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Burford fails to progress ‘market manipulation’ claim

Andrew Baker J: Case is speculative

The High Court has rejected [1] litigation funder Burford Capital’s attempt to identify who traded in its shares during last August’s short-selling attack in a bid to bring claims of market manipulation.

The AIM-listed company has abandoned the claims as a result, even though it branded Mr Justice Andrew Baker’s decision “flawed as a matter of law”.

Burford sought Norwich Pharmacal relief against the London Stock Exchange (LSE) for the names of any person or business that submitted a ‘share order event’ on 6 and 7 August 2019, when US investment business Muddy Waters issued a highly critical report about Burford that sent its share price diving.

The judge observed: “It is obvious, and not in dispute, that, with or without any unlawful conduct on anyone’s part, Muddy Waters’ actions were calculated to generate a fall in Burford’s share price from which, having sold short, Muddy Waters could profit.

“However, Burford claims that the large extent of the fall in its share price was or may well have been caused or contributed to by spoofing and/or layering, a form of unlawful market manipulation and not (or not only) by genuine trading activity on the market.”

This was despite the fact that both the LSE and the Financial Conduct Authority independently concluded that Burford’s evidence did not support such a claim.

Core to Burford’s application was a statistical analysis of trading data undertaken by Professor Joshua Mitts, an associate professor of law at Columbia University in the USA, and principal of M Analytics, a financial economics consultancy.

Andrew Baker J pointed out that this analysis could only identify “quantitatively measurable features or patterns” in the data. “The conclusions to draw from those features or patterns are for the court, and not a matter for Prof Mitts.”

Expanding on this, the judge found that Prof Mitts’ claims for what his analysis showed were “obviously unjustified”.

He explained: “Burford founds its case that there was or may have been market manipulation on statistics, and its undoing is the truth in the old adage that there are ‘lies, damned lies, and statistics’.

“That truth is not that one cannot trust carefully defined, accurately calculated statistical propositions, but that any truth illuminated by a correctly calculated statistical proposition is strictly confined by a careful definition of what has been calculated.

“Burford’s and Prof Mitts’ inability to see fully what went on, because the data available to them is incomplete and in general anonymised, may mean they feel they cannot independently rule out all possibility of market manipulation, i.e. independently of what they are told by the Stock Exchange and/or the FCA.

“But that is as far as any of Prof Mitts’ analysis, carefully considered, takes Burford.”

It was not enough, Andrew Baker J continued, to say that there was serious cause for thinking that there was market manipulation or that Prof Mitts has expressed such conclusions.

“The court’s task is to consider carefully, with the benefit of submissions, whether Prof Mitts’ analysis provides any real support for those conclusions. I find that it does not, and that is to say that the data analysis simply does not support the claims Prof Mitts made, and therefore Burford made to found this claim, that there is strong evidence of spoofing or layering in this case.

“In truth, there is no substantial evidence of that at all; Prof Mitts’ data analysis leaves Burford, and the court, in the dark as to whether spoofing or layering might really have occurred; the case that it did is speculative.”

He added that, even if he had come to the contrary conclusion, he would still not have ordered relief for policy reasons, including the “risk of damage to public confidence in the FCA as regulator”.

In a statement, Burford pointed out the “conundrum” it faced: “Without the trading data sought by Burford, it is impossible to prove market manipulation, which is why Burford brought its application in the first place on the basis of Professor Mitts’ extensive expert analyses.”

It added: “Burford’s goal in this proceeding was to obtain access to the information needed to assist shareholders in bringing claims for market manipulation, which Burford continues to believe occurred.

“Without that information, Burford is unfortunately not in a position to advance shareholder claims further.

“While Burford believes the court’s judgment is flawed as a matter of law and deprives shareholders of redress, there is also a limit to the level of effort that it is sensible and appropriate for Burford to expend, and thus Burford does not intend to appeal the court’s ruling.”