Muddy Waters Stands by Allegations Against Litigation Finance Firm

Burford Capital had good news to share Tuesday — none of which swayed its activist adversary.

Carson Block, chief investment officer of Muddy Waters Capital (Victor J. Blue/Bloomberg)

Carson Block, chief investment officer of Muddy Waters Capital

(Victor J. Blue/Bloomberg)

Burford Capital — which finances lawsuits and takes a cut of any winnings — announced on Tuesday that a lawsuit related to an activist hedge fund’s claims of misconduct had been dismissed. In addition, Burford named four new executives and said it is ready to seek a listing of ordinary shares on a U.S. stock exchange.

According to Morningstar, Burford’s shares were up 2.4 percent at 700.5 pence Tuesday afternoon in London. Now that the U.S. class action suit has been dismissed, Burford said, “there is no litigation pending against Burford at present other than ordinary course skirmishing within a small number of ongoing funded investment matters.” A spokesman declined to comment beyond the press release.

Burford’s moves may be a reaction to Muddy Waters, the activist short seller and hedge fund that started betting against Burford in August. Muddy Waters claimed Burford was “egregiously misrepresenting” its return on invested capital and has questionable financial reporting and governance, according to a report on the activist’s website.

In response, Muddy Waters said Burford’s announcement on Tuesday solves nothing. “None of what they have said today counters the fact that Burford Capital manipulates its performance metrics and abuses the latitude afforded it under fair value accounting,” said founder Carson Block in a statement.

Muddy Waters is a well-known short seller. In 2018, the firm bet against Manulife, Canada’s largest life insurance company, claiming a loophole in life insurance policies posed significant financial risks to the company.


Muddy Waters announced its short on Burford’s stock on August 7, and the stock fell 70 percent in two days. Muddy Waters has since issued four reports detailing what it sees as misconduct at one of the highest-profile firms in litigation finance.

“We would also caution anyone against interpreting the litigation dismissal as affirmation that there is no misleading conduct or wrongdoing at the company. It is nothing more than the reality of the US being overly litigious. Lawsuits get filed and dismissed all the time, which in this case is ironic, given Burford’s own contribution to the clogged toilet that is the U.S. court system,” Block added in the statement.

[II Deep Dive: ‘Smack Down’ Continues Between Burford and Muddy Waters]

In the Tuesday announcement, Burford named Aviva Will and David Perla co-chief operating officers, overseeing global marketing, origination, and underwriting activities. Craig Arnott will take on the role of deputy chief investment officer, keeping his job of growing the firm’s presence in Australia. Mark Klein, general counsel, will also become the firm’s chief administrative officer. Recruiter Korn Ferry will lead a search to replace two independent directors, who previously announced their resignations. The company will nominate CEO Chris Bogart to join the board as an insider.

After Muddy Waters announced the short position this summer, Burford claimed the activist had illegally manipulated its stock. The short seller responded that it didn’t have the trading capability to even handle the activities that the litigation finance firm outlined.

As part of its original report, Muddy Waters also criticized elements of Burford’s management structure, including that the chief financial officer is married to CEO Bogart.

CFO Elizabeth O’Connell has since become chief strategy officer, but continues to be one of eight executives on the firm’s management committee, along with the four newly named executives: Bogart, CIO Jonathan Molot, CFO Jim Kilman, and O’Connell.