RE: Times news8 Aug 2019 18:58
Carson Block, the founder of Muddy Waters, which rocked the City with its damning report on the litigation funder Burford Capital, said that the integrity of his firm should not be questioned just because it had a financial motive as a short-seller. In a BBC Radio 4 interview he also said that companies could not fall back on the protection of being audited by a “big four” audit firm and admitted that short-sellers were deliberately targeting stocks owned by the troubled stock-picker Neil Woodford.
Burford said that its returns were robust; it had always had “clean” audit reports from EY; and the Muddy Waters criticisms were “without merit”. It also hit out at short-sellers “of this ilk”, saying that “if investors oblige them then the attack succeeds, long-term investors are harmed and the short-sellers pocket a quick payday”.
Mr Block said: “Of course we have a financial motive and they have a financial motive. Everybody who’s doing this has a financial motive: every investor who makes a buy, sell, hold decision has a financial motive.
“It’s kind of funny that everybody always thinks, well we need to impugn the integrity of the critic just because he’s financially motivated but these other people over here they must be angels. They’re not.”
The share price fall was a further blow to Neil Woodford, the troubled fund manager who is Burford’s second biggest shareholder with a 6.9 per cent stake.
Mr Carson admitted that short-sellers were deliberately targeting stocks owned by Mr Woodford. He said: “Short-sellers do definitely look for where Neil Woodford is invested, especially where he is invested outside of large-cap value. He’s got a great track record in large-cap value. He does not have a great track record in life science, some of these smaller-cap stocks. So there’s always the temptation to go looking where he’s been invested.”
Mr Carson said: “Companies almost always, when responding to an activist short-seller or criticism from a financial journalist, companies always fall back, they use that halo of ‘oh big four, prestigious bless the accounts’.
“No, that’s not how it works. Little-known fact among investors: it’s not the auditors who prepare the financial statements, it’s actually company management who prepare the financial statements. So, particularly in this case, management has a lot of latitude in building the models without the auditor second-guessing.”
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