Bonitas threatens defamation suit against Rural Funds
Written on the 1 October 2019 by Matt Ogg
A short seller who sent shares plummeting for Rural Funds Group (ASX: RFF) claims he will be protected by America's First Amendment right to free speech in defamation proceedings against him.
RFF's responsible entity Rural Funds Management (RFM) has commenced proceedings against Texas-based Bonitas Research in the Supreme Court of New South Wales, but the fund's principal Matthew Weichert (pictured) dismisses the power Australian courts could have over him.
"To abrogate and avoid the First Amendment protections we hold, as well as to put up roadblocks toward a full airing of the financial unsoundness of your client through a vibrant discovery process, you have commenced litigation in Australia and invited us to participate," Weichert has said in a public letter today for RFM's lawyer.
"We respectfully decline the invitation. Australian courts have no jurisdiction over us, and we will contest the enforcement of any orders or judgments you obtain that certainly will be contrary to the discoverable facts, as well as United States and Texas law and policy."
However, Weichert - also known for his role at Glaucus Research sparking the collapse of Blue Sky Alternative Investments (ASX: BLA) - claims US courts do have jurisdiction over RFF as a large percentage of its publicly traded shares were historically held by US investors.
"In fact, prior to our initial report on August 6, 2019, United States investors had significant ownership of RFF shares and occasionally held more RFF shares than any other country worldwide, including Australia," he says.
"In light of the recent affirmation of our opinions regarding RFF's financial precariousness by a reputable and totally independent research firm, Bucephalus Research, we are considering a defamation action in the United States against your client."
He says Bonitas appreciates it would have to meet a malice standard in this case, but he is "more confident than ever that we can do so".
"Please confirm that you or your client's Texas counsel will voluntarily accept service of a complaint which, unlike yours, clearly would have no jurisdictional infirmities."
"RFF failed to explain how in the last eight years its mature almond trees increased in value from A$17.9 million to A$82 million," says Matthew Weichert.
In an attachment to the letter, Bonitas notes it has received a document preservation request from a Texas law firm on behalf of RFF, which suggests RFF started the process for a potential defamation lawsuit in Texas.
"Others have attempted to sue us before. To be clear, we have never retracted an opinion. We have never removed or modified a report published on our website. We stand by or work and are prepared to defend ourselves legally if necessary," the short seller says.
"We are aware that the next step in this process is document discovery, which would legally force RFF to reveal key internal documents which we believe contains evidence that RFF artificially inflated its reported profits and net asset values.
"We encourage additional disclosure from RFF so that investors know the truth and RFF Management can no longer take advantage of unsuspecting minority shareholders."
The attachment reiterates allegations the Ernst & Young report RFM has stood behind to support its financial statements is "not an audit, not a clean bill of health, and did not refute our Report's allegations".
"While RFF shouts victory, we think the E&Y Report backfired on RFF by highlighting that RFF Management's fair value calculations included an "incorrect application of AASB 116" specific to RFF's bearer plants and "identified inconsistencies" specific to RFF's water entitlement assets," says Bonitas.
"In RFF Management's hasty approach to convince the market that our allegations were untrue, RFF made a mistake and revealed how RFF eluded PwC's audit oversight to include fabricated profits and net asset values in its reported Financial Statements.
"New disclosure revealed that RFF Management took its independent external appraisal valuation for an entire property and, at their sole discretion, decide the fair value allocations into specific accounting classifications of investment property, bearer plants and water entitlements."
Bonitas claims this accounting mechanism allowed RFM to "allocate whatever portion of fair value it wanted within each of its three asset types".
"The impact of these changes and new disclosures is significant in that it allowed RFF to artificially inflate the value of its assets while concealing its actions from PwC and the investment community," the short seller says.
"RFF failed to explain how in the last eight years its mature almond trees increased in value from A$17.9 million to A$82 million.
"RFF failed to explain how in the last five years its Vineyards increased in value from A$12.9 million to A$37.7 million with only A$152,000 of additional investment."Never miss a news update, subscribe here. Follow us on Facebook, LinkedIn, Instagram and Twitter.
Business News Australia
Author: Matt Ogg