Guernsey’s ‘jewel in the crown’ business hit by ‘manipulators’

He said the company had been hit by ‘spoofing’ and ‘layering’ market manipulation – and urged regulators to urgently address the issue.

London Stock Exchange-traded and with more than $3bn committed to the legal market, Burford prides itself as a pioneer in commercial litigation finance. It has a team of more than 80 in the US, Europe and Asia-Pacific working with clients around the world.

The company, which was incorporated in Guernsey in 2009, saw its share price affected in the wake of a report on it published by US investment research firm Muddy Waters Research.

Muddy Waters claimed that Burford was ‘arguably insolvent’, manipulated metrics and its governance strictures were ‘laughter-inducing’.

Burford blasted the Muddy Waters report as ‘false and misleading’ – and yesterday announced the preliminary findings of its analysis of the trading of its shares last week.

‘We believe that trading shows evidence consistent with illegal market manipulation,’ it said, with regulators and criminal prosecutors made aware of the findings.

Describing Burford as an ‘excellent’ company, Deputy Parkinson, the president of the Committee for Economic Development, said: ‘I think it’s a real jewel in Guernsey’s crown. This is a company that has basically become the market leader by a distance in a new industry. Burford is exactly the same company today as it was a week ago. Nothing fundamentally has changed.

‘Before this market manipulation, it was the largest company on Aim [the Alternative Investment Market] and the largest Guernsey company by market capitalisation. It is an outstanding Guernsey success story and a very innovative business, but unfortunately it has been the victim of a market manipulation.’

The manipulation focused on ‘spoofing’ and ‘layering’ techniques, he said.

Spoofing involves placing a large number of orders to sell shares at a price slightly below the current market value. Before those orders can be fulfilled, the sells orders are cancelled.

‘Unfortunately, the way the Stock Exchange systems works, it records there has been a large sell order at a lower price and marks it down,’ said Deputy Parkinson.

Layering involves placing lots of sell orders slightly above the current market price, which means such orders are unlikely to be fulfilled.

‘But it gives the impression there is a lot of stock for sale, which again makes the system think the price needs to fall.’

He accused Muddy Waters of being a ‘short seller’. The term ‘short seller’ refers to companies that ‘borrow’ shares from someone else to sell them at a higher price, then tries to drive the price down and then buys them back at a lower price – and make profit through the process.

‘The regulators do need to look urgently at how their systems can be abused,’ he added.

Deputy Parkinson responded to potential legal action in the US against him and others in relation to Burford, saying: ‘These are attacks on the company’s accounts which have been audited and given a clean audit by Ernst & Young, and the company’s accounting is entirely in line with international accountancy standards.’

In a signal of reassurance to investors, Deputy Parkinson and other members of the Burford leadership team have made a number of share purchases. Deputy Parkinson bought 8,000 ordinary shares on the market at 655p each.

Deputy Parkinson stressed that Burford has nothing to do with his public work. ‘This is my private business interest,’ he said. ‘The reality is that I’m the director of a company that has been subject to an attack by stock market manipulators and that is pretty much the end of the story.’

'We don't have trading capability to manipulate'

MUDDY WATERS RESEARCH hit back at accusations of ‘manipulation’ – saying it had ‘zero to do’ with the firm.

‘We have absolutely no trading capability to do that. Such accusation is preposterous. If BUR [Burford] wants to bring that to court, we will smack BUR and any supposed expert down hard,’ said the company in a tweet.

The post on Twitter came after Burford claimed there was evidence of ‘illegal market manipulation’.

Burford chief executive officer Christopher Bogart yesterday said it was committed to working with investors to address any concerns they might have – and was grateful for their feedback.

‘Burford’s market-leading business today is the same as Burford was a week ago. What has changed is that a substantial amount of market value was wiped out by activity we believe is consistent with illegal market manipulation that has nothing to do with Burford’s business,’ he added.

The company also said it had retained several law firms in connection with these matters and was ‘considering its own options’.

The Financial Conduct Authority said it was aware and would ‘continue to make enquiries using the wide range of data and resources at our disposal’.