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Shares in Rural Funds Group (ASX: RFF) have risen three per cent in early trading after an investigation from Ernst & Young (EY) found claims from a US-based short seller were "not substantiated".
Earlier this month a report from Bonitas Research, founded by Matthew Wiechert whose previous fund Glaucus triggered the demise of Blue Sky Alternative Investments (ASX: BLA), alleged RFF's assets should have been worth half their declared value.
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.
RFF came back firing, Rural Funds founder David Bryant bought shares and even though Bonitas dismissed the company's "we will not disclose" approach as providing "zero clarity", investors started to regain confidence in the Canberra-based company.
The outcome of Bonitas' recent short sell attack against Chinese clothing retailer Bosideng may have been an influencing factor too, with its shares having risen 15 per cent since Bonitas described that business as including "many hallmarks of a public market fraud".
Rural Funds opted to avoid going in-depth with regards to each individual claim from Bonitas so as to not add fuel to the fire, indicating the proof would be in the pudding when Ernst & Young's report came out.
That day has now come for the besieged agricultural property company.
"The independent investigation conducted by EY concludes that the assertions contained within the Document are not substantiated. Further, EY have corroborated the response provided by RFM on 7 August 2019," the company said.
"RFM has instructed Clayton Utz to commence action against Bonitas Research LLC for its deliberate and malicious publication of the Document, which RFM contends constitutes misleading and deceptive conduct in Australia in respect of RFF securities."
Amongst other conclusions, EY observed all payments received for rental income from almond properties from FY16 through to 1HFY18 agreed to underlying rental agreements and cash received.
On Bonitas' claim that RFF management controls and operates both boards of RFF and RFM, EY noted that as RFF is a trust it does not have a board of directors.
"EY observes that one of the RFF management team is also an RFM Board member," the company said.
In the report EY explains it has not conducted an audit of RFF and has utilised information provided by management and independently verified all information it has relied upon.
In its results announced today, RFF recorded an 11.6 per cent increase in net profit after income tax to $33.36 million.
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