Yesterday, Burford failed to provide audited FY22 financials citing ongoing discussions with the SEC around ‘modifications to our fair value approach’. BUR said that this ‘discussion’, not investigation, is happening because it's the first year of full reporting under GAAP.

Given the 2019 Muddy Waters debacle, accounting questions are the last thing Burford needs. As expected, the risk of historical misstatements and the return of FV accounting questions spooked investors. The stock was down nearly 20% intraday.

Under IFRS, Burford uses fair value accounting to estimate its Level 3 litigation assets. Its current valuation methodology starts at the deployed cost and adjusts the case value based on positive and negative milestones such as a court ruling or a trial court judgment. Adjustments are based on a certain range set by management according to the specific milestone.

For example, BUR invests $100 in a case on Day 1. If there is a positive ruling, the value is adjusted up 30% to 50%. For a positive appeal judgment, cases are marked up 17% to 80%, etc. The ranges are based on BUR’s historical proprietary data set and consider ongoing litigation risk and time to conclusion. This is part of Burford’s ‘modeling’ it has recently begun to show the market.

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