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  "documentTitle": "Burford Capital (BUR)",
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  "authorName": "Carson Block",
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  "presentationDate": "2019-08-13 00:00:00",
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  "notes": "The slide uses a strong accusatory tone, framing the subject as a 'villain' through comparisons to Enron and Noble Group.",
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      "text": "In this way, we also see BUR as possessing the same illness that, in our view, brought Enron and Noble Group down: Addiction to mark-to-model gains financed by debt.",
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      "text": "There are two items to note. First, the 2% management fee, as compared to BUR’s present ~9% expense ratio on (per our adjustments) BUR’s invested capital. We will come back to this point – particularly with respect to compensation expense. The second point is that cash was king.",
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      "text": "Leave it to former trial lawyers to talk so much, and yet say so little. BUR’s written response and numbing two-hour call did nothing to dispel our view that BUR a) aggressively marks its cases up to generate non-cash profits, b) manipulates its (non-IFRS) ROIC and IRR metrics in order to justify its fair value gains, c) deliberately confuses investors about the extent of its fair value gains in each period, and d) has a fragile balance sheet with too much leverage, particularly given the excessive costs the business runs (of which a significant portion could be management compensation). Moreover, we believe BUR is effectively sprinting on a treadmill whereby it is growing its portfolio aggressively not because there are so many great opportunities; but, rather because it has so aggressively taken fair value gains that sap the business of future earnings power, and it therefore needs to add litigation assets to the balance sheet in order to take more fair value gains. In this way, we also see BUR as possessing the same illness that, in our view, brought Enron and Noble Group down: Addiction to mark-to-model gains financed by debt. BUR exhibits another characteristic of Enron and Noble Group – baselessly attacking critics in an attempt to distract investors from their own shortcomings.",
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      "text": "This statement on the August 8, 2019 call by John Lazar, a Burford Director, is obviously not correct, and encapsulates the lack of quality and candor of BUR’s responses.",
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      "text": "When BUR originally went public, its structure was fairly straightforward. It was a closed-end fund that was managed by a privately-owned management company, Burford Group Ltd. Chris Bogart was an owner of the management company. The management company received a 2% management fee per year, and a 20% incentive fee (after an 8% high water mark). Performance and the incentive fees were calculated based on “Cash Net Asset Value”, which as the name implied, excluded Fair Value Gains.",
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      "text": "We welcome scrutiny by the Financial Conduct Authority on the Burford matter. We believe that management’s conduct has possibly given rise to sanctions claims by the FCA. Muddy Waters stands ready to assist the FCA in any inquiry, and as has been the case for the past nine years of our short activism, we have nothing to hide regarding our own actions.",
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      "text": "There’s no validity to anything in the [Muddy Waters] report.",
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      "text": "“There’s no validity to anything in the [Muddy Waters] report.” — John Lazar, Burford Director",
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      "text": "1 Bloomberg transcript, p. 3. 2 We reiterate our view that we do not believe the instances of fraud that were identified with Enron were actually responsible for Enron’s collapse, and therefore, our analogizing of BUR to Enron does not mean that we accuse BUR of illegal accounting. 3 Burford IPO prospectus. 4 Burford IPO prospectus, p. 86. 5 H1 2019 Investments of $1,768.4 million, minus $202.2 million third party interests, reduced by 43.8%, which equals an adjusted invested capital base of $880.3 million.",
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      "text": "Burford’s Original Sin",
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