Andy Jenks, a sixth-generation Illinois farmer, owns shares in a small real-estate investment trust called
Farmland Partners Inc.
but rarely thought about them.
That changed on July 11, 2018. That morning, a writer going by the name Rota Fortunae published an article on an investing website, Seeking Alpha, alleging Farmland was at risk of insolvency. Some investors had shorted the company, betting Farmland’s stock was poised to decline. It did, and by the end of the day, Farmland was down 39%. It took more than two years for the share price to recover.
Denver-based Farmland sued Rota Fortunae in Colorado federal court. The company accused the writer, whose real name is
of posting a “false and misleading” article to drive down the company’s shares. Farmland also sued a Dallas hedge fund, Sabrepoint Capital Management, in Colorado federal court and Texas state court, accusing it of working with Mr. Mathews for the same purpose.
Mr. Mathews later said key parts of his article were incorrect, a statement he issued to settle Farmland’s lawsuit.
Sabrepoint disputed Farmland’s allegations, saying it didn’t instruct Mr. Mathews to write his report and didn’t pay him to do it. Judges in both states dismissed Farmland’s lawsuits against the hedge fund, though Farmland is appealing in Texas.
Activist short sellers fill an important niche in the market, identifying overpriced shares and even corporate fraud. Some of them have also drawn lawsuits from companies alleging their tactics mislead other investors. Farmland’s legal claims help reveal why the government is now exploring whether these campaigns have crossed the line.
Broadly, U.S. authorities have cracked down on various forms of market manipulation. The government has now broadened its scope to include a number of short sellers and whether they engaged in illegal trading tactics while investing in various companies, The Wall Street Journal previously reported. Investigators are also looking at how short sellers disclosed their positions and collaborated with others, people familiar with the matter said.
The Justice Department and the Securities and Exchange Commission have been examining the Farmland incident as part of that inquiry, zeroing in on how Mr. Mathews worked with Sabrepoint, people familiar with the matter said.
Farmland’s battle with short sellers started in 2018. That March, a senior analyst at Sabrepoint started working on a new trading idea, according to the analyst’s deposition.
first looked at Farmland stock as a possible “long” but then changed his mind.
On April 25, Mr. Marchiony sent a slide deck to his bosses arguing that Farmland shares “could be nearly worthless.” The company, he wrote, had recently switched auditors and overpaid for land.
Farmland’s chief executive, said in an interview that the company changed auditors to cut costs, and has averaged gains of 18% on land sales since its founding.
“As I think about it,” Mr. Marchiony wrote in an email to
Sabrepoint’s investment chief, “it seems more like a Q short. Maybe VIC.”
“Q,” according to Mr. Marchiony’s deposition, was Mr. Mathews, an independent stock analyst. “VIC,” Mr. Marchiony said in his deposition, was an investing website to which he had helped contribute investing ideas.
Sabrepoint knew Mr. Mathews because it had worked with him on several research projects in 2017, according to Mr. Marchiony’s deposition. In February 2018, it formalized their relationship with a contract, according to Mr. Mathews’s deposition.
Sabrepoint was Mr. Mathews’s largest client, paying him more than $100,000 in 2018 to research stocks, Mr. Mathews said in his settlement statement. Sabrepoint said Mr. Mathews has researched about 60 investment ideas for the firm since 2017.
On May 8, Mr. Marchiony emailed Mr. Mathews. “Hey, man, attaching a new idea I’d love to hear your thoughts on, potentially something we could collaborate on if there’s something juicy.”
He also noted in that email, which was included by Farmland in its lawsuit, that Sabrepoint had borrowed Farmland shares with an intent to sell them and then buy them back at a lower price.
Sabrepoint soon started buying put options, granting the firm the right to sell Farmland shares at a specified price by July 20 and Aug. 17, according to Mr. Baxter’s deposition. If Farmland’s stock declined, the options would surge in value.
Mr. Mathews said in his settlement statement that he also bought Farmland put options after he began researching the company.
In a deposition, Mr. Baxter said Sabrepoint believed Farmland’s share price had been inflated by the company’s stock-buyback plan. On a May 10 conference call with analysts, Mr. Pittman had noted stock repurchases had moved the shares higher.
Mr. Marchiony said in his deposition he was in regular contact with Mr. Mathews through June and early July, speaking by phone or emailing once or twice a week. In emails produced through Farmland’s lawsuit, Mr. Marchiony and Mr. Mathews shared research on land values. They also emailed about whether two individuals who had received loans from Farmland were so-called related parties to the company. Mr. Mathews would later say in his article that they were—which can run afoul of regulations.
Mr. Pittman said Farmland’s auditors had agreed that those individuals weren’t deemed related parties when they received loans.
At one point, Mr. Mathews visited the Sabrepoint offices to share a slide deck on his Farmland research, Mr. Marchiony said in his deposition.
On July 2, Mr. Mathews emailed a Seeking Alpha editor to say he had submitted his Farmland article, according to a deposition by the editor. He asked Seeking Alpha to wait to hear from him before publishing, then emailed again on July 10 asking the website to publish the next day, the editor said in his deposition.
Several days before the article appeared, Mr. Mathews sent a version of his Farmland report to the SEC through the online portal of its whistleblower program, he said in his deposition. Mr. Mathews said in his deposition that he believed his work “was the type of research that the SEC whistleblower program was designed for.”
Sabrepoint has said it didn’t know about Mr. Mathews’s article until it was published. Mr. Marchiony said he was in his garage, about to drive to work, when he received a notification that it had. “I was surprised to see it,” he said in his deposition.
“We never saw the article that was posted prior to its posting,” Mr. Baxter said in his deposition. “We worked on research. And it is not the same thing.”
Mr. Mathews said in his deposition that posting a Farmland story on Seeking Alpha never came up in calls and meetings with Sabrepoint employees.
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Less than an hour after Mr. Mathews’s article appeared, Mr. Marchiony emailed it to an analyst at a different hedge fund, according to Mr. Marchiony’s deposition. A few minutes after that, the analyst wrote back to ask, “This you guys?” in an email disclosed by Farmland during its lawsuit.
“I am not the author,” Mr. Marchiony responded. “I did work to develop the thesis.”
“After skimming the article a bit, I copied a link of the article and sent it to another analyst, as we had recently discussed FPI,” Mr. Marchiony said in a statement.
On July 23, Farmland sued Mr. Mathews, whom the company knew then only as Rota Fortunae.
By Aug. 1, Sabrepoint estimated it had posted gains of nearly $2 million on its Farmland trades, according to a deposition by another Sabrepoint executive.
Sabrepoint said in a statement that it closed its Farmland positions by Aug. 3, 2018, then started to short the stock again that September.
When Sabrepoint submitted its quarterly report to the SEC listing its positions as of June 30, the firm left out its Farmland positions. It also sent a letter with a request: Could it keep those positions confidential for one year?
Sabrepoint wrote in the letter, which Farmland included in its lawsuit, that disclosing those positions would reveal the firm’s investment strategy. The firm’s executives testified later that the confidentiality request had nothing to do with Mr. Mathews or Farmland’s lawsuit.
On Oct. 29, the SEC denied the request, saying the firm failed to give enough details to justify it, according to a Sabrepoint executive’s deposition.
Farmland added Sabrepoint, along with Messrs. Marchiony and Baxter, to its lawsuit in Colorado federal court in July 2020. A judge dismissed the claims against Sabrepoint and its executives in February 2021, citing jurisdiction issues.
Farmland settled with Mr. Mathews in June 2021. Mr. Mathews agreed to pay Farmland a sum equal to the profits he, a business partner and his father made by shorting the company’s stock.
“Many of the key statements in that article were incorrect,” Mr. Mathews said in his public statement. “I regret any harm the article and its inaccuracies caused to Farmland Partners.”
He didn’t admit to intentionally including any inaccuracies in his article.
“My client has resolved our dispute with Farmland, and I’m not permitted to say more,” Mr. Mathews’s lawyer said.
Farmland sued Sabrepoint again later that year, this time in a Texas state court. A Dallas County judge dismissed the case in December, ruling the suit would have relitigated an issue another court had already decided.
In a statement, Sabrepoint’s Mr. Baxter said the judges’ decisions underlined how Farmland’s “claims do not stand up to critical scrutiny.”
Farmland has appealed the Texas ruling.
Justice Department officials have interviewed Mr. Mathews several times, pressing for details on his interactions with Sabrepoint, some of the people familiar with the matter said. It is unclear if prosecutors will revisit the Farmland matter.
The SEC is still seeking additional information, people familiar with the matter said. Mr. Baxter said Sabrepoint “is fully cooperating with the government in any investigation.”
The government hasn’t accused Mr. Mathews, Sabrepoint or any of its employees of wrongdoing.
Mr. Jenks, the Farmland investor, said he never put much stock in Mr. Mathews’s article and didn’t sell his shares. The whole incident has left a bad taste in his mouth.
“He hurt a lot of people,” Mr. Jenks said. “Including himself.”
Write to Justin Baer at firstname.lastname@example.org
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