Short seller accused of exploiting Woodford for headlines

Burford executives buy $4m in business as accusations hit share price


Burford Capital has accused the activist firm shorting its stock of implicating Neil Woodford in its criticisms of the litigation firm to generate headlines.

The Aim-listed stock fell more than 65% on Wednesday when Muddy Waters Research accused Burford of manipulating metrics in its financial accounts to convince investors it is producing meaningful returns across a broad spectrum of cases. It pointed to seven examples to make its point.

One case study in particular, involving litigation between two biotech companies, implicated ” Neil Woodford protégé” Mark Barnett.

Burford provided $7.4m in litigation finance for Napo Pharmaceuticals in a case versus Salix Pharmaceuticals, in which the jury ultimately sided with the latter in a 2014 decision.

Muddy Waters argued Burford’s investment would have been a “total loss” if Barnett had not led a bailout that occurred via a $3m investment in Jaguar Healthcare, an animal biotech business that merged with Napo in December 2016, two years after the failed lawsuit. Muddy Waters said the Invesco UK equity manager’s investment was “immediately” channelled into Burford subsidiary Nantucket Investments.

However, in a conference call on Thursday, Burford has argued Invesco’s investments in itself and Napo were made by completely different funds and managers.

Burford stocks bounce on retaliation

Burford stock bounced 31% when the company issued a regulatory filing on Thursday lunchtime against Muddy Waters’ “factual inaccuracies, simple analytical errors and selective use of information” to “expose its fallacious insinuations”.

It said it structured its financing agreement with Napo so its recovery could come from other litigation, not just Napo versus Salix, which ultimately lead to an entitlement featured in the 2013 accounts.

In 2015, Salix was acquired by Valeant. As part of the deal, Valeant reached a settlement with Napo by returning product rights.

In its defending arguments, Burford outlined Muddy Waters “attempts to outline a groundless conspiracy between Invesco and Burford” and said it was “throwing in Neil Woodford’s name for headline value”.

It said it ultimately received $8m cash meaning its original investment was fully repaid along with a small cash profit. It also received a significant equity position in Jaguar, which had been worth more than $20m in 2017. However, Burford acknowledged it had not performed well in the intervening period and that it has been unable to sell most of its equity due to “various legal restrictions”.

Invesco issued a statement on Wednesday stating its legal advisers were reviewing the accusations and it would make a further statement in due course. It categorically refuted accusations of improper or unethical behaviour.

Burford bosses buy $4m stock

In a conference call for analysts and investors, Burford chief executive Christopher Bogart said himself and CIO Jonathan Molot had purchased almost $4m worth of stock on Thursday. Directors and employees were also buying up stock, Bogart said.

The Invesco case study showed “how effective innuendo without any underlying facts can be”, he added.

“It’s certainly true that Invesco, one of the world’s largest investment managers, was an equity holder in both Burford and in Napo. But those investments were held in different funds at Invesco with different managers.”

“While trying to make some headlines in this overheated market by putting the names of Woodford and Invesco in the spotlight, there’s nothing here. Just as there’s nothing supporting any of the other investment performance or factual allegations made in the report.”

Burford was not going to speak about what further action “it may well take” in regards to Muddy Waters’ conduct, he added.

Transparency had created a situation that had prompted “somebody with bad motives to come and attempt to cherry pick a few examples and make a case about them”. The seven case studies outlined by Muddy Waters were a “tiny portion” of Burford’s overall investment population, he said.

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