For litigation funder Burford Capital, “accounting is a fraught topic,” reports the Financial Times.
“UK-listed shares in the litigation financier dropped a tenth on Monday before recovering swiftly. Investors may have mistakenly believed management would receive bonuses in line with the company’s valuation of the legal cases it backs. In reality, although Burford plans to accrue bonuses at that sometimes-optimistic level, it pays out in line with cash realisations,” reports the FT.
Shares in Burford have still not fully recovered following the Muddy Waters accusations from 2019. At the time, U.S. short-seller Muddy Waters accused Burford of “manipulating returns metrics and then misleading investors with how it accounts for gains,” while also having “laughter inducing” governance structures, reported the FT. In the aftermath, shares of Burford plummeted.
“The stock has staged a modest recovery while remaining well below previous peaks at around £8.30 per share. Perhaps that represents fair value for the risky but fast growing litigation financier. They invested $500m in new cases the first half of this year, a new record.”
The FT concludes that “[l]itigation financing is a real enough business, even though its accounting remains a work in progress.”