Short-Seller Accuses Litigation Finance Firm Burford Capital of ‘Meaningless Metrics’

LONDON—U.S. short-seller Muddy Waters accused the litigation finance firm

Burford Capital

BUR -57.48%

of poor governance and mismarking the value of legal cases it invests in, wiping around 50% off the value of the U.K. firm’s shares.

Muddy Waters, headed by Carson Block, on Wednesday said Burford’s stock valuation and earnings are based on “meaningless” metrics that the company manipulates. The firm released a report and video interview with Mr. Block making the claims at the start of London trading and the shares swooned.

In a 25-page report, Muddy Waters said Burford’s management stands to benefit from aggressively marking up the value of legal cases because it causes the stock owned by the company’s executives to rise in value. It criticized the company’s governance, including a lack of turnover on Burford’s board since it listed its shares in London in 2009.

Burford Capital said it is reviewing the report and will respond as rapidly as it can. It said Muddy Waters never contacted it, and that it follows accounting standards used across the financial services industry.

Carson Block, founder and director of Muddy Waters.


Chris Ratcliffe/Bloomberg News

In the video released Wednesday, Mr. Block accused Burford of playing around with the timing of when it accounts for the gains and losses on the cases it finances. The company’s main business is providing financing for lawsuits in exchange for a cut of any court awards or settlements. Mr. Block said the company has boosted key metrics by accounting for recoveries before having received the cash, and by cherry-picking what counts as expenses.

California based-Muddy Waters publishes critical research about companies whose shares it is trading and profits if the price declines. Like other short-sellers, it borrows shares in companies and then sells them with the aim of repurchasing them later at a lower price. Muddy Waters said it is short-selling Burford Capital.

Burford is one of the largest firms in litigation funding, a multibillion industry that attracts endowments, pension funds and wealthy individuals because of historically strong returns.

Before the Muddy Waters accusations, Burford’s share price had already fallen by around 16% this year. The stock fell in April when broker Cannaccord Genuity issued a negative report questioning Burford’s accounting for unrealized gains. Burford said last month that its use of unrealized gains was required under accounting rules and not unusual.

In an investor Q&A that accompanied its second-quarter results in July, Burford said its accounting is appropriate and that it doesn’t see any need to replace any board directors with inexperienced newcomers.

Write to Margot Patrick at

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