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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123 Posts on this Thread show/hide all

Luthrin 14th Aug 84 of 123

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 14th Aug 85 of 123

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 14th Aug 86 of 123

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 14th Aug 87 of 123

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 14th Aug 88 of 123

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

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Furtim 16th Aug 89 of 123

Muddy Waters released another..

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

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Snoo 16th Aug 90 of 123

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 16th Aug 91 of 123

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 16th Aug 92 of 123

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 16th Aug 93 of 123

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 16th Aug 94 of 123

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 16th Aug 95 of 123

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 16th Aug 96 of 123

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 17th Aug 97 of 123

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 17th Aug 98 of 123

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 17th Aug 99 of 123

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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abtan Sun 3:59pm 100 of 123

In reply to post #505576

Hi Timarr

Interesting, thank you for responding.

Perhaps I'm missing something but from a quick glance at the Burford Corporate Governance page (here) it seems as thought Burford Capital (LON:BUR) do appoint an independent audit committee. I agree that reimbursement should be disclosed though.

And that article was certainly insightful, thanks for sharing. It's interesting which examples that were picked to show fraud in AIM. In my opinion those examples could just as easily have applied to Main Listed companies.

You mentioned Patisserie Holdings (LON:CAKE) as an example of a main market listing gone wrong. 

In my mind Plus500 (LON:PLUS) are in the same boat. They had been lying to investors for years with regards to how their profits were made. I recall that they further lied on their profit sources in a response to Graham (Neary), which he published here on Stockopedia. 

When they finally disclosed where their profits actually came from, they brushed the lack of transparency off as a "typo" and, unless I've missed the news, they seemed to have gotten away with it without any repercussions. 

It beggars belief that they are now allowed to list on the Main Market after misleading investors for so long. 

I am of course aware that the "fraud" occurred whilst the company was on AIM, but the same "typo" could easily have happened if they were listed on the main market, so from an investor's point of view, it wouldn't really have mattered where the listing was.

Anyway, I digress. With regards to Burford, yes I do believe there should be more disclosures from the company, but I'm not yet convinced a main market listing would change much and I am amazed that people think it will. Time will tell!



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cafcash49 Tue 4:02pm 101 of 123

I suggest you read Mr Bearbull's article in IC 16/8-22/8 and all might become clearer. We all need to read Cash Flow and Income statements more carefully and do the calculations.     The shortest quote from the article is 'and in the most recent year -2018- the gap between profit and cash flow is a mind boggling $543m' The basic figures and data look good on Stockopedia but the accounts tell a very different story.  It's a big lesson to me to look at Operating Profit on the Income statement and operating cash flow on the cashflow statement and you will spot the problem.

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herbie47 Tue 5:14pm 102 of 123

Yet IC has tipped Burford Capital (LON:BUR) as a Buy many times, Simon Thompson and recently Alex Newman, I no longer subscribe to IC so can't read the article, maybe he should have been warning his colleagues. I suppose the biggest red flag was Woodford, everything he holds seems to go wrong recently.

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donald pond Tue 4:26pm 103 of 123

In reply to post #505686

The real advantage of listing on the main market is one of perception. AIM has a reputation as a spivvy market full of unreliable brokers, weak corporate governance, pump and dump shareholders and zero regulatory oversight. So, if somebody is going to attack the company for weak corporate governance, a share price pumped up by zealous holders, an ineffective offshore board and dodgy accounts, being on AIM, by implication, supports all of those claims. 

The frustrating thing for me is that I had the benefit of meeting Chris Bogart at a lunch organised by Hardman & Co in the spring and this point was made, and he rebuffed it in terms of "it won't help liquidity, there's no need". As with many lawyers, he was more concerned with being right than with leaving the right impression. That was a mistake.

One other advantage is that most funds benchmark against FTSE indices. So if any manager wants to buy an AIM stock, it will often be outside of their benchmark. That is fine, and they will probably be permitted to do so, but when a ruckus erupts, as it has with MW, it puts the manager in a difficult situation. He has to explain why he has gone out on a limb to buy a share that everyone is now saying is an accounting fraud. Very few institutions will touch BUR now until it has a main market listing.

The frustrating thing is that this was all so avoidable. The interesting thing is how many national newspapers are quick to put the boot into a company that has created enormous shareholder value, is listed in London and incorporated in Guernsey, and which is a world leader in a huge, fast-growing industry. IMO, £BUR is a fantastic company which has made a few errors which could have been avoided. But I am astonished by how few people understand what is to me a very simple business model: fund cases, do your best to value them, when they settle, reinvest the cash. 

Yes, there is the potential to overvalue cases there, but history shows that Burford overwhelmingly only make value changes in the 12 months before a case concludes, and in the last AR, 61% of investments made were valued at cost, and 39% was unrealised gain: given the size of Petersen, it would not be surprising if that was the bulk of the "write up".

So what I see here is just a lot of noise about a successful company and a typical example of the British tendency to scythe down tall poppies. If I was the board of BUR I would be thinking seriously about getting a US listing and scrapping the London one.

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