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  "documentTitle": "Burford Capital (BUR)",
  "authorId": "51_Muddy_Waters",
  "authorName": "Carson C. Block",
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  "sourceTypeSlug": "short_seller",
  "sourceTypeLabel": "Short seller",
  "presentationDate": "2019-09-24 00:00:00",
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  "notes": "This is a text-heavy research note page. It uses specific financial figures to argue against the company's accounting methodology.",
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      "text": "The outsized ratio of net fair value gains to cost among this group underscores our concern that Burford is cherry-picking the cases to deem “concluded”, and thus avoiding scrutiny of the vast majority of its fair value gains.",
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      "text": "net fair value gains: 110%",
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      "text": "(On a side note, some longs apparently believe that Burford did not fund the Progas appeal, which is referenced above. The following shows otherwise: https://www.casemine.com/judgement/uk/5b2897ab2c94e06b9e198326)",
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      "text": "Burford continues to evade key questions, including what gross fair value gains it has taken by period. Its stammering excuse about why it fails to disclose the carrying value of Petersen holds no water in our view. Instead, we see Burford as using attorney-client privilege as a false pretense to avoid providing real transparency into its accounting. Further, our contention stands that outside of four cases - two of which (Napo and Desert Ridge) are problematic - Burford's ROIC and IRRs are pedestrian, and are likely insufficient to offset its egregious operating expenses.",
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      "kind": "paragraph",
      "text": "Burford's presentation on fair value accounting fails to address the key issues. This is typical Burford speak - to write so much, and yet say so little. The little substance there is supports our thesis about Burford's valuation abuse.",
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      "text": "Given that \"concluded\" cases almost certainly average older vintage than non-\"concluded\" cases, one way to sanity check whether Burford's non-concluded marks are justified is to ask: As Burford has gotten larger, and had to put more capital to work across more types of cases, has it gotten so much better at allocating capital? We think that's unlikely, and instead Burford is just more aggressively marking its cases.",
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      "text": "We continue to disagree that Burford has no choice but to apply IFRS 9. As Burford noted, there are competitors that do not apply it, and we believe that Burford's attempt to explain their different accounting treatment is grasping at straws. However, if we were to take Burford at face value, then another disturbing pattern is evident. Burford's presentation discloses that only 26 out of 76 \"concluded\" cases ever experienced fair value changes. If Burford must fair value these cases, then it seems contradictory that it has it applied fair values to only ~1/3 of the \"concluded\" cases. However, marking outsized fair value gains on a small percentage of cases would be consistent with our thesis that fair value gains are arbitrary to outright manipulated.",
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      "text": "It is interesting to note that in the 20 \"concluded\" cases Burford profiles in the presentation, Burford only booked net fair value gains of 62% of the costs ($95 million NFVG/ $152 million cost). If looking at the entire \"concluded\" body of 76 cases, booked net fair values to cost is even lower at only 19% ($101 NFVG million / $519 million cost). In contrast, the non-\"concluded\" cases have net fair value gains equal to 110% of their costs ($717 million NFVG / $654 million). The outsized ratio of net fair value gains to cost among this group underscores our concern that Burford is cherry-picking the cases to deem \"concluded\", and thus avoiding scrutiny of the vast majority of its fair value gains. It also points to the strong possibility that as time wore on, Burford became more aggressive in its marks, given that \"concluded\" cases are likely to be of older vintage.",
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      "text": "At the end of the day, as we have repeatedly stated, Burford cherry picks what it deems as a \"concluded investment\". We have shown where Burford deemed litigation that was still ongoing to be \"concluded\" and recorded a favorable result, and also where Burford funded a futile appeal of adverse litigation result and thus deferred recording an unfavorable result. The verbose discussion of Burford's concluded cases is only helpful in illustrating how much of its booked fair value gains are from cases it has not deemed \"concluded\": $717 million in un-concluded versus approximately $130 million of FV gains in \"concluded\" cases. We believe Burford is manipulating the cases it deems \"concluded\" in order to avoid truing up marks.",
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      "text": "Burford: It Just Doesn't Get Better",
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