Muddy Waters says Burford ‘continues to evade key questions’ about its accounting policies
Shortseller Muddy Waters today slammed Burford Capital’s defence of its accounting policies and said the litigation funder “continues to evade key questions”.
Muddy Waters launched a bear attack on Burford last month, questioning its use of fair value accounting and sending its share price down 40 per cent.
Burford funds legal cases in return for a slice of any settlement or damages award, an industry that has boomed in recent years as investors search for yield.
Yesterday, Burford issued a 45-page presentation to investors which defended its practice of recognising revenue from unfinished legal cases, so-called fair value accounting.
Read more: Muddy Waters accuses Burford Capital of deceiving investors
Burford said its track record suggests its use of fair value adjustments was “reliable and judicious”.
It said that of its 76 entirely concluded investments, only 26 (34 per cent) had any fair value increases during their lifetimes.
Burford said its present portfolio included $717m (£574.7m) of unrealised gains across 111 investments.
It also said it expects to recover in excess of $1.7bn from a series of cases against the Argentinian government following the renationalisation of state oil company YPF.
Read more: Burford Capital alleges ‘market manipulation’ ahead of Muddy Waters short attack
Muddy Waters said the presentation “fails to address the key issues” and said: “This is typical Burford speak – to write so much, and yet say so little.”
The shortseller alleged that Burford was manipulating which cases it considered concluded to avoid having to write down losses.
“The verbose discussion of Burford’s concluded cases is only helpful in illustrating how much of its booked fair value gains are from cases it has not deemed ‘concluded’: $717m in un-concluded versus approximately $130m of FV gains in ‘concluded’ cases.
“We believe Burford is manipulating the cases it deems ‘concluded’ in order to avoid truing up marks,” Muddy Waters said.
Muddy Waters said Burford “continues to evade key questions” and accused it of using “attorney-client privilege as a false pretence to avoid providing real transparency into its accounting”.
Burford’s share price closed down 4.2 per cent today at 834p, having closed up five per cent yesterday following its investor presentation.