The Motley Fool

Bonitas Research chickens out of facing Rural Funds in Australian court

Overnight U.S. activist short seller Bonitas Research made public a letter to the lawyers of Rural Funds Group (ASX: RFF) in which it outlined its intention to wriggle out of having to defend RFF’s action for damages in an Australian court room. 

The agricultural REIT is seeking financial compensation from Bonitas for costs it claims resulted from Bonitas’s false and misleading allegations. For example if victorious it could seek to recover the costs of hiring auditor Ernst & Young to investigate the allegations, or other costs incurred as a result of defending itself from the allegations.

According to Bonitas’s letter “Australian courts have no jurisdiction” over it, as it does not conduct business in Australia and it will “contest the enforcement of any orders or judgements” RFF does obtain in Australia.

In other words even if an Australian court did ever order Bonitas to pay any damages it would refuse on jurisdictional grounds.

Bonitas even threatened to commence a “defamation” action of its own against RFF in US courts. It claimed US courts had jurisdiction as US investors own large amounts of RFF shares. 

Evidently Bonitas has almost nothing to gain from defending the Australian court action, while its own threat of legal action in the U.S. against RFF comes across as lame bluster for show. 

Since a second Hong Kong-based short selling research group named Bucephalus also attacked RFF with similar allegations about the conflicted incentive structure, related party transactions, asset valuations, and funding cover of dividends the stock has fallen 19% over the last month. 

RFF’s management also took an unusual approach of refusing to knock back the allegations in detail themselves, but instead told investors to rely on PWC’s audit of its accounts and the audit it commissioned E&Y to complete looking at the allegations.

It’s possible to draw different conclusions why management took this approach.

For its part RFF’s management team continues to dismiss all the allegations as self-serving, unfounded, rubbish. 

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. 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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