The Supreme Court of New South Wales has ruled in favor of Rural Funds Management in its dispute with Bonitas Research, the US-based short-seller that attacked the firm in 2019.
In his ruling, Justice David Hammerschlag found that Bonitas and its chief executive Matthew Wiechert, had breached multiple sections of the Corporations Act and one section of the Australian Securities and Investments Commission Act.
The breaches to the Corporations Act came under sections 1041E, 1041F and 1041H, covering false or misleading statements, inducing another person to deal in financial products, and engaging in misleading or deceptive conduct incurring civil liability, respectively.
He found that Bonitas and Wiechert had breached section 12DA(1) of the ASIC Act, also covering misleading or deceptive conduct. The matter has been stood over until March 6 at which point damages will be assessed and awarded.
Justice Hammerschlag said in his judgement: “Statements [Bonitas and Wiechert] 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.”
In addition, he said that Bonitas’ statements and the information it disseminated was “manifestly … intended to, likely to, and did, induce persons in this jurisdiction to dispose of their units, or acquire units. They were also plainly intended to, likely to, and did, have the effect of reducing the trading price of the units.”
He described the disseminations made by Bonitas and Wiechert as “of the most serious kind.”
“They had an obvious commercial interest in depressing the price. I have no difficulty in concluding that they did not care whether what they were saying was false,” Hammerschlag said.
Hammerschlag found that Bonitas and Wiechert had not breached section 1041D of the Corporations Act, covering the dissemination of information about illegal transactions, as he found that none of Rural Funds Management’s transactions were illegal.
On Bonitas’ specific claims about Rural Funds Management and Rural Funds Group, the ASX-listed firm of which it is the trustee, Hammerschlag found that there was no evidence to suggest that RFF’s profitability included fabricated rental income, or that its financial performance had been artificially inflated, as Bonitas asserted.
Hammerschlag also dismissed Bonitas’ claims about RFF’s acquisition of cattle enterprise J&F and said that there was “no foundation for the assertion” that RFM had been established as a separate entity from RFF, for the purpose of siphoning cash from the listed entity into the management organization.
He also found that RFF’s asset valuations, a key plank of Bonitas’ criticisms, had been reviewed and supported by independent valuers, and that Bonitas and Wiechert’s assertions on this front were “materially misleading” and “deceptive.”
Bonitas and Wiechert chose not to defend the proceedings or challenge the court’s jurisdiction.
Hammerschlag included an email that Wiechert and Bonitas sent to RFF’s lawyers on October 1, 2019, that argued it was not subject to the jurisdiction of Australian courts, and that RFF itself was subject to the jurisdiction of US courts by virtue of the fact several investors in RFF were from the US. Bonitas said it would also consider a defamation action against RFF in the US courts.
On jurisdiction, Hammerschlag said: “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 judgement revealed that RFM spent A$134,815.42 ($90,759; €83,161) in respect of solicitors and A$385,000 in respect of EY in preparing the EY-published report that defended RFF and its practices.
Rural Funds Management declined to comment beyond a brief statement that directed shareholders to read the court judgement in full.
Bonitas Research has been contacted for comment. Wiechert established Bonitas after leaving Glaucus, the firm that achieved notoriety through its short-selling attacks on Blue Sky Alternative Investments and Quintis.
RFM initiated the legal action against Bonitas and Wiechert in September 2019 after rejecting its allegations.
RFM managing director David Bryant told Agri Investor at the time that short-sellers were “playing by different rules” to ASX-listed firms.