In what was an astonishing morning for Rural Funds Group (ASX: RFF), its share price fell over 40% before being put into a trading halt after being attacked by a short seller.
Bonitas Research released a report targeting the agricultural real estate investment trust (REIT) and its manager Rural Funds Management (RFM).
My colleague Tom Richardson covered the short sellers' accusations in this article which centred around nefarious transactions supposedly designed to transfer money from Rural Funds to RFM, higher fees, overstated rental income and overstated net assets by at least 100%.
Obviously these are very serious allegations that would rank among the worst cases of fraud on the ASX if proven true, which would be very tough for shareholders to learn considering all of the audits and independent valuations that have been carried out for the Rural Funds accounts over the years.
Rural Funds leadership has come out in the media with an initial response. The RFM managing director David Bryant was quoted by The Australian:
"The claims in the report are false, it seems to accuse us of fraud on a vast scale – that is false. We're keen that our investors, and the market, receive absolutely full transparency and we are working very quickly to provide all the information that people would want."
The agricultural business has also contacted ASIC and invited it to look at its reports and RFM has also contacted independent lawyers and accountants to report on whether its accounts are true and accurate.
What to do now?
Well until Rural Funds comes out with its formal response and the shares come back to trading, for me personally I think it's too early to say either way or do anything.
These are very serious allegations and it would be truly disheartening for REIT investors if some elements of this is true. RFM manages over $1.2 billion of agricultural assets and it's been operating for over 20 years.
The integrity of the Australian financial system is based on investors being able to trust the accounting, auditing, independent valuations and so on of the reported accounts.
I hope none of it is true, and that Rural Funds can quickly and eloquently refute each allegation. But I'm not sure the cloud over Rural Funds' reputation will be able to move on very quickly for some investors.
