This article is from the Australian Property Journal archive
US short seller Bonitas Research remains defiant, saying the Ernst & Young report commissioned by Rural Funds Group has backfired and RFF remains “ultimately worthless”, whilst at the same time welcoming the threat of legal action.
Bonitas said in an attempt to credibly rebut its allegations, RFF engaged E&Y to produce a limited scope of work review, which it says failed to “address the whole saga”.
“The E&Y Report 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.
“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,”
Bonitas said the 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.
“This accounting mechanism allowed RFF Management 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.
“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!”
Bonitas said it has lawsuit from a Texas law firm acting on behalf of RFF, but it welcomes the scrutiny.
“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.
“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 TRUTH will prevail. Because of this, we remain short RFF and believe RFF’s equity is ultimately worthless.” Bonitas said.
Meanwhile Bonitas’ latest statement has fired up RFF.
“RFM advises that legal counsel have been briefed on the matter and proceedings in the Supreme Court of New South Wales will be commenced imminently. RFM will rely on the findings of the Supreme Court of New South Wales as the most authoritative response to the document.” RFF said in a statement.
