Watch­dog in­ves­ti­gates Bur­ford short seller

City watch­dog to scru­ti­nise US short seller’s ac­tions as lit­i­ga­tion fun­der al­leges it was vic­tim of il­le­gal ac­tiv­ity

The Daily Telegraph - - Front page - By and

The US short seller Muddy Wa­ters faces close scru­tiny of its lu­cra­tive raid on Bur­ford Cap­i­tal, af­ter its bat­tered tar­get al­leged crim­i­nal ma­nip­u­la­tion of the stock mar­ket and the City watch­dog pledged “wide-rang­ing” in­quiries. The Fi­nan­cial Con­duct Au­thor­ity said it had been ex­am­in­ing the at­tack on Bur­ford since last Tues­day, when ru­mours that it would be tar­geted first cir­cu­lated among traders and trig­gered a mass sell-off. It said its in­quiries would con­tinue.

‘The FCA has been aware of th­ese mat­ters since the first tweet and price move­ments on Tues­day of last week’

Michael O’dwyer

Harriet Rus­sell

THE US short seller Muddy Wa­ters faces close scru­tiny of its lu­cra­tive raid on Bur­ford Cap­i­tal, af­ter its bat­tered tar­get al­leged crim­i­nal ma­nip­u­la­tion of the stock mar­ket and the City watch­dog pledged “wide-rang­ing” in­quiries.

The Fi­nan­cial Con­duct Au­thor­ity said it has been ex­am­in­ing the at­tack on Bur­ford since last Tues­day, when ru­mours it would be tar­geted first cir­cu­lated among traders and trig­gered a mass sell-off.

A gnomic af­ter­noon tweet by Muddy Wa­ters had in­di­cated a Bri­tish com­pany was in its sights. The Cal­i­for­nia-based firm did not pub­lish its highly crit­i­cal report on Aim-listed Bur­ford’s fi­nances and gov­er­nance un­til Wed­nes­day morn­ing.

An FCA spokesman said: “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 widerang­ing in­quiries. We will con­tinue to make in­quiries us­ing the wide range of data and re­sources at our dis­posal.”

The City watch­dog con­firmed its in­ter­est as the war of words be­tween Bur­ford and Muddy Wa­ters es­ca­lated, as each side fiercely de­nied wrong­do­ing and branded the claims of the other “pre­pos­ter­ous”. The com­pany said it was in con­tact with au­thor­i­ties over what it claimed was “ac­tiv­ity con­sis­tent with ma­te­rial il­le­gal ac­tiv­ity”.

Bur­ford said its own pre­lim­i­nary con­clu­sions fol­lowed a “foren­sic ex­am­i­na­tion” of stock ex­change data by Pro­fes­sor Joshua Mitts, a Columbia Univer­sity aca­demic.

It fo­cused on spe­cific short pe­ri­ods of trad­ing last week when a high num­ber of or­ders for Bur­ford shares were placed but sub­se­quently can­celled. Bur­ford claimed its find­ings demon­strated il­le­gal prac­tices known as “lay­er­ing” and “spoof­ing”, hall­marks of at­tempts to ar­ti­fi­cially drive down the price. Short sellers profit when a share falls in value.

Bur­ford said it saw “no non-ma­nip­u­la­tive ex­pla­na­tion” for the “un­usual flood of sell-side can­cel­la­tions” recorded in the sec­onds just be­fore Muddy Wa­ters sent a tweet on Wed­nes­day morn­ing with a link to its report.

“We have been a vic­tim of what is prob­a­bly a crime,” Christo­pher Bog­art, Bur­ford’s chief ex­ec­u­tive, claimed to The Daily Tele­graph. “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.”

Muddy Wa­ters im­me­di­ately hit back, claim­ing that “the only ma­nip­u­la­tion is that of Bur­ford’s re­turn met­rics, ac­counts, and dis­clo­sures”. The short seller said that spoof­ing and lay­er­ing were is­sues that arise in high fre­quency and com­puter-driven trad­ing, which it has “nei­ther the ca­pa­bil­ity nor the in­cen­tive to en­gage in”.

“We posted an in­nocu­ous tweet the day prior to pub­lish­ing our report. We were very sur­prised by the share price fall, so felt we had to de-risk our po­si­tion,” Muddy Wa­ters said.

It added on Twit­ter: “If Bur­ford wants to bring that to court, we will smack Bur­ford and any sup­posed ex­pert down hard.”

Bur­ford, which counts strug­gling fund man­ager Neil Wood­ford as its sec­ond largest backer, is con­tin­u­ing its analysis and “con­sid­er­ing next steps”. It will con­tinue to mon­i­tor trad­ing ac­tiv­ity, it said.

Bur­ford shares, which changed hands for £14 prior to Muddy Wa­ters’ at­tack, ended the day down 11pc at 755p, valu­ing the com­pany at £1.7bn.

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