CRUSADING FIRM
BEHIND ASSAULT
CARSON Block, the man behind Muddy
Waters Research, is an unassuming 43-
year-old from New Jersey.
The hedge fund boss is an avid reader of
regulatory filings, and his previous busi-
ness ventures include a Chinese self-stor-
age company, Love Box Self Storage.
He has also co-authored a book entitled
Doing Business in China for Dummies.
But his current venture, which was estab-
lished nine years ago, appears to be his
most successful.
Under the name of Muddy Waters, Block
short-sold Sino-Forest Corporation, which
once claimed to be China’s leading forest
plantation before being accused of fraud
and fined $80m by Canadian regulators.
The corporation later collapsed.
He also locked horns with drugs firm Pro-
thena, another stock which was owned by
fund manager Neil Woodford, questioning
the efficacy of one of its medications.
But the American has not entirely avoided
scandal. This year he had to defend his 2015
research on French supermarket chain
Casino after being accused by the coun-
try’s financial regulator of deception.
He said the preliminary findings against
him were ‘tainted by bias’.QQQ Daily Mail, Thursday, August 8, 2019City Editor: Alex Brummer http://www.thisismoney.co.uk Business Editor: Ruth SunderlandCity Finance
76 million
bottles of British gin
sold in the year to March
Woodford hit by
new share collapse
ANOTHER of his
big bets goes sour
after hedge fund
attacks ‘Enron-
style’ accounting
at Burford Capital
FUNd supermarket Hargreaves Lansdown by Matt Oliver
is set to unveil a rise in profits today – as
bosses give up their bonuses over the Neil
Woodford saga.
The firm, which boasts more than 1m cus-
tomers, is expected to post an annual profit
of £304.8m for the year to June 30, up from
£292.4m in 2018.
But in an attempt to recognise customer
fury over Woodford’s decision to ban with-
drawals from his flagship fund, Hargreaves
chief executives are set to give up as much
as £3.6m in lucrative bonus payouts.
Hargreaves has been blasted by critics for
continuing to promote Woodford’s Equity
Income fund on its closely-followed ‘Wealth50’ best buy list, relied upon by retail inves-
tors as a crucial guide, even when perform-
ance was poor.
It only pulled support for Woodford, 59,
after he stopped customers from withdraw-
ing their cash, a drastic step taken as inves-
tors were rushing to the exit.
Chief executive Chris Hill, 48, has since
apologised to customers and has called on
Woodford to waive the near-£100,000 in
management fees he continues to rake in
every working day.
In yet another attempted show of contri-
tion, Hill (pictured) will today reveal he isforgoing a bonus of up to £2.1m he
could have received this year.
Finance chief Philip Johnson,
who could have received £1.5m,
investment chief Lee Gardhouse
and research director Mark
dampier are expected to follow
suit. But the impact of the Wood-
ford crisis on Hargreaves is not
expected to be felt in its annual
results – the period covered by the
financials only stretches to June
30, just a few weeks after
Woodford’s fund was shut
on June 3.
analysts at ExaneBNP Paribas said the fiasco could
affect how savers view Hargreaves’
recommendations, potentially hit-
ting the income it earns.
In a note to clients, they wrote:
‘Given the Woodford incident, we
sense that the power of Hargreaves
in directing their clients flows may
be somewhat diminished.’
It comes as the crisis at Wood-
ford’s fund rumbles on, with the
fund manager still controversially
refusing to waive fees for customers.
during the closure, he has been sell-
ing stocks to free cash so that he
can pay back waiting investors.... as Hargreaves tries to defuse bonus row
close to running out of cash.
The hedge fund, which is betting
on a fall in Burford’s share price,
compared the book-keeping to
that used by oil firm Enron before
it failed in 2001 in one of the big-
gest-ever corporate scandals.
It also took aim at the company’s
leadership structure, lambasting
the fact that its chief executive,
Christopher Bogart, and finance
boss Elizabeth O’Connell (pic-
tured) are married. The hedge
fund said that Bogart, 53, had sold
£54.6m of stock in the business
over the years, and that there were
four previous finance chiefs at Bur-
ford before O’Connell.
all the claims are strongly denied
by Burford.
Muddy Waters said: ‘Burford’s
governance structures are laugh-
ter-inducing. In a situation so ripe
for abuse, the very least the com-pany could do is to have an inde-
pendent chief financial officer.
‘These facts beg the question “Is
Elizabeth O’Connell the only chief
financial officer who can be relied
upon to approve the accounts?”’
Shares in Burford have plunged
56pc since Monday, when rumours
of the report began circulating,wiping £1.5bn off the firm’s mar-
ket value. Yesterday, after the
explosive dossier was released,
shares fell 46pc, or 516p, to 605p.
It piles further pressure on
Woodford, who has a 9pc stake.
He is in a sticky spot, after a
flurry of investor withdrawals
from his Equity Income fund
forced him to lock in savers’
money. He is trying to sell shares
to raise cash to pay clients back.
Burford – an aIM-listed com-
pany that bankrolls lawsuits by
business and individuals, then
takes a cut of the winnings if they
succeed – was a rare bright spot in
his portfolio, before the stock
dived this week.
Muddy Waters’s key gripeagainst Burford is that it books
profits before the money has actu-
ally come in, using a controversial
accounting technique called mark
to model, which makes assump-
tions about future income.
The hedge fund claims Burford
is assuming it will get vast future
profits that may never materialise
if it loses cases, in an echo of the
practices which brought down
Enron almost two decades ago.
Strip away money that has been
booked as profit but not received,
Muddy Waters said, and it looks
to be in a precarious state. It said:
‘It is arguably insolvent.’
The hedge fund targeted
Invesco – Burford’s biggest share-
holder with a 14pc stake – andone of its fund managers Mark
Barnett. Woodford used to work
at Invesco and Barnett took over
his flagship fund.
Muddy Waters alleged that
Invesco ‘bailed out’ Burford from
a case where it would have made
a significant loss claiming Invesco
engineered a buyout of Napo
Pharmaceuticals by Jaguar ani-
mal Health.
Invesco said: ‘We refute any
accusation of improper or unethi-
cal behaviour on behalf of Invesco
or fund manager Mark Barnett.’
Muddy Waters is short-selling
Burford Capital, meaning it prof-
its from any fall in the firm’s share
price. It has made a profit of more
than £12m after yesterday’s falls.NEIL Woodford suffered a £155m paper
loss after a blistering attack on one of his
holdings for ‘Enron-esque’ accounting
which has allegedly misled the markets.
The beleaguered fund manager’s bet on law-
suit funding firm Burford Capital went badly
awry as shares fell 46pc following the assault
by hedge fund Muddy Waters Research.
In a brutal 25-page dossier, Muddy Waters said
Burford’s accounting practices hide the fact it isby Lucy White400600800100012001400Pence576
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