The Rural Funds Group Ltd (ASX: RFF) share price shed another 5% today to change hands for $1.63 and is now down around 16% since Hong Kong-based research firm Bucephalus made available a damning report claiming that RFF may be a "Ponzi scheme".
A Ponzi scheme basically operates by using funds raised from newer investors to in part support payments to older investors. It has many variants and is one of the oldest tricks in the share market book.
This second attack comes on the back of US-based short seller Bonitas Research releasing a report on August 6 2019 that made some explosive allegations against RFF and its management team.
Unusually RFF's management team took a '5th amendment' approach to the allegations and said it was not going to comment on them other than to deny them as false.
In fairness it did commission auditor Ernst & Young to investigate the allegations, with Ernst & Young generally concluding that Bonitas's allegations were 'unsubstantiated'.
However, Bucephalus Research points out the obvious in stating that E&Y's conclusions are largely based on information provided to it by RFF's management team.
The dispute is likely to rumble on though with a Supreme Court hearing between Rural Funds Management (RFM) and Bonitas currently scheduled for September 27. In the court case RFM is seeking financial compensation from Bonitas for damage suffered from what it claims are false allegations.
Bucephalus's full report is only available to paying subscribers, but its content appears to have unsettled existing shareholders given the stock's sharp falls.
It should also be noted that Bucephalus is likely aware the more high profile a target the more likely it is to earn fees by selling more of its report. While Bonitas also has a direct profit interest in seeing the share price fall.
I am not a buyer of RFF shares myself and different stakeholders are likely to reach different conclusions given the background and complexity of the issues.
