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Burford Capital Claims Market Manipulation — Again

The firm has issued a report from a Columbia University professor purporting to show that manipulation took place.

Litigation finance firm Burford Capital has made good on its plans to involve regulatory authorities in its investigation into alleged manipulation of its stock price.  

On Monday, the firm shared an analysis of its share prices that purportedly shows stock price manipulation, as well as a request it filed in a London court asking the London Stock Exchange to release information on who exactly was trading those stocks.  

This comes after Carson Block’s high-profile short-selling firm Muddy Waters Research announced that it was shorting Burford back in early August. Muddy Waters said it was shorting Burford because it believed that Burford was “egregiously misrepresenting” its return on invested capital and internal rates of return. 

After Muddy Waters issued its report, Burford claimed its stock prices were illegally manipulated and said it had hired a law firm to help it pursue legal action.  

At issue are stock orders from August 6, the day that Muddy Waters tweeted that it would announce a new short position the next day, and August 7, the day that the firm announced it was shorting the company. Burford claims its shares were the victim of two market manipulation tactics — spoofing and layering — during that time period.  

According to the report completed by Columbia University associate law professor Joshua Mitts and published by Burford on Monday, both practices took place. Mitts describes spoofing and layering as “the creation and cancellation of a large volume of limit orders which distorts the supply and demand for a security.”

According to Mitts’ report, “The decline in the price of Burford’s stock on 6 and 7 August was driven by large waves of sell-side order cancellations.” He added that during five one-minute periods on August 6, the firm’s stock fell 6.5 percent.  

As a result of its belief that spoofing and layering took place, Burford has sought trading data from the London Stock Exchange. 

“It is not possible to identify, on the basis of the publicly available trading data, which market participants were involved in the unlawful trading,” the firm wrote in its court request.  

Burford said it is seeking information on the identities of the individuals and entities that were placing orders, as well as information on the orders that would allow the firm to “differentiate between legitimate trading and market abuse.” 

“The Financial Conduct Authority is the competent public authority responsible for investigating allegations of market abuse, where there are reasonable grounds for doing so and taking action, including potential criminal proceedings, where the evidence supports it,” a spokesperson for the London Stock Exchange said in a statement via email. “London Stock Exchange provides any information the FCA requires from it for the purposes of their investigations.” 

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

Meanwhile, Muddy Waters is not backing down.  

“Burford is recycling this spoofing and layering quasi-allegation to distract attention from the real issues of its manipulation of financials, decrepit governance, and questions it refuses to answer,” Block said in a statement via email. “Spoofing and layering are issues that have arisen in the high frequency and computer-driven trading world, and Muddy Waters has zero capability to engage in these practices.” 

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