(CN) – Litigation-financing firm Burford Capital Ltd. is facing a class action from shareholders who claim the company misrepresented potential insolvency and returns to its investors.
The complaint was filed in New York’s Eastern District by lead plaintiff Stephen Merz who alleges Burford issued fraudulent annual reports that claimed the company’s return on invested capital (ROIC) and internal rate of return (IRR) were both poised for sustained positive growth.
According to the complaint, Burford’s reports contained incorrect information concerning ROIC and IRR through a series of false statements and the manipulation of the company’s metrics. The class claims that Burford hid the fact that it was at risk for a high “liquidity crunch” and that the company may have already been insolvent.
On August 6, short-seller Muddy Water Research posted a Tweet stating that it would be reporting on Burford’s “accounting fiasco,” concerning the company’s potential insolvency after allegedly representing itself as financially strong.
Burford’s shares took a sharp 17.11 percent drop following Muddy Water’s Tweet to close later that day at $13.90 per share.
“Muddy Waters Research issued its report disclosing, among other things, that Burford had poor governance, was mismarking the value of its legal cases in which it invests, and was manipulating its metrics including ROIC and IRR,” the class claims.
The day after Muddy Waters’ full report was released, Burford’s shares took a major hit with shares losing roughly 42 percent of their value to close at $8 per share, according to the complaint.
The class claims Burford executives knew the ROIC and IRR information was misleading and artificially inflated of the company’s share value.
Shareholders are represented by Phillip Kim and Laurence M. Rosen of The Rosen Law Firm in New York.