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Burford Capital financials get fact-checked

This is somewhat unrelated, but have been following the saga between Muddy Waters Research and Gotham City Research with Burford Capital with great interest. Readers might recall that this site got in touch with Burford, about its deals with Wilmer Ruperti and, specifically, about how Daniel Hall, "Director and co-head of Burford’s global corporate intelligence, asset tracing and enforcement business", traded information he obtained through highly questionable and probably illegal means from one case to prop his' and Burford's position, in a separate case. What came back was a threat, so we are not surprised by recent findings.

Muddy Waters' report has nothing about Hall's / Burford's Venezuela adventures, which is odd, considering that it is very likely to have a negative impact in its balance sheet. In short, Hall / Burford have been dragged into a London lawsuit by former client Novoship, due to its cowboy approach to confidential information and established settlement agreements.

In "Manipulation of Performance Metrics" (p.5 of report), Muddy Waters makes the following claims:

By analyzing individual cases, we identified seven techniques that BUR has used to manipulate its performance metrics.  Those methods are: 1) Categorizing a loss as an investment with a significant return, 2) counting as “recoveries” awards or settlements with uncertain to highly unlikely collections as equivalent to cash returns when calculating IRR, 3) representing an investment that BUR inherited when it acquired GKC in a way that misleadingly significantly boosted claimed returns, 4) choosing its own cost denominator in a case with a recovery when the total cost is much greater, 5) delaying recognizing a trial loss for two years, 6) keeping losses out of the “Concluded Investment” category, and 7) failing to deduct the costs of making and maintaining litigation investments against associated recoveries, which are approximately 9% on a LTM basis of BUR’s adjusted invested capital.

Furthermore, it is rather difficult to be shocked by Burford having the CEO's wife in charge of the company accounts and books. As Muddy Waters put it, Burford is a "poor business masquerading as a great one." If Burford has no trouble gobbling up dodgy businesses, whose owners are then embraced and promoted to "global corporate" positions, as Daniel Hall has, it is almost a certainty that accurate accounting is the last consideration.

Gotham City's activism is to be encouraged also. Time and again this site has seen how so called successful and celebrated businesses are nothing more than money laundering enterprises. While Burford does not seem to be in that category, it remains critical to keep publicly traded companies under close watch to combat financial crime. Nowhere on earth are lawyers trustworthy folk.

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