Woodford hit by new share collapse
ANOTHER of his big bets goes sour after hedge fund attacks ‘Enronstyle’ accounting at Burford Capital
NEIL Woodford suffered a £155m paper loss after a blistering attack on one of his holdings for ‘Enron- esque’ accounting which has allegedly misled the markets.
The beleaguered fund manager’s bet on lawsuit funding firm Burford Capital went badly awry as shares fell 46pc following the assault by hedge fund Muddy Waters Research.
In a brutal 25-page dossier, Muddy Waters said Burford’s accounting practices hide the fact it is close to running out of cash.
The hedge fund, which is betting on a fall in Burford’s share price, compared the book-keeping to that used by oil firm Enron before it failed in 2001 in one of the biggest-ever corporate scandals.
It also took aim at the company’s leadership structure, lambasting the fact that its chief executive, Christopher Bogart, and finance boss Elizabeth O’Connell ( pictured) are married. The hedge fund said that Bogart, 53, had sold £54.6m of stock in the business over the years, and that there were four previous finance chiefs at Burford before O’Connell.
all the claims are strongly denied by Burford.
Muddy Waters said: ‘ Burford’s governance structures are laughter-inducing. In a situation so ripe for abuse, the very least the company could do is to have an independent chief financial officer.
‘These facts beg the question “Is Elizabeth O’Connell the only chief financial officer who can be relied upon to approve the accounts?”’
Shares in Burford have plunged 56pc since Monday, when rumours of the report began circulating, wiping £1.5bn off the firm’s market value. Yesterday, after the explosive dossier was released, shares fell 46pc, or 516p, to 605p.
It piles further pressure on Woodford, who has a 9pc stake.
He is in a sticky spot, after a flurry of investor withdrawals from his Equity Income fund forced him to lock in savers’ money. He is trying to sell shares to raise cash to pay clients back.
Burford – an aIM-listed company that bankrolls lawsuits by business and individuals, then takes a cut of the winnings if they succeed – was a rare bright spot in his portfolio, before the stock dived this week.
Muddy Waters’s key gripe against Burford is that it books profits before the money has actually come in, using a controversial accounting technique called mark to model, which makes assumptions about future income.
The hedge fund claims Burford is assuming it will get vast future profits that may never materialise if it loses cases, in an echo of the practices which brought down Enron almost two decades ago.
Strip away money that has been booked as profit but not received, Muddy Waters said, and it looks to be in a precarious state. It said: ‘It is arguably insolvent.’
The hedge fund targeted Invesco – Burford’s biggest shareholder with a 14pc stake – and one of its fund managers Mark Barnett. Woodford used to work at Invesco and Barnett took over his flagship fund.
Muddy Waters alleged that Invesco ‘bailed out’ Burford from a case where it would have made a significant loss claiming Invesco engineered a buyout of Napo Pharmaceuticals by Jaguar animal Health.
Invesco said: ‘ We refute any accusation of improper or unethical behaviour on behalf of Invesco or fund manager Mark Barnett.’
Muddy Waters is short- selling Burford Capital, meaning it profits from any fall in the firm’s share price. It has made a profit of more than £12m after yesterday’s falls.