A prominent activist hedge fund agreed to reward Glaucus Research for attacking Blue Sky, as part of a conspiracy to undermine the investment firm, a new claim says.
Former Blue Sky managing director Mark Sowerby has lodged a series of legal claims in the Queensland Supreme Court, alleging there was a “conspiracy” to launch what is known as a “short and distort” attack on Blue Sky, with those involved seeking to profit from the subsequent fall in the company’s shares.
Mr Sowerby recently lodged an initial claim in the Supreme Court seeking $445m in damages from the “insiders” involved in the conspiracy, whose conduct he alleges amounts to a civil conspiracy and insider trading. He is also going after the corporate regulator, the Australian Securities & Investments Commission, for exemplary damages.
Mr Sowerby’s initial claim alleges Glaucus Research directors Matthew Wiechert and Soren Aandahl worked in concert with several brokers, Sydney hedge fund Totus Capital and more at that time unidentified “insiders” to build short positions in the company, then profited after publishing a report that claimed Blue Sky was effectively a Ponzi scheme.
In the new claim filed in recent days, Mr Sowerby’s company Blue Dog group alleges that Oasis Management and its chief investment officer, Seth Fischer, “agreed to reward” Glaucus to produce the report, and is claiming the aforementioned level of damages from Oasis.
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The claim says that Oasis and Mr Fischer, in the time leading up to the Glaucus short attack on March 28, 2018, “were in the business of rewarding other persons … to produce and disseminate false and misleading short reports about listed corporate targets so as to profit from taking prior short positions in the target’s shares’’.
“Certain persons (the ‘Glaucus Insiders’) agreed to reward the Glaucus parties for publishing a report alleging serious fraud by Blue Sky, its directors and officers,’’ the claim says.
“The first to third defendants were Glaucus Insiders, which is inferred from the matters below.’’
The claim says certain institutions loaned shares to the Oasis Investments II Master Fund, which is the first defendant named in the claim.
“Between earliest 9 March, 2018 and latest 11.47am on 28 March, 2018, the second and third defendants (Oasis Management and Mr Fischer) procured the first defendant to sell those shares through Australian licensed brokers to create short positions in Blue Sky shares while they had information that the Glaucus parties would consequently publish a report of the type (previously mentioned) and thereby profit from the resulting fall in the value and price of Blue Sky shares at the expense of the group members,’’ it says.
The claim says that prior to the report being published, “none of the defendants had any reasonable basis for believing Blue Sky, its directors or officers had committed serious fraud’’.
“The allegation in the Glaucus Blue Sky report was false, and it was also false that it was justified by any credible research and analysis.
“The Glaucus Blue Sky report was the central element of a confidence trick successfully perpetrated by the Glaucus parties with the involvement of the first to third defendants and other scheme participants which seriously damaged the value of Blue Sky’s shares and harmed the plaintiff and group members.’’
The claim sets out a series of trades it is alleged were carried out by brokers Credit Suisse, Argonaut and Euroz Hartleys, in the lead-up to the short attack.
“A material number of the Blue Sky shares sold … were sold by the broker parties for the account of the (fund), which was procured by the second and third defendants,” the claim says.
“Each of the first to third defendants conspired with the Glaucus parties and other scheme participants to cause loss or damage to the plaintiff and group members by unlawful actions, and/or each of the … defendants unlawfully conspired with the Glaucus parties and other scheme participants to cause loss or damage to the plaintiff and group members.’’
Oasis Management chief investment officer Seth Fischer.
The claim was only lodged in recent days. No defence has yet been filed. Oasis Management was contacted for comment.
Oasis, which was founded more than 20 years ago, has a long history of activist investing, with a particular focus on Japanese companies in recent years.
A 2022 report produced by global activist investment law firm Schulte Roth & Zabel and Insightia ranked Oasis as the third most influential activist fund in the world, behind Elliott Management and Starboard Value.
“Oasis Management had an especially busy and successful year, publicly subjecting eight companies to activist demands and winning board seats in both Asia and the US,’’ the report says.
“The Hong Kong-based activist’s primary focus was Japan, where improvements in the governance environment and greater management willingness to engage means more opportunities and quicker outcomes.”
Mr Fischer was quoted as saying: “We are getting a reputation for winning situations we are involved in, and sticking around after we win, so we are gaining trust earlier.’’
Blue Sky, which had billions of dollars worth of investments ranging from a burrito chain to an online shoe retailer, rejected the claims in the Glaucus report, which was released on the morning of March 28, 2018. Its shares plummeted when they returned to trade the following week, falling from $11.41 to $5.62.
Blue Sky ultimately went into administration the following year, wiping out more than $1bn in equity value for its shareholders.
Two class actions against Blue Sky and its directors were subsequently launched, which are ongoing, having being consolidated into one claim.
Mr Sowerby resigned from Blue Sky two years before the Glaucus attack, but still held a substantial of number of shares in the firm.