it “believes that the report’s criticisms are without merit” and said it had never been contacted by Muddy Waters. Burford said its returns, cash position and liquidity were strong, but it would need to take on additional external capital to continue its growth, as it had in the past.
Burford’s market capitalization was 3.3 billion pounds in July, making it the biggest company on London’s AIM, the London Stock Exchange’s market for small and growing companies. Burford’s current market capitalization is just over 1 billion pounds.
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