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Bushwhacked: Blue Sky Alternative Investments Ltd responds to Glaucus Research

Battle boxing gloves legal

After a trading halt and a subsequent voluntary suspension from trade following a ‘foreign opinion piece’ from short sellers Glaucus Research, Blue Sky Alternative Investments Ltd (ASX: BLA) prepares to return to trade this morning.

Blue Sky published its response to the ASX yesterday afternoon and held a conference call this morning. In the response, Blue Sky stated that the ‘Foreign Shorter Opinion Piece’ had “a series of basic factual errors concerning Blue Sky’s business and investments” and “ignores, or neglects to check, readily accessible public information which categorically disproves many of its fundamental assertions.”

Blue Sky apparently disproved a number of Glaucus’ assertions, by explaining that a certain entity called Bayfront Capital Management had no relation to Blue Sky whatsoever. Blue Sky also clarified that it had not used later investor funds to buy out earlier investors in Lenard’s and Viking Rentals, contrary to what Glaucus claimed.

The response starts off strong, but it stumbles when it gets to later parts. For example Blue Sky states that Glaucus’ estimate of Foundation Early Learning’s debt is ‘grossly overstated’. However, Blue Sky does not go into any specifics about what the actual debt is.

Blue Sky also says that it is inaccurate for Glaucus to extrapolate performance of seven selected assets (which Glaucus identified problems with) across Blue Sky’s portfolio of eighty funds. Blue Sky also says that Glaucus’ analysis is ‘grossly inaccurate’ but then goes on to say that “Blue Sky is bound by fiduciary and confidentiality obligations in respect of its funds and cannot comment on all specific allegations relating to these investments. (emphasis added)

That may be true, but it makes it very difficult for shareholders or outsiders to judge if Blue Sky doesn’t specifically explain how Glaucus is wrong. The problem I had is that Blue Sky derides Glaucus as an incorrect ‘opinion’ but then did not explain how Glaucus was wrong, which means that shareholders are faced with basically a ‘he said/she said’ situation.

As a result of the apparent mistakes that Glaucus made, and the lack of disclosure from Blue Sky, I find it hard to believe that either Glaucus or Blue Sky is completely in the right in this situation. That means that the question is now “who is right about what?” and “how important is it if true?” and these are difficult questions to answer, even for experienced Blue Sky shareholders.

Based on Glaucus’ previous works, I think that this will likely prove to be just the opening salvo in a drawn out battle. As a result I will be watching from the sidelines for now.

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Motley Fool contributor Sean O'Neill has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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