February 13, 2020

By Lynda Kiernan

The Supreme Court of New South Wales has found in favor of publicly traded agricultural investor Rural Funds Management against U.S.-based activist short seller Bonitas Research, finding that claims made by Bonitas against Rural Funds were misleading and false. 

Founded by Matthew Weichert in Texas, Bonitas released a report last August 6 claiming that Rural Funds has overstated the value of its portfolio by as much as 100 percent, alleging that the $1.2 billion Rural Funds portfolio of agricultural assets – including cattle holdings in Queensland, vineyards in South Australia and Victoria, macadamia orchards in Queensland, and cotton acreage in New South Wales – was worth a mere $268 million as of the end of 2018 – a breach of its $400 million net asset loan covenant.

The report also included caustic language referring to RFM as “worthless” and an “ASX listed fraud”. As a result, Rural Funds’ share price crashed by 43 percent, cutting its ASX market capitalization by approximately $335 million. 

The decision handed down by Judge David Hammerschlag against Bonitas was damning and clear. Finding that Mr. Weichert and Bonitas violated sections 1041E, 1041F and 1041H of the Corporations Act, as well as section 12DA(1) of the ASIC Act, Judge Hammerschlag stated:

“Commencing at 9:23am on 6 August 2019, Bonitas and Wiechert engaged upon a concerted course of making statements and disseminating information scathingly critical of RFM and RFF,” said Justice Hammerschlag in the judgement.

“They accused RFM and RFF of dishonesty and of being a fraud. Their plain intention was to drive down the price of units for commercial gain.

“Statements which they made and information which they disseminated were false in material particulars and materially misleading. I am satisfied that they knew or ought reasonably to have known that the statements and information were false in material particulars or were materially misleading. They did not care that they were false.”

On October 1, 2019, Bonitas and Weichert sent a letter taking the stand that the Australian court held no sway over either of their parties since they were based in the state of Texas, stating in part, “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.”

Judge Hammerschlag, however, negated this argument stating that neither the Constitution of the United States, nor the Texas state legal code have any application to Australian legal proceedings.

“If a statement is directed from one place to another, where it is known or even anticipated that it will be received, the statement is taken to have in substance been made at the place to which it was directed,” found Judge Hammerschlag.

“The evidence establishes that not only was Australia an intended destination for the statements and information disseminated by Bonitas and Wiechert but that the statements and information actually reached Australia and were read here.”

The court is to reconvene on March 6 to address the issue of damages to be awarded to RFM, however, these damages will not include any profits made by Bonitas resulting from its actions last August.

– Lynda Kiernan is Editor with GAI Media and daily contributor to the GAI News and Agtech Intel platforms. If you would like to submit a contribution for consideration, please contact Ms. Kiernan at lkiernan@globalaginvesting.com.