Burford's battle with Muddy Waters continues after governance moves

Burford Capital's war of words with Muddy Waters Research continued as the company's short-seller critic dismissed governance changes as farcical and alleged misleading responses by Burford to investors' questions.

The embattled litigation funding company said on Thursday afternoon that Elizabeth O'Connell had left her job as chief financial officer to become head of strategy. Jim Kilman, who advised Burford as a Morgan Stanley investment banker, has taken over as CFO.

Burford said concerns about O'Connell's marriage to Chief Executive Christopher Bogart were unfounded but that it had made the change to satisfy shareholders. Burford is looking for two independent directors to replace David Lowe and Chairman Peter Middleton, who will leave at the next two annual meetings.

The company announced the changes in response to an attack by short-seller Muddy Waters that sent its shares plunging last week. Muddy Waters accused Burford of "egregiously misrepresenting" its returns and the state of its business. Burford hit back, saying it had found evidence of market manipulation in its shares.

But Muddy Waters brushed off the governance changes and said Kilman was too close to the company. Muddy Waters said it retained its short position on Burford, meaning it hopes to profit if the company's shares fall.

Carson Block, Muddy Waters' founder, said: “The notion that appointing Mr Kilman as CFO will substantively improve governance is a farce. It is clear from this that Burford is more interested in imposing fig leaves than real guard rails.

"Burford investors would be much better served by a CFO from the outside who is untainted by Burford’s conduct to date. Given the complexity of Burford’s accounting, the CFO should be an accountant who has demonstrated a strong commitment to ethics. Investment bankers don’t often qualify on that front.”

Muddy Waters followed up its criticism of the governance revamp with an analysis of Burford's responses to questions carried out by Qverity, a company employing former CIA experts. The report alleged that Burford employed evasion, aggression and persuasion in answering Muddy Waters' questions and those of other investors.

Muddy Waters said: "Third party behavioural analysis strongly indicates that Burford’s management was deceptive in their written and verbal responses to our initial report. Muddy Waters engaged Qverity to analyse management’s statements in the August 8, 2019 response statement and ensuing call."

Burford also said it would seek a New York listing in addition to its AIM listing in the UK and that Bogart would join the board. Analysts at Jefferies said the moves were welcome and would lead to greater and more frequent disclosure.