Daily Mail - 13.08.2019

(Elle) #1

Daily Mail, Tuesday, August 13, 2019 Page 65


City Editor: Alex Brummer http://www.thisismoney.co.uk Business Editor: Ruth Sunderland

City Finance


£31.3billion


what business rates


are expected to


raise this year


WATCHDOG


PROBES


AT TA C K O N


BURFORD


by Lucy White


BURFORD Capital traded blows
with the hedge fund that trig-
gered its share price collapse as
financial regulators scrutinised
claims of market abuse.
Burford, which helps firms and indi-
viduals pay for legal cases in return for
a cut of any winnings, said it found
‘trading activity consistent with mat-
erial illegal activity’ after its shares
plummeted last week in the wake of an
attack from Muddy Waters Research.
the company has hired a Columbia
University professor who specialises in
analysing ‘short attacks’, as well as a ros-
ter of big-name lawyers including Quinn
emanuel Urquhart & sullivan, Fresh-
fields Bruckhaus Deringer, and Morrison
& Foerster to work on its defence.
they claim to have found evidence of
illegal practices – ‘spoofing and layering’


  • to drive down Burford shares.
    these techniques are typically associ-
    ated with high-frequency traders, who


HOW TRADERS


SPOOF STOCKS


SPOOFING is an illegal trick
used to manipulate the mar-
ket price of a stock.
A trader places a high vol-
ume of orders to sell a stock
at a price lower than the
going rate. This gives the
impression the market is pes-
simistic about that particular
stock, which pushes the stock
down to the lower price.
The spoofer immediately
cancels the sell order before
the sale takes place, and
places a new sell order at an
even lower price.
The strategy drives down
the price without any shares
being sold.
British day trader Navinder
Sarao was convicted of spoof-
ing in 2016, after contributing
to the May 2010 ‘flash crash’.

TOP BRASS GRAB CHEAP SHARES


Thomas Cook plunges 18pc


as it seeks a £150m lifeline


FCA intervenes amid claims of ‘illegal market manipulation’


THOMAS Cook is facing further
questions over its financial
health after it revealed it was
asking lenders for an extra
£150m on top of the £750m it
has already called for.
The 178-year-old troubled
travel operator said the addi-
tional cash, which will be pro-
vided by several of its bond-
holders in return for a stake
in the group, was needed to
ensure the business had
enough money to keep oper-
ating through the winter.
But the announcement will
alarm holidaymakers who are
waiting to travel with Thomas
Cook. It is also another blow
for shareholders, including
the individual investors who
own around 20pc of Thomas
Cook, as they face even fur-
ther dilution of their stakes.

Shares fell 18.3pc, or 1.76p, to
7.87p. It has debts of £1.2bn.
Neil Wilson, chief market
analyst at Markets, said: ‘The
cash crunch facing Thomas
Cook ahead of the winter sea-
son is worse than feared.’
Thomas Cook is still ham-
mering out a rescue plan with
Chinese conglomerate Fosun,
its largest shareholder. The

deal, due to complete in Octo-
ber, will see Fosun and Thomas
Cook’s major lending banks
pile £750m of cash into the
business to bring it back from
the brink of collapse.
As well as putting up some of
the new money, the banks
have agreed to write off a
‘significant amount’ of the
£650m they are owed by Tho-
mas Cook, swapping the debt
for yet more shares.
When Thomas Cook com-
pletes its restructuring at the
end of the year, the group will
split into two, with Fosun get-
ting the lion’s share of the
tour operator business.
Meanwhile, the banks, along
with current Thomas Cook
shareholders, will be left
with a small chunk of the tour
operator business, most of
the airline and 566 High Street
travel agents.

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2018 2019

Pence

Thomas Cook
shares

use computer programs and algo-
rithms to place and cancel orders
at lightning speed.
But the claims of ‘illegal market
manipulation’ sparked a furious
response from Muddy Waters,
which is short-selling Burford
shares and profits when they fall.
the san Francisco-based hedge
fund said: ‘the accusation by Bur-
ford of “manipulation” by high fre-
quency trader-type trading has
zero to do with Muddy Waters.
such accusation is preposterous.
if Burford wants to bring that to
court, we will smack Burford and
any supposed expert down hard.’
the escalating war of words
came as the Financial Conduct
Authority revealed it is undertak-
ing ‘wide-ranging enquiries’ involv-
ing Burford and Muddy Waters.
Burford became the target of a
so-called short attack last Wednes-
day after Muddy Waters published
a blistering criticism of its

accounting practices. the 25-page
dossier wiped £1.5bn off Burford’s
market value, causing another
headache for fund manager Neil
Woodford, who owns 9.5pc.
But Burford has since come out
fighting, conducting a ‘forensic
examination’ of trading data with
the help of Columbia Law school
professor, Joshua Mitts. they
focused on market activity on

August 6, when Muddy Waters
said it was about to publish a
report on an as-yet unidentified
company, and August 7, when
Muddy Waters released its damn-
ing dossier.
According to Burford, they found
evidence of two illegal practices –
spoofing and layering. Both tech-
niques are designed to make trad-
ers believe the market is pessimistic

about a particular stock, and
encourage them to sell.
Burford noticed that on August
6, in the hours following Muddy
Waters’ teaser tweet, trading
activity in its shares shot up.
By this time there were already
rumours flying around in online
trading forums that Burford was
the target of the upcoming report.
Almost £90m of sell orders were

placed and then cancelled – on a
normal day, less than £18m worth
of Burford stock is traded.
And during periods where very
few sales were actually executed,
the shares tumbled by more than
£170m in value.
On August 7, Burford said it suf-
fered the greatest declines in its
share price over ten one-minute
periods, during which time very
low volumes of sales were actually
executed but very high volumes
were cancelled.
Chief executive Christopher
Bogart said: ‘Burford’s market-
leading business today is the same
as Burford was a week ago. What
has changed is that a substantial
amount of market value was wiped
out by activity we believe is con-
sistent with illegal market manip-
ulation that has nothing to do
with Burford’s business. that is
wrong and that is illegal.’

BURFORD Capital’s top brass have been
splashing out millions of pounds on
shares in their own company.
Chief investment officer Jonathan
Molot (pictured) bought 339,963
shares on Friday for 856p each.
He bought another 350,643 shares on
Thursday. He has spent £5.24m on Bur-

ford stock since the Muddy Waters
report was published.
Christopher Bogart, chief executive,
bought 123,747 shares worth £821,395
last Thursday. Later, deputy chairman
Hugh Wilson bought 25,000 for £199,388
and board member Charles Parkinson
picked up 8,000 shares for £52,400.

by Lucy White
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