This blog gives you the latest topical news plus some informal comments on them from ShareSoc’s directors and other contributors. These are the personal comments of the authors and not necessarily the considered views of ShareSoc. The writers may hold shares in the companies mentioned. You can add your own comments on the blog posts, but note that ShareSoc reserves the right to remove or edit comments where they are inappropriate or defamatory.

Market Manipulation? The Burford Case

In this article from October last year, ShareSoc director Paul de Gruchy sets out the allegations Burford has made about manipulation of its shares, during a “shorting attack”.

Many ShareSoc members are concerned that the FCA is not adequately enforcing the market abuse regime, which is intended to deter market manipulation (whether long or short).

Burford’s case has now reached a critical juncture. Burford have asked the court for a “Norwich Pharmacal Order“, to compel the LSE to disclose the identity of traders dealing (or placing orders in) Burford’s shares at the relevant times. Once their identity is known, Burford may be able to make a civil claim against those traders, if they have breached market regulations. The hearing to consider this request took place in w/c 30th March and judgement is awaited.

ShareSoc member David Brunsdon (who holds shares in Burford) listened in to this hearing, via Skype and reports as follows:

Letters from ShareSoc and The UK Shareholders Association featured – particularly ShareSoc’s letter. BUR’s lawyer referred to it several times expressing the concerns of personal private investors regarding market manipulation and that the LSE and FCA are not pursuing wrongdoers. I really think this was a very constructive contribution to the case that was taken seriously by the judge.

As a complainant to the FCA regarding the highly suspicious trading activity in Burford shares I was surprised to learn during the case that the FCA had written two letters on their investigation. This was the first time I’d heard that the FCA had carried out an investigation let alone reached a conclusion – that no manipulation had taken place. This is unbelievably poor form. On the basis, as I understand it, that about 50 – 60% of LSE’s income is derived from proprietary trading firms one can appreciate their motives. Whereas, the FCA as regulator should be impartial, but it is difficult not to form the impression that they are turning a blind eye.

Anyway after the two and half fascinating days, I hope but cannot be overly optimistic that Burford will be successful in this case.

I sat in on pretty much the two and a half days – fascinating watching two top-flight legal teams go head to head. Impressed by both. Huge number of points raised and parried – too many to go into here in any detail.

Overall Burford only need to show that they have an arguable case (not have a definitive judgement at this stage) and I think they adequately did that. LSE attempted to pick holes in Prof Mitt’s analysis- but unfairly IMHO – using data not released to the other side. They also left quite a lot unchallenged such as the overwhelming net sell-side orders and cancellations and disparity with the actual volume traded at periods of price falls.

The LSE big play was to argue points of scope and legal precedent such that a Norwich Pharmacal suit isn’t appropriate or available to Burford. This was far too case-law oriented for me to judge one contention against the other.

The LSE Team also made a lot of the fact that the FCA had rejected any notion of there being any market manipulation – two letter exist on this. I thought it somewhat rich that LSE criticised Burford for not releasing these letters into the public domain!?! LSE argued that Burford didn’t do this to maintain a view that their case had some substance. Surely, the FCA should have published their findings as a matter of public interest.

What was totally shocking was the LSE, in effect the market referee, responsible for running a fair and orderly market, defending the alleged market manipulators. The birds in the trees know it goes on – but the LSE appear to contrive to ignore it or explain it away. Listening to the LSE’s arguments you would believe that the the concepts of ‘spoofing’ and ‘layering’ are fictions.

I’m not a lawyer, but in my simple understanding there exists a right for a Company to know the identity of it’s shareholders. Surely, that right then extends to knowing the identify of the buyers and sellers of those shares.

Anyway we’ll have to see what the Court makes of the case and whether it prevents Burford from suing those parties, currently unknown, that have caused so much damage.

We look forward to the judgement with interest.

Mark Bentley, Director, ShareSoc (Disclosure: I have no financial interest in Burford)

  1. Mark Lauber says:

    Excellent writeup David, thank you. Let’s hope we see broader applications of this as well to counter market abuse.

  2. Burford have lost their case against the LSE and have decided not to appeal. Personally, I am shocked, I have no confidence in the LSE or FCA effective regulation of market abuse. The FCA has only successfully prosecuted one case of spoofing. This fact speaks for itself. It is also difficult to ignore the fact that the proprietary trading firms provide a disproportionate amount of revenue to the LSE.

    I think Burford have made the correct decision not to appeal – they don’t lose many cases and their judgement is sound. The right and wrongs of the case are irrelevant, if you don’t think that you can actually win the case.

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