Burford chiefs under fire over secret payouts haul
Just how much HAVE they extracted from legal firm, short-sellers ask – as MoS reveals deals worth £216m
THE bosses of Burford Capital were last night facing questions about how much money they have extracted from the embattled legal firm as they fight back against allegations that they misled investors over its financial health.
The AIM- listed litigation finance company, which has come under heavy attack from American hedge fund Muddy Waters, refused to say how much it had paid chief executive Christopher Bogart and chief investment officer Jonathan Molot since 2012.
However, The Mail on Sunday can reveal that the pair made £15 million in fees in the three years prior to that from advising the main listed company over which legal cases to finance.
In 2012, they also received shares worth £200 million at today’s price in an ownership shake- up. They sold some of them for nearly £120 million last year.
Toronto-born Bogart and his wife Eli z abeth O’Connell, a former investment banker who was last week removed as Burford’s chief financial officer, live in a plush six-bedroom mansion in an upstate New York neighbourhood popular with the super-rich.
Carson Block, the founder of Muddy Waters, which has cashed in as Burford’s value has slumped by £1 billion, last night told The Mail on Sunday: ‘It looks as though they’re getting paid a lot of cash out of the business because the expenses are so high relative to the balance sheet.’
Burford’s staff costs were $50 million (£41.1 million) last year, covering 120 employees. The questions about pay mark the latest chapter in an extraordinary battle which has pitted Burford – an AIM darling that has become popular among private investors after its rapid share price rise – against tenacious American hedge funds.
Muddy Waters, run by short-seller Block, has spearheaded the attack, claiming the firm has misled investors over the health of its balance sheet. Gotham City, a similar hedge fund, has also taken aim at Burford. Muddy Waters compared Burford’s accounting practices to those of Enron, the American energy company that cooked its books before going bust in 2001.
Burford, whose investors include Neil Woodford, has hit back with allegations of market manipulation, claiming traders have artificially pushed down t he price of its shares.
City regulator the Financial Conduct Authority is investigating Burford’s claims – which Muddy Waters says have nothing to do with it or its activities – while the American firm has handed its dossier on Burford to the FCA and urged it to launch a probe.
The attack by Muddy Waters on the company’s accounting and corporate governance practices has hammered what was – at £3 billion – the largest company on London’s junior stock market by value before the short-selling assault.
Muddy Waters made millions of pounds from the collapse by betting against the shares through short-selling – borrowing shares, selling them, then later buying them back at a lower price for a profit.
Burford, which finances legal cases for a share of the winnings, is now battling to improve its governance.
On Thursday, the firm indicated it would look to secure a secondary listing in the US. If it fails, it will seek to graduate from AIM to a premium listing on London’s main market, maybe catapulting it into the FTSE 250.
However, The Mail on Sunday can reveal that Burford is the only company on the FTSE AIM 50 index – which charts the largest firms on the junior stock market – that does not adhere to the two traditional governance codes
set by the Financial Reporting Council and the Quoted Companies Alliance. Instead, it complies with the Guernsey Finance Sector Code of Corporate Governance. Burford would have to move to the FRC’s code if it wants to move up to the main London market. Burford said it was happy with the Guernsey code, which it said is similar to the UK codes.
Its listing intentions were announced alongside a series of board and management changes to placate investors, including the removal of Bogart’s wife O’Connell as chief financial officer.
O’Connell, an American, had come under intense scrutiny after Muddy Waters branded her appointment ‘unforgivable’ over the potential conflict of interest in signing off the company accounts. Burford has strenuously rebuffed any suggestion that she was compromised, but it has now moved her into the role of chief strategy officer.
The shake-up also led to chairman Sir Peter Middleton, the 85-year-old former Barclays boss, confirming he would be stepping down – but not until 2021.
The company said Bogart, a former Time Warner executive, would be joining the board ‘in due course’, at which point his pay will have to be disclosed.
However, investors will still not know how much he was paid between 2012 and 2018 when he was chief executive but not a board member. A source said the company may decide to reveal his past remuneration to demonstrate transparency.
Despite founding the company in 2009 when it floated, Bogart and Molot, a former law professor at Georgetown University, were not officially employees of Burford Capital, the AIM-listed business, until 2012.
They were ‘ principals’ of and owned a Guernsey-registered company called Burford Group Limited, Burford Capital’s so- called investment adviser. That firm received management and performance fees from the listed Burford Capital company.
Between 2009 and 2012, Burford Group Limited received fees totalling £14.8 million.
The company said the complex structure of the overall group reflected its status as an investment company and was a standard arrangement. In a stock market announcement in 2012, Burford admitted the structure and fees paid to a separate company owned by Bogart and Molot had ‘the potential to create misalignment’.
After deciding to change the structure so that Burford Group became part of Burford Capital, the company compensated Bogart and Molot by giving them each a 6 per cent stake in the listed business.
Following the company’s stunning rise on the stock market, those shares would now be worth £ 201 million. They cashed in by selling £120 million of shares last year at £13.50 each – then bought back some at half the price following the Muddy Waters short-selling attack.
Muddy Waters att acked t he change in the company’s structure when the Guernsey-registered firm became part of Burford Capital. It claimed it was ‘really a contrived effort to enrich insiders’, referring to the shares handed to Bogart and Molot.
The company said the change to a speciality finance operating business was approved by shareholders.
The hedge fund has also heavily criticised the lack of transparency around the relationship between Bogart and O’Connell, both 53.
The Mail on Sunday can reveal that the couple’s mansion in upstate New York is in the wealthy neighbourhood of Briarcliff Manor and overlooks the Hudson River. It boasts a swimming pool alongside its six bedrooms. They bought it for $2.25 million (£1.85 million) in 2005, before Burford was founded.
Briarcliff Manor was known as a place for historic super-rich American families such as the Rockefellers to entertain guests on their estates. It is also the location of the extravagant mansion Denzel Washington’s drug dealing character buys in t he Hollywood movie American Gangster.
Bogart is also the chairman of the Zoning Board of Appeals of Briarcliff Manor, which oversees local planning decisions. The house on Revolutionary Road, which originally had eight bedrooms, was used as the headquarters for Bogart and O’Connell’s last company, Churchill Ventures. Bogart was chief executive and O’Connell was chief financial officer. Their marriage was disclosed in documents filed when it floated on the American Stock Exchange, a small companies market, in 2006.
Churchill Ventures was a shell company which raised $100 million on the stock exchange to buy a company in the ‘communications, media or technology industries’. But it never made an acquisition and was wound up two years later.
As the headquarters was the couple’s house, the company was charged a monthly fee of $7,500 for ‘office space and administrative services’ by Churchill Capital Partners LLC, which was owned by Bogart, O’Connell and two other directors. However, these fees were paid from money invested by the quartet, a spokesman said.