Burford’s directors may be buying shares today, but only the brave would follow suit.
While Muddy Waters’ allegations that this business is “arguably insolvent” may not stand scrutiny, this week’s row has highlighted how inappropriate it is for litigation funding firms to be on the stock market.
The reason is simple: judges, juries and lawyers’ clients are so utterly unpredictable that companies will never find an accounting solution that puts an accurate financial value on the prospects of success in the courts.
For every blockbuster victory, you get a host of shock defeats.
For every defeated defendant who honestly pays up what the judge orders, more will disappear offshore, never to be heard of again.
So guessing the value of your various cases is impossible.
Only counting the cash coming in would grossly under-represent income from ongoing cases; valuing ongoing litigation on a so-called mark-to-market basis is impossible as there is no market to mark to.
The basic business model is like that of a private equity or hedge fund, based on one big win offsetting a dozen losing bets.
So it’s surely best suited to being invested in by those hedgies and PE boys, rather than the public stock markets.
Burford and Muddy Waters will spend the coming days and weeks in esoteric accounting arguments, most of which will be beyond the wit of the majority of us.
So let’s leave this litigation industry to phD risktakers such as Elliott (a big legal funder) and keep it away from the widows and orphans who see the London Stock Exchange as a safety mark.
