Burford today (12 August) said in a statement that a preliminary finding of its analysis of trading shares last week displayed 'evidence consistent with illegal market manipulation.' The statement came after more than £1bn was wiped off the company's value last week after San Francisco-based Muddy Waters published a report suggesting Burford was 'a ideal storm for an accounting fiasco'.
In response to Burford's claims, Muddy Waters said: "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".
Burford chief investment officer Jonathan Molot told the BBC that its analysis of the market, at around the time that Muddy Waters made its criticism of the firm public, found that trades for more than half a million shares were cancelled.
It has also emerged that another United States hedge fund, Gotham City Capital, raised concerns about Burford Capital before last week's allegations from Muddy Waters. Such accusation is preposterous.
The Financial Conduct Authority (FCA) confirmed today via a statement that it is looking into the matter: 'The FCA has been aware of these matters since the first tweet and price movements on Tuesday of last week and at that point we began undertaking wide-ranging enquiries.
But Burford has since come out fighting, conducting a "forensic examination" of trading data with the help of Columbia Law School professor, Joshua Mitts.
Finding what it believes to be evidence of illegal market manipulation of its shares last week, Burford C. This gives the impression the market is pessimistic about that particular stock, which pushes the stock down to the lower price. These orders are cancelled before they can be completed.
"The strategy of repeatedly placing and cancelling sell orders at or below the best offer without actually selling any shares artificially drives down the share price..."
British day trader Navinder Sarao was convicted of spoofing in 2016, after contributing to the May 2010 "flash crash".
Burford's executives spent about two hours on Thursday addressing investors and analysts on a conference call, and responding to questions about the company's cash balance, use of fair value adjustments and the potential for a share buyback, among other things. Both techniques are created to make traders believe the market is pessimistic about a particular stock, and encourage them to sell.
Burford added that data showed there was "an unusual flood of sellside cancellations" beginning shortly before Muddy Waters' original tweet.
By this time there were already rumours flying around in online trading forums that Burford was the target of the upcoming report.
Burford said that several hours after Muddy Waters' tweet on August 6, nearly 90 million pounds worth of sell orders were placed and then canceled without being filled - five times its average daily trading volume. Here, the share prices offered are higher and less likely to be met, but suggest again that a high volume of shares are available for sale, driving down prices.
"Burford's market-leading business today is the same as Burford was a week ago", boss Christopher Bogart said.
"It strains credulity to believe that a decline on the order of hundreds of millions of pounds in market capitalization was driven exclusively by actual trading amounting to a few hundred thousand pounds absent market manipulation", Burford said. "That is wrong and that is illegal".
Burford shares fell 3.4% at 11:55 a.m.in London, after initially extending their rally to a third straight session.
In a critique published last week, Muddy Waters had questioned the accuracy of Burford's accounting practices.