Company chairman Gerry Harvey goes to war with short sellers

It’s not every chairman who can shell out $18 million in two days to buy shares in his company.

Harvey Norman chairman Gerry Harvey, left, with Sheikh Fahad Al-Thani.

It’s not every company chairman who can shell out $18 million in two days to buy shares in the company they lead, in a very public show of support for the business and the credibility of its accounts. But Gerry Harvey is not just any other chairman.

In a torrid week, the co-founder and chairman of Harvey Norman saw the value of his personal stake sink more than $100m as short sellers, led by John Hempton’s Bronte Capital, sought to puncture investor confidence in the retailer by questioning the transparency of the company’s latest half-year accounts.

Mr Harvey thought he saw a conspiracy, what he termed an orchestrated attack, against Harvey Norman. He claimed the short sellers enlisted the help of their running dogs in the press, namely The Australian Financial Review, which published several negative stories about the company’s business model and financial affairs.

He called for the corporate regulator to investigate the short sellers. He called for the ASX to join in, and for people to go to jail if they were found to be colluding to force down the share price of Harvey Norman.

Harvey Norman shares are down 14 per cent since the end of February and fell 8 per cent during the week.

Backing his words with action, in an attempt to squeeze the shorts the billionaire scooped up two million shares for just under $9m in the middle of the week and bought another two million shares the next day.

But the Australian Securities & Investments Commission, rather than putting the short sellers under the spotlight, has chosen to review Harvey Norman’s latest financial accounts.

It is the latest of a number of companies subjected to ASIC’s current financial reporting surveillance program, which looks at about 320 companies a year.

In response to articles in the Fairfax press, including The Australian Financial Review, Harvey Norman issued a statement to the ASX stating ASIC is not “investigating’’ its accounts, claiming it had been subjected to “further false statements by AFR and SMH”.

Bruce Smith, portfolio manager at Alphinity Investment Management, had some sympathy for Mr Harvey.

“He’s obviously annoyed at people who take short positions and then spread negative reports to try and make the share price go down,’’ Mr Smith said. “It’s probably fair enough if the news is true, maybe the shorts deserve to make money, but it must be pretty galling for him if the reports have no foundation.

“In that case his shareholders are losing value, possibly being scared into selling shares themselves or maybe having stop-losses triggered, for false reasons. The best response he could make is to keep performing well.”