Silvercorp facing class action suit in New York
Ticker Symbol: C:SVM
Silvercorp facing class action suit in New York
Silvercorp Metals Inc (C:SVM)
Shares Issued 170,755,058
Last Close 1/2/2013 $5.18
Thursday January 03 2013 - Street Wire
by Mike Caswell
Silvercorp Metals Inc. is facing a class action lawsuit in New York for overstating its production figures in China. The suit claims that shareholders suffered losses after the short-selling website Alfred Little made "truthful disclosures" showing that Silvercorp had been misleading investors. The stock dropped to $6.30 from $7.84 on heavy volume after the report. (All figures are in U.S. dollars.)
The allegations in the suit are substantially based on a report that the Alfred Little site issued on Sept. 13, 2011. The report, written by a man named Jon Carnes, accused Silvercorp of vastly overstating its production from the Ying mine in China. Mr. Carnes said that the mine had only produced 32.17 tonnes in the year ended Dec. 31, 2010, but the company reported 130.63 tonnes for the year ended March 31, 2011.
InfojexRuiFeng Silvercorp has not yet responded to the class-action case in court, but the company has made its opposition to the short-selling report clear in other court filings. On Sept. 22, 2011, Silvercorp launched a defamation case against the Alfred Little site and others, in which the company said the report was completely false. Silvercorp contended that the real aim of the report was to drive its price down as part of a "short-and-distort" scheme. The company argued that a hedge fund manager named Anthion Management LLC had distributed the report, with the aim of profiting from a drop in the company's price.
(Silvercorp suffered a substantial setback in the defamation suit on Aug. 17, 2012, when the judge dismissed the case against most of the defendants. She ruled ruled that the statements in the report reflected an opinion, a valid defence to defamation.)
The class action case The class action complaint was filed on Dec. 28, 2012, in the Southern District of New York by The Rosen Law Firm P.A., with the lead plaintiff identified as Alan Marsch. It was filed on behalf of all those who bought shares from June 24, 2010, to Sept. 13, 2011. The defendants are Silvercorp as well as three of its officers: Rui Feng, Jiango "Myles" Gao and Meng "Maria" Tang.
The complaint identifies several figures in the company's filings that it contends were vastly overstated. Among them were silver production numbers from China in the 2010 and 2011 annual reports, as well as the production numbers in a prospectus supplement that was part of a $116.84-million financing. The production from Silvercorp's mines in China represented almost all of the company's revenue.
The largest discrepancy that the suit identifies is in the company's 2011 annual report, in which it reported 130.63 tonnes of silver production for the year ended March 31, 2011. The figure was substantially higher than a number that Mr. Carnes obtained from authorities in China. The company had reported to the Henan Provincial Bureau that production from the Ying mine was 32.17 tonnes for the year ended Dec. 31, 2010, according to the complaint. "Thus, Silvercorp's SEC filings overstated its actual production of silver by 306%," the suit reads.
In the wake of the report, Silvercorp began "prosecuting a vendetta" against Mr. Carnes and others who had "truthfully revealed" its financial condition, the complaint states. Among other things, the company allegedly used its influence with the local Chinese government to detain a researcher named Huang Kun, who had assisted Mr. Carnes. The official who questioned Mr. Huang told him: "You have to take responsibility for what you have done. This company is very powerful at the local level. They pay a lot of tax to the local government and Luoyang is a very poor city."
A statement Mr. Feng later made "highlighted the dangerous influence" Silvercorp had over the police, according to the suit. He said: "These [short-sellers] are bad people for me. They are my enemy. I am raped. I tell police. Right? The police sometimes do contact me and with us. We are victims. We are big taxpayers in the Luoyang County." The suit, citing a Globe and Mail article, says that the RCMP were considering an investigation of the company and that its conduct could have violated both Canadian and Chinese laws.
The suit seeks damages for losses shareholders suffered after the stock declined. It also asks for a trial by jury.
Silvercorp has not yet responded to the suit in court. Spokesman Jonathan Hackshaw, reached by phone on Thursday, declined to comment.
© 2013 Canjex Publishing Ltd. |
