The first shareholder class action against litigation funder Burford Capital arising out of the recent report by US short seller Muddy Waters has been filed in New York.
The lawsuit filed by The Rosen Law Firm, an investor rights practice, claims the company made “false and/or misleading statements” between 18 March 2015 and 7 August 2019.
Alternatively or in addition, it says Burford failed to disclose that it “has been manipulating its metrics, including ROIC and IRR, to create a misleading picture of investment returns to investors”, hiding “the fact” that it was at high risk for a liquidity crunch and is already arguably insolvent.
As a result, the claim continues, Burford’s statements about its business, operations and prospects “were materially false and/or misleading and/or lacked a reasonable basis at all relevant times”.
When the Muddy Waters report was published, the lawsuit says, there was a “precipitous decline in the market value of the company” and investors suffered “significant losses and damages”.
The Burford share price dropped from 1381p on 5 August to 605p two days later after Muddy Waters first teased its report and then released it.
The shares have recovered somewhat since after the funder mounted an aggressive defence, but been up and down in the intervening period, closing yesterday at 808p. It reached a high of 2040p a year ago. Last week, Burford announced changes to its governance.
Rosen, which is now seeking a lead claimant, is acting on a fully contingent basis and its retainer says it may apply for a fee of up to 33.3% of the recovery plus disbursements, subject to court approval.
The action also names Burford co-founders Chris Bogart and Jonathan Molot – chief executive and chief investments officer respectively – chairman Sir Peter Middleton and director Charles Parkinson as co-defendants.
The Rosen Law Firm has announced nine other securities class actions this month alone.