Woodford-held Burford Capital has been in the news since US hedge fund Muddy Waters called it 'an accounting fiasco that's potentially insolvent' and caused its stock to crash in value. The Financial Services Authority is now investigating.

Burford, an alternative investment firm that specialises in litigation finance, says that it looked at trading data from the London Stock Exchange on 6 and 7 August and concluded that Muddy Waters was smearing it for its own ends. On the first day Muddy Waters posted a cryptic tweet on Twitter and on the second day began to short Burford stock. It alleged, and is still alleging, that Burford had manipulated its return metrics, accounts and disclosures. Burford, for its part, raised the spectre of market manipulation in a very long and very angry statement in which it denied all allegations and went on a blistering counter-offensive.

"We believe that trading shows evidence consistent with illegal market manipulation...according to FCA data Muddy Waters initiated its short position in Burford on 5 August, the day before its teaser tweet about a report being forthcoming, reduced its short position by 20% on 6 August, the day of the teaser tweet, and exited a further 63% of the position on 7 August, the day of the report’s release. In other words, while Muddy Waters was suggesting that Burford was insolvent, it was at the same time buying Burford shares."

The FCA did not return phone calls last week. Instead, it issued a vague statement saying: “The FCA is responsible under the market abuse regime for undertaking enquiries and ultimately investigations into insider dealing, manipulative behaviour and misleading statements and/or delayed disclosures by issuers and participants in the UK’s securities markets. The FCA has been aware of these matters since the first tweet and price movements...and at that point we began undertaking wide-ranging enquiries. We will continue to make enquiries.”

The episode has only added to the woes of Neil Woodford, whose fund is also under investigation by the FCA. Woodford Investment Management is the second largest investor in Burford after Investec and Burford represents the second largest holding in Woodford's suspended flagship fund.