Andy Jenks, a sixth-generation farmer in Illinois, owns shares in a small real estate investment trust.
farmland partner Ltd.
But rarely thought about them.
It was changed on July 11, 2018. That morning, a writer named Rota Fortunae published an article on investment website Seeking Alpha claiming that Farmland was in danger of bankruptcy. Some investors had been shorting Farmland, believing its share price could fall. By the end of the day, Farmland was down 39% of him. It took more than two years for the stock price to recover.
Denver-based Farmland sued Rota Fortunae in Colorado federal court. The company accused a writer, whose real name is Quinton Matthews, of posting “false and misleading” articles to depress the company’s stock. It sued hedge fund Saberpoint Capital Management, accusing it of working with Matthews for the same purpose.
Matthew later said that a key part of his article was wrong, a statement he made to settle the Farmland lawsuit.
Sabrepoint countered Farmland’s allegations, saying it did not direct Mathews to write the report and did not pay him to do so. Farmland has appealed in Texas, but judges in both states have dismissed Farmland’s lawsuit against the hedge fund.
Activist short sellers fill important niches in the market, identifying overpriced stocks and even corporate fraud. Some of them have been sued by companies, alleging their tactics are misleading other investors. It helps clarify why.
In general, US authorities have cracked down on various forms of market manipulation. The government has now expanded its reach to include many short sellers, whether or not they engage in illegal trading tactics while investing in various companies. The Wall Street Journal previously reportedInvestigators are also looking into how the short sellers disclosed positions and collaborated with others, a person familiar with the matter said.
The Justice Department and the Securities and Exchange Commission are looking into the Farmland case as part of their investigation, which is focused on how Matthews worked with Sabrepoint, people familiar with the matter said. rice field.
The battle between Farmland and short sellers began in 2018, according to analyst depositions. Donald Mulkeoney initially thought Farmland stock had “long-term” potential, but then changed his mind.
On April 25, Mr. Mulkeoney sent a slide to his boss, claiming that Farmland stock “could be worth almost nothing.” The company recently changed auditors and overpaid for land, he wrote. Farmland chief executive Paul Pittman said in an interview that the company has changed auditors to cut costs and has averaged an 18% profit on land sales since inception.
In an email to George Baxter, Sabrepoint’s investment director, Markioney said, “When you think about it, it sounds like a Q short. Maybe VIC.
According to Marchiony’s deposition, “Q” was Mathews, an independent equity analyst. Mulkeoney said in his deposition that “VIC” was an investment website that helped him contribute investment ideas.
According to Mr. Markioney’s affidavit, Sabrepoint knew Mr. Matthews. That’s because he worked with Matthews on several research projects in 2017. According to Matthews’ affidavit, the relationship with the contract was formally established in February 2018.
Saberpoint is Matthews’ biggest customer, paying more than $100,000 for stock research in 2018, Matthews said in a settlement statement. Saberpoint said Matthews has researched about 60 investment ideas for the company since 2017.
On May 8, Mulkeoney emailed Matthews. “Hey, I’m attaching a new idea. I’d love to hear your thoughts. If there’s something interesting, we might be able to work together.”
He also pointed out in that email that Farmland included in the lawsuit that Saberpoint sold Farmland shares and borrowed them with the intention of buying them back at a lower price.
Saberpoint immediately began buying put options, giving the firm the right to sell Farmland shares at specified prices by July 20 and August 17, according to Baxter’s affidavit. If Farmland’s stock price falls, the value of the option will skyrocket.
In his settlement statement, Matthew said he also bought a put option on Farmland after he launched an investigation into the company.
Baxter said in a deposition that Sabrepoint believes Farmland’s share price was driven up by the company’s share repurchase program. On a May 10 conference call with analysts, Pittman noted that his buybacks had boosted the stock.
Mulkeoney said in his deposition that he was in regular contact with Matthews from June to early July, speaking by phone and email once or twice a week. In an email produced through the Farmland lawsuit, Mr. Marquioney and Mr. Matthews shared their research on land values. They also emailed about whether two of her individuals who received loans from Farmland were so-called affiliates of the company. Matthews later said in his article that they could run afoul of regulations.
Farmland auditors agreed that these individuals were not considered related parties at the time they received the loans, Pittman said.
At one point, Matthews visited Saberpoint’s office and shared slides about the Farmland investigation, Marquioney said in a deposition.
On July 2, Mathews emailed Seeking Alpha’s editors to let them know he had submitted the Farmland article. He asked his Seeking Alpha to wait to hear from him before publication, emailed again on July 10, and asked the website to publish the next day, the editor said in a deposition. says.
A few days before the article was published, Matthew submitted a version of the Farmland report to the SEC through the SEC’s whistleblowing program’s online portal, according to a deposition. Matthews said in his deposition that he believed his work was “the type of research the SEC’s whistleblower program was intended to do.”
Sabrepoint said it didn’t know until Mathews’ article was published. Mulkeoney was in the garage and was about to drive to work when he received a notification that it had been there, he said. “I was surprised to see that,” he said in his deposition.
“I have never seen an article posted before it was posted,” Baxter said in a deposition. “We worked on research, and it’s not the same thing.”
Mathews said in his deposition that the Farmland article on Seeking Alpha was not brought up in calls or meetings with Sabrepoint employees.
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Less than an hour after Matthews’ article was published, Mulkeoney emailed it to another hedge fund analyst, according to Matthews’ affidavit. A few minutes later, an analyst asked, “Is this you guys?” In an email disclosed by Farmland during the lawsuit.
“I am not the author,” replied Mr. Marquioney. “I did the work to produce the thesis.”
“After skimming the article a bit, I copied the article link and sent it to another analyst because we recently discussed FPI,” Mulkeoney said in a statement.
On July 23, Farmland sued Mathews, whom the company then knew only as Rota Fortunae.
A deposition from another Saberpoint executive estimated that by August 1, Saberpoint had made nearly $2 million in profits from the farmland deal.
Sabrepoint said in a statement that it had closed its Farmland position by August 3, 2018, and then began shorting inventory again that September.
When Sabrepoint filed its quarterly report with the SEC listing its position as of June 30, the company excluded Farmland’s position. I also sent a request. Could he keep these positions a secret for one year?
Saberpoint, in a letter Farmland included in the lawsuit, wrote that disclosing these positions would reveal the firm’s investment strategy. He testified that he had nothing to do with the Rand case.
On Oct. 29, the SEC denied the request, saying the company failed to provide enough details to justify it, according to depositions of Sabrepoint executives.
Farmland added Sabrepoint, Marchiony and Baxter to a lawsuit filed in Colorado federal court in July 2020. A judge dismissed the claims against Sabrepoint and its executives in February 2021, citing jurisdictional issues.
Farmland settled with Mathews in June 2021. Mathews agreed to pay his Farmland an amount equal to the profits he, his business partners, and his father made from shorting the company’s stock.
“Many of the key statements in that article were wrong,” Matthews said in a public statement. “We regret that the article and its inaccuracies have harmed Farmland Partners.”
He has not admitted to including intentionally inaccurate information in his article.
“My client has resolved its dispute with Farmland. I am not permitted to speak further,” Mathews’ attorney said.
Farmland sued Sabrepoint again later that year, this time in Texas state court. A Dallas County judge dismissed the case in December, ruling that the case would rehearse an issue already decided by another court.
In a statement, Saberpoint’s Baxter said the judge’s decision underlined Farmland’s “allegations do not stand up to critical scrutiny.”
Farmland has appealed the Texas judgment.
Justice Department officials interviewed Mr. Matthews several times asking for details of his interactions with Saberpoint, some of the people familiar with the matter said. It is unclear whether prosecutors will reconsider the farmland issue.
The SEC continues to seek additional information, according to people familiar with the matter. Baxter said Saberpoint “is cooperating fully with the government in any investigation.”
The government has not accused Matthews, Sabrepoint, or their employees of any wrongdoing.
Farmland investor Jenks said he never put a lot of stock in Matthews’ article and didn’t sell any stock. The whole incident left a bad taste in his mouth.
“He hurt a lot of people,” Jenks said. “Including myself”
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