LONDON (Reuters) – London-listed litigation funder Burford Capital (BURF.L) said it has found evidence of suspect trading patterns in its shares around the time short-seller Muddy Waters issued a report challenging the company’s accounts last week.

Burford said an investigation by the fund and an expert in market manipulation found trading activity in its shares on Aug. 6 and Aug. 7 was generally consistent with “material illegal activity”.

Burford’s shares fell 19% last Tuesday, the day short-seller Muddy Waters tweeted about a forthcoming short position against an unidentified company, and dived a further 46% on Wednesday when Muddy Waters released a report criticizing Burford’s accounts and management.

The fund said it had made regulators and criminal prosecutors aware of its preliminary findings and was considering its options.

Muddy Waters – founded by American Carson Block, who built up his reputation by alleging fraudulent activities at Chinese firms he targeted – said in response that the “only manipulation is that of Burford’s return metrics, accounts and disclosures”.

Burford’s shares fell as much as 14% on Monday morning following the company’s statement. It had been the biggest stock on London’s junior AIM market before the plunge last week that wiped 2 billion pounds from its valuation at one point.

Britain’s financial markets regulator said that it is now making “wide-ranging enquiries” into the circumstances surrounding the short-selling report on Burford.

A spokeswoman for the Financial Conduct Authority (FCA) said the regulator had been “aware of these matters since the first tweet and price movements on Tuesday of last week.”

“We will continue to make enquiries using the wide range of data and resources at our disposal,” the FCA added.

In its statement, Burford alleged it had identified evidence that its stock had been targeted by ‘spoofing’ and ‘layering’ manipulation.

Spoofing is where a stock price is artificially driven lower due to high volumes of trading orders being placed just below the current price but then canceled before being executed. Layering involves placing and cancelling orders at higher prices in an attempt to give the impression of high trading volumes.

Burford said that several hours after Muddy Waters’ tweet on Aug. 6, almost 90 million pounds worth of sell orders were placed and then canceled without being filled – five times its average daily trading volume.

Muddy Waters has alleged that Burford has “egregiously” misrepresented its return on invested capital and internal rates of returns. Burford has refuted the allegations, saying it is solvent with strong cashflow.

Analysts at KBW said in a note on Sunday that an independent audit would be required to assess Muddy Waters’ allegations about Burford and said the litigation funder was “structurally… a market leader in a highly profitable sector”.

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