LONDON (ShareCast) - (Sharecast News) - Litigation and risk management company Burford Capital insisted on Monday that last week's share price slump was down to "illegal market manipulation", a day after short-seller Gotham City Research said the group is "inappropriately financed".
Burford shares tanked last week after US research firm Muddy Waters accused the company of "egregiously misrepresenting" its returns and "the state of its overall business".

Burford released several statements refuting the claims, which it said were "false and misleading". It hit out again on Monday, saying that analysis of the trading of its shares last week had found evidence "consistent with illegal market manipulation".

"While Burford continues to analyse the data, it has made regulatory authorities and criminal prosecutors aware of these preliminary conclusions and Burford is considering its own options," it said.

Burford pointed to evidence of "spoofing" and "layering". Spoofing is the placement of a high volume of trading orders at a price equal to or better (i.e. lower) than the best-bid-best-offer price and the subsequent cancellation of these orders to move the price in a given direction without actually concluding any trades.

Layering is similar to spoofing except that it instead of placing and cancelling a high volume of orders at the best offer price, the manipulator places these orders deeper in the order book, at prices above the best offer, Burford explained, adding that both practices are illegal and have resulted in criminal convictions in the past.

Muddy Waters was quick to respond. "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. They have nothing to do with us," it said.

"The only manipulation is that of Burford's return metrics, accounts, and disclosures. We posted an innocuous tweet the day prior to publishing our report. 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."

Burford's latest statement came a day after Gotham City - which shorted Burford last year but currently has no position in the stock - said the shares were overpriced before last week's heavy losses.

Gotham founder Daniel Yu said: "We think Burford is inappropriately financed. Litigation assets - whose associated cash flows' size and timing are notoriously unpredictable - should not be financed with debt. This poses a real risk of an eventual asset/liability mismatch nightmare.

"Burford should view the recent public scrutiny as an opportunity to improve its disclosures and governance."

A spokesperson for Burford said: "Burford has a conservative asset-liability profile, with average concluded investment duration less than two years and average debt maturity of almost six years, at a weighted average interest rate of 5.8%.

"Gearing is low with net debt more than three times covered by shareholders' equity. Burford has proven access to multiple external finance sources. We have strong organic cash generation with more than $1.6 billion generated since inception."

At 1545 BST, Burford share were down 10.4% to 762p.

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