(Alliance News) - Burford Capital Ltd on Monday said an investigation has identified evidence of share price manipulation in the form of spoofing and layering surrounding the Muddy Waters report.
Shares in Burford were up 4.2% at 828.50 pence in London in midday trading.
Spoofing and layering are types of market manipulation where a trader uses fake orders to give a false impression of the actual supply and demand of shares.
Short seller Muddy Waters Capital LLC in August targeted litigation finance company Burford, calling it "a poor business masquerading as a great one" and "arguably insolvent".
On August 6, Muddy Waters tweeted that it would announce a new short position the next day but without disclosing the name of the company it would short. Then, on August 7, Muddy Water tweeted a link to its report on Burford.
Burford's share price fell 19% on August 6 and another 46% on August 7.
Joshua Mitts, an "independent expert" was commissioned by Burford to make a report into share price manipulation on August 6 and 7.
Mitts said: "I analyse order book data for these dates and identify strong evidence of spoofing and layering, ie, the creation and cancellation of a large volume of limit orders which distorts the supply and demand for a security. Spoofing and layering has long been recognised as a form of illegal market manipulation."
Sell-side order cancellations in Burford's stock went up after the August 6 tweet, rising five-fold between then and the subsequent Muddy Waters link to Burford.
"The evidence of spoofing and layering on 7 August is even stronger. I find that 91.77 million sell-side shares were created and cancelled after the Muddy Waters tweet on 7 August, reflecting GBP540 million in cancelled order dollar volume using average execution prices - a 17-fold increase over the pre-tweet period on 6 August," said Mitts.
"I conclude that the decline in the price of Burford's stock on 6 and 7 August was driven by large waves of sell-side order cancellations. During five one-minute periods on 6 August, Burford's stock fell 6.5%, or over GBP170 million."
Burford is seeking judicial approval to get more information on Burford share orders from the London Stock Exchange.
By Anna Farley; annafarley@alliancenews.com
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Burford Capital (BUR)