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FCA probes alleged market manipulation

The FCA is looking into the circumstances surrounding a short-selling report on litigation finance company Burford Capital, which alleges it was a victim of illegal market manipulation.

Buford accused hedge fund Muddy Waters of a short-selling attack based on its analysis of market data in a stock exchange statement published today.

Last Tuesday (6 August), Burford’s share price fell 19 per cent following a tweet from Muddy Waters about a forthcoming attack on an unnamed “potentially insolvent” company, “possibly facing a liquidity crunch”. Muddy Waters also called the firm’s accounting practices a “fiasco” in the tweet.

The next day Wednesday (7 August), Muddy Waters published a dooming report criticising Burford’s accounts and management. The shares plunged a further 46 per cent.

A Burford statement says: “A forensic examination by Burford and its expert of the detailed trading data made generally available by the London Stock Exchange for 6 August (the day on which Muddy Waters tweeted about a forthcoming – but unidentified – short target) and 7 August (the day on which Muddy Waters released its short attack on Burford) discloses trading activity consistent with material illegal activity.”

An FCA spokeswoman adds: “The FCA is responsible under the market abuse regime for undertaking enquiries and ultimately investigations into insider dealing, manipulative behaviour and misleading statements and/or delayed disclosures by issuers and participants in the UK’s securities markets.

“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.

“We will continue to make enquiries using the wide range of data and resources at our disposal.”

Responding to Burford’s claims, a spokeswoman for Muddy Waters says: “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.

“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 understood what was happening. This is entirely normal and there is no market manipulation.”

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