times article13 Aug 2019 09:01
From "the Times" today:
"BUSINESS COMMENTARY
august 13 2019, 12:01am, the times
Burford’s trying to muddy the waters
alistair osborne
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As if Burford Capital isn’t already chocka with lawyers. Now it’s hired even more: Quinn Emanuel Urqhart & Sullivan, Freshfields Bruckhaus Deringer, Morrison & Foerster. The reason? To help build its case that there’s been “illegal market manipulation in Burford shares”.
It’s what the company’s alleging after last week’s “short attack” from Muddy Waters: the one that took £1.2 billion off Burford’s value. So is the litigation financier actually accusing the Muddy boss Carson Block of share trading “consistent with material illegal activity”? No, of course Burford isn’t. The group’s stuffed with lawyers and knows it hasn’t got the evidence for that. What about Mr Block allegedly tipping off high-frequency traders? No, it’s got no proof of that, either.
In fact, what Burford’s doing is straight out of the short-seller’s own playbook: chucking enough mud around in the hope some sticks. It’s gone in hard on “spoofing” and “layering”: capers that did for Nav Sarao, the “Hound of Hounslow”, over 2010’s Wall Street “flash crash”.
“Spoofing” broadly involves repeatedly placing high volumes of trading orders at or below the best offer price and then cancelling them, with the aim of driving down the price. “Layering” entails placing orders at prices “virtually certain not to be filled”, as Burford puts it, so giving the false impression that there’s tons of shares for sale.
And, yes, Burford boss Christoper Bogart has unearthed some dodgy-looking trades. He’s found there were £90 million of “sell” orders “placed and cancelled” within hours of Mr Block’s teasing tweet last Tuesday: the one that alerted the market to a “new short position” without identifying the target. Such cancelled trades were five times Burford’s average daily volumes. Its shares fell 19 per cent on the day.
Muddy Waters had promised to reveal its target via Twitter at 8am on Wednesday. It was delayed to after 8.53am. Burford says that in less than four minutes before it went out, there were 578,112 shares worth of cancelled sell-side orders and only 35,597 share sales. To boot, in ten one-minute periods during the day, the shares fell by a total of 60 per cent. But nearly all the volumes behind that were cancelled trades. Actual sales amounted to just 0.3 per cent of the register.
Yet what does any of this prove, apart from the existence of slippery high-frequency traders feeding on rumour? Even Mr Block regrets Tuesday’s tweet, which has opened him up to allegations of leaks and manipulation — both of which he denies. But he insists it’s “not physically possible” for his firm “to engage in high-frequency trading. We have never invested in the people or algos [algorithms] to do that.” All its dealing is via brokers.
Moreover, he says Burford outed itself via Wednesday’s 7am announcement as the victim of the sh
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