The war of words between short sellers Bonitas Research and Rural Funds Group (ASX: RFF) continues today after the former finally responded to an Ernst & Young (EY) report commissioned by RFF.
Instead of responding individually to every one of Bonitas' claims against the company, RFF opted to engage EY to produce a report into the claims.
Bonitas made several allegations including that RFF was being used as a vehicle to siphon money to its fund manager RFM, that board members had conflicts of interest and that rental revenues from almond farms had been inflated.
EY determined that those claims were "not substantiated".
Today, Bonitas says that the EY report has "backfired" on RFF and has unintentionally revealed failings at RFF.
"The EY Report is not an audit, not a clean bill of health, and did not refute our Report's allegations," says Bonitas.
"While RFF shouts victory, we think the EY 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 says this accounting mechanism allowed RFF to artificially inflate the value of its assets while concealing its actions from its accountants PwC and its investors.
Additionally, Bonitas says the EY report fails to address a number of the short seller's initial claims, those being the increase in value of its almond trees from $17.9 million to $82 million over eight years and the increase in value of its vineyards from $12.9 million to $37.7 million over five years with only $152,000 in investment added.
Bonitas has also acknowledged the law suit brought by a Texas law firm on behalf of RFF alleging defamation, but Bonitas does not appear shaken.
"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," says Bonitas.
"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," says Bonitas.
Shares in Rural Funds Group are down 2.91 per cent to $2.00 per share.
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