‘Smack Down’ Continues Between Burford and Muddy Waters

Burford Capital says it believes its share prices were illegally manipulated leading up to the Muddy Waters short announcement.

Illustration by II

Illustration by II

Litigation finance firm Burford Capital is punching back against the short seller that questioned its accounting practices Wednesday.

The firm is alleging that it believes its stock prices were illegally manipulated just days before famed short-seller Carson Block’s Muddy Waters Capital announced it had started shorting the company. Muddy Waters has fired back, saying it does not have the trading capability to carry out the activity that Burford is alleging.

Burford had already published a defense of its accounting practices in response to Muddy Waters on Thursday, after its share price dropped steeply as investors worked to understand the situation.

“We believe that trading shows evidence consistent with illegal market manipulation,” according to Burford’s Monday announcement.

The firm said it has hired law firms Quinn Emanuel Urquhart & Sullivan, Freshfields Bruckhaus Deringer, and Morrison & Foerster and “made regulatory authorities and criminal prosecutors aware” of what it believes to be illegal activity.


“Burford’s market-leading business today is the same as Burford was a week ago,” Burford’s chief executive officer, Christopher Bogart, said in a statement. “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 is wrong and that is illegal.”

According to Burford, it spotted two types of trading activities in its stock that aroused its suspicions of wrongdoing: spoofing and layering. Spoofing occurs when a high volume of trading orders equal to or better than the best-bid-best-offer price are made, then canceled, according to Burford. This moves a stock’s price without any trading being made, the company said in its announcement.

Layering involves making then canceling multiple orders at different prices to create the impression of high buying or selling pressure. “These orders are virtually certain not to be filled but they affect pricing by suggesting falsely that there is a large volume of shares for sale,” according to Burford.

“Spoofing and layering are issues that have arisen in the high frequency and computer-driven trading world and Muddy Waters has neither the capability nor the incentive to engage in these practices,” Block said in a statement. “They have nothing to do with us.”

Burford says that its trading activity around the time that Muddy Waters tweeted that it planned to short another company (without revealing the name of the company) showed signs of these manipulative tactics.

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According to Burford, before Muddy Waters announced that it was short the company, it reduced its short position.

“We posted an innocuous tweet the day prior to publishing our report,” Block said in a statement. “We were very surprised by the share price fall, so felt we had to de-risk our position given how significant a proportion of our fund it was until we fully understand what was happening. This is entirely normal and there is no market manipulation.”

Muddy Waters also tweeted Monday that if Burford brought it to court, the firm would “smack” Burford and “any supposed expert down hard.”