Muddy Waters short seller report

Wednesday, Aug 07 2019 by

See link to Muddy Waters short seller report.

Burford short

I've held Burford all the way up from 180p, and think they've picked the wrong target. For instance Burford just announced that it has over $400 million of cash and cash equivalents on hand as of 5 August 2019.  Carson Block seems like a sound guy, very knowledge-able. Also Muddy Waters were very good at finding fraudulent Chinese companies listed in London and New York. So will read with interest. As I say, I'm long Burford and think they've picked the wrong target, but DYOR!

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Burford Capital Limited is a Guernsey-based finance and investment management company focused on law. The Company's businesses include litigation finance and risk management, asset recovery and a range of legal finance and advisory activities. It provides investment capital, investment management, financing and risk solutions with a focus on the legal sector. Its segments include provision of investment capital in connection with the underlying asset value of claims; investment management activities; provision of litigation insurance; and exploration of new initiatives related to application of capital to the legal sector until such time as those initiatives mature into full fledged independent segments. Its provision of litigation insurance segment reflects the United Kingdom and Channel Islands litigation insurance activities. more »

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99 Posts on this Thread show/hide all

shanklin100 Wed 7:26am 80 of 99

This article, second part on Burford Capital (LON:BUR), is in The Times today.

Whatever level of trust one has in BUR, it is evident they have gone out of their way to ignore UK governance norms, however sensible or arbitrary many of these norms may be... ...and however much they may or may not be flouting US governance norms.

Provided, there is no fire at BUR, to go along with the MW smoke, I don't see what harm there would be in BUR moving to be less out on a limb on:
- changing auditor
- changing the board composition
- getting away from the botched appointment of the CEO's wife as CFO without informing the market at the time.

BTW, good to hear about Charles Utley,, who seems entirely appropriately qualified in terms of heading the finance function internally, whilst the CFO does the PR.

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pka Wed 8:02am 81 of 99

I have now read Muddy Waters' response to Burford's defence:

Although I think there is much to criticise in Muddy Waters' shorting tactics last week, I'm coming round to the view that they may have made some valid points about Burford's accounting practices and its corporate governance.

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shipoffrogs Wed 8:09am 82 of 99

In reply to post #504346

On governance - we were told that staff would be buying shares following the collapse but to date there have been no PDMR purchase announcements.

Does this mean that only two senior staff have been buying shares or managerial responsibility is tightly concentrated in those two individuals?

All that aside they issued an RNS in April 2015 announcing staff purchases, without referencing PDMRs.

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extrader Wed 8:12am 83 of 99

In reply to post #503326

Hi gromley,

Thanks for the diversion into the precise meaning of 'egregious'.

The word derives from 'ex gregis' - not one of the flock ie 'out of the ordinary' - the flock being of sheep, originally.

Make of that what you will !


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Luthrin Wed 9:04am 84 of 99

In reply to post #504401

"On governance - we were told that staff would be buying shares following the collapse but to date there have been no PDMR purchase announcements."

Burford Capital - Notification of transactions by PDMRs - 9 August 2019

Burford Capital - Notification of transactions by PDMRs - 14 August 2019

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dmjram Wed 9:27am 85 of 99

In reply to post #504431


Quite thin then - c£450k of purchases including a director that previously had no holding.

Would have expected far more "boot filling" if claims about future profits etc were so wrong as management claim. If the directors are correct that then it's only a matter of time before the shares re-rate and its an opportunity to buy at a bargain price off c40% from before the Muddy Waters intervention.

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shipoffrogs Wed 9:34am 86 of 99

In reply to post #504431


that's two non-executives and just two PDMRs so far (and both those PDMRs took much, much bigger amounts out in share sales not so long ago).

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intuitive6191 Wed 1:35pm 87 of 99

In reply to post #504346

Two articles in Tuesday's Times (printed version). One by Alistair Osbourne - which might be the first article. Shanklin links to the second article his post above.

The other was by Patrick Hosking the Financial editor of the Times in his business comment section.

Neither is particularly supportive of Burford, in fact I was surprised by the blunt nature of the articles.

No position.

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Laughton Wed 2:38pm 88 of 99

For those that care - have received email from Ben. He is on the case.

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Furtim Fri 7:48am 89 of 99

Muddy Waters released another..

"Behavioral Analysis of Burford’s Response Indicates Significant Deception"..

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Snoo Fri 7:58am 90 of 99

Seems fairly weak this time and I can't see this making any difference, or even Burford responding to it.

I daresay that many would have made good money simply trading the news over the past week.

Like Plus500 I think trust is going to be a significant barrier here to the shares trading at any decent multiple for the short-term at least.

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Martin C Fri 7:28am 91 of 99

In reply to post #505231

Not sure trust is the issue here, more that its become increasing clear how difficult it is to value Burford - and that for me is why i remain out, having previously been a long term holder. 

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xcity Fri 9:37am 92 of 99

I don't think this changes anything. Only the biased failed to see evasion, aggression and persuasion in the Burford Capital (LON:BUR) original response. Although it would certainly help MW in any litigation initiated by the top legal firms hired by Burford Capital (LON:BUR). I will admit that when I saw that list I wondered whether a serious litigant would hire a list of flashy legal firms; seemed more an attempt at awe than shock to me.

The changes to governance and the getting quoted on NYSE/NASDAQ or switching out of AIM to the main market are all to the good, although they still don't address the accounting and reporting concerns. The market will be relying on the new people tackling any currently hidden issues in these areas. At best that will take some time. At worst there's a problem, but they don't see it.

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willhampson Fri 10:34am 93 of 99

In reply to post #505286

Not sure I follow the flashy point. Freshfields would advise on UK matters and Quinn would be for US matters (Muddy Waters being based there). MoFo have technical expertise on high frequency matters. High value and complex disputes are seldom handled by a single law firm these days.

The original response was a legal response, written by a company that funds legal disputes and was written by lawyers. The tone was hardly surprising I thought.

I do think the update yesterday was a good move forward and hopefully will tone down a bit of the arrogance in the way Burford have previously acted/reported information (e.g. summarily dismissing any problem with just an AIM listing etc and now doing a bit of a 360).

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Maddox Fri 11:39am 94 of 99

I welcome these proposed governance changes, especially having a US listing. It shows that BUR value and listen to their shareholders, even when they don't necessarily agree with them.

Specifically, the one change that I don't like is replacing Elizabeth as CFO, for a number of reasons:

>> Firstly, she's perfectly competent and a good communicator, her explanations are very clear;

>> Secondly, replacing her with another white bloke, adds nothing;

>> Thirdly, and more importantly it places more credibility on this nasty suggestion that Christopher and Elizabeth are in cahoots in some way to hoodwink investors.

On this last point I think it would be better to defend it with straight bat.

I find it very difficult to understand why marriage or indeed any form relationship between two directors is a cause for criticism?  It seems to suggest that their behaviour will be compromised. 

Does this mean that shareholders should be insisting on the removal of husbands, wives, partners and perhaps sons, daughters or even close friends from all boards? If so, should this be a listing rule, and perhaps auditors should comment on a board member's sleeping arrangements?

Regards Maddox

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shanklin100 Fri 12:42pm 95 of 99

I viewed yesterday as a first step in the right direction on governance, and without a first step they will never get to where they need to be. Over the next few months they are certainly going to be busy on the disclosure and governance if they are to get a listing on one of the Nasdaq, NYSE or LSE by end Q1 2020.

Obviously the new FD is not ideal and, as described so far, reformulation of the Board will not be as quick as many would want; however I do wonder if they may under-promise and over-deliver in what I imagine will be more Governance and disclosure RNSs over the next days, weeks and months.

Time will tell.

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xcity Fri 12:56pm 96 of 99

In reply to post #505396

As you say Kilman isn't ideal from a perceived governance point of view. Plus ça change.
We'll see. At least it is a degree of change.

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abtan 9:34am 97 of 99

Can anyone please explain to me the advantage of a main listing for a relatively mature company?

I see a lot of online commentators saying a main listing will improve governance for Burford Capital (LON:BUR) , but I must admit to not really understanding why and none of the comments I read online really explained why either.

As far as I was aware an audit was supposed to verify the numbers (ha!) and one of those is required whichever market one is listed on. And I'm sure Deloitte don't perform inferior audits simply because a company is listed on AIM.

So why the push for a main market listing? I might understand it for a new company which could, for example. reverse into a cash shell, and with liquidity not exactly an issue for a company such as Burford Capital (LON:BUR) what would be the point?

Thanks in advance

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timarr 10:14am 98 of 99

In reply to post #505571

I see a lot of online commentators saying a main listing will improve governance for Burford Capital (LON:BUR) , but I must admit to not really understanding why and none of the comments I read online really explained why either.

The primary difference is that company regulation on AIM is outsourced to nominated advisors (Nomads) who are paid for by the companies themselves, creating a interesting conflict of interest - essentially it's a form of self-regulation. 

The other main differences are that main market companies have to follow the UK Corporate Governance Code while AIM companies can choose the governance code they follow. Most (89%) AIM companies follow the QCA Corporate Governance Code.

Technically there are a lot of differences between the codes, but the main ones are probably that audit committee requirements don't apply under QCA - basically the audit committee doesn't have to be independent - and that there are no remuneration requirements, including disclosure.  For small companies these probably aren't major issues, but for companies the size of Burford they really ought to be.

However, Burford doesn't adhere to QSA either - it reports against the Guernsey Finance Sector Code of Corporate Governance.  I have no insight into how strong that is.

In terms of how AIM regulation works and the types of frauds that have been perpetrated this is worth a read:

Broadly, though, only putting your trust in auditors to protect you from fraud isn't wise. We have to make our own judgements about accounts and the management of the companies we invest in. And even then we may be blindsided, as we saw with Patisserie Holdings (LON:CAKE) where spotting the fraud from the outside was pretty much impossible.


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xcity 11:34am 99 of 99

I suspect that spotting the fraud from inside Patisserie Holdings (LON:CAKE) would have been very hard too, given the apparent methodology and the deliberation over a number of years. Would probably have needed a nuts and bolts man visiting and checking on the detailed working practices of individual units. I think that what top managers should do, but most, it seems, don't agree with me.
Doubt if Goals Soccer Centres (LON:GOAL) would have been possible either unless you were involved. Many frauds are deep in the money side so there aren't many clues for insiders to pick up.
Was Conviviality (LON:CVR) a fraud or just hubris and incompetence?

wrt AIM versus the main market, it's worth looking at GVC Holdings (LON:GVC). Started on AIM. The bwin takeover was only achieved with promise to move to main market. Kenny Alexander is a shrewd cookie; he knew that AIM was lower cost and granted more flexibility which was important as he was building it up, but that being on the main market was required for big league credibility.

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