Burford Capital, the litigation funder whose shares lost almost half their value last week, has said trading in its shares “shows evidence consistent with illegal market manipulation”.
The UK firm said traders had cancelled orders in order to deliberately depress the share price.
Burford’s share price plunged after its accounting methods were criticised by Muddy Waters, a US investment firm.
Muddy Waters rejected Burford’s analysis of the share trading.
The City watchdog, the Financial Conduct Authority, said it was investigating the claims.
The suggestion of illegal activity raises the stakes in the conflict between Burford and those betting against its business model.
Last week, the firm said its accounting practices were industry-standard, and in its latest statement it spoke out again to defend itself.
“Burford’s market-leading business today is the same as Burford was a week ago,” boss Christopher Bogart said.
“What has changed is that a substantial amount of market value was wiped out by activity we believe is consistent with illegal market manipulation that has nothing to do with Burford’s business. That is wrong and that is illegal.”
‘Spoofing and layering’
Burford lends money to support litigation cases with a view to receiving a share of the proceeds.
The company said it conducted its research into the trading in its shares with Prof Joshua Mitts of Columbia University in New York . They used London Stock Exchange data to analyse trades immediately before and after Muddy Waters’ research into the firm was published.
They say traders, as yet unidentified, used two strategies to try to depress the value of Burford’s shares in order to make money from so-called “short selling”.
Short selling is when investors bet against a share price in the expectation that the shares will go down. It is not illegal but manipulating the price of a share is.
According to Burford, the first strategy used was “spoofing”, which involves placing many orders to sell a company’s stock at a price cheaper than the current cheapest price. These orders are cancelled before they can be completed. The aim is to suggest there are more sellers are in the market thus driving down the price.
Burford said the second strategy was “layering”. Here, the share prices offered are higher and less likely to be met, but suggest again that a high volume of shares are available for sale, driving down prices.
In response to Burford’s claims, Muddy Waters said: “The only manipulation is that of Burford’s return metrics, accounts, and disclosures.”
In a critique published last week, Muddy Waters had questioned the accuracy of Bruford’s accounting practices.
Speaking to the BBC’s today programme on Thursday, Muddy Waters’ founder Carson Block said: “I can’t remember the first time we heard of Burford. It’s a stock that has attracted the attention of smart money investors for a while, saying, it seems too good to be true, there’s a lot of red flags.”
Muddy Waters described Burford as being a “perfect storm for an accounting fiasco” with “laughter-inducing” corporate governance.
The Financial Conduct Authority said: “The FCA has been aware of these matters since the first tweet and price movements on Tuesday of last week and at that point we began undertaking wide-ranging enquiries.
“We will continue to make enquiries using the wide range of data and resources at our disposal.”