47. The Short Seller defendants intended to disrupt Solv-Ex's financing efforts through publication of the Journal article. To that end, they secretly worked not only to secure publication of the article, but also to accelerate it, ensuring damaging publicity before Solv-Ex announced additional financing. They knew (as an agent of Zweig observed then in an e-mail) that delays in completion of the financing was "good news for us," since the "upcoming WSJ article should hopefully be enough to scare any potential lenders off from this company."
48. The Short Seller defendants' assault had other fronts as well. Rice Voelker and Mikles/Miller directly contacted FIBA with the intention of disrupting Solv-Ex's financings. Other defendants spread false and malicious information concerning the prospective financing, intending to destroy investor confidence in the company. For example, on March 26, 1996, defendant Trilling authored an anonymous Intemet posting using the alias "Stkmvr," falsely declaring, 'Y don't believe Solv-Ex has received any money in these financings."
49. The activities of the Short Seller defendants had the desired effect. On Thursday, March21, 1996, Solv-Excommonstockclosedat $24.375; by Monday, March25, 1996, it had fallen to $7.375. Shareholders who held Solv-Ex stock in margin accounts were forced to sell
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at signif icant losses. This further enriched the Short Seller defendants by allowing them to obtain shares inexpensively to cover their short positions. Their scheme yielded windfall profits.
50. The precipitous crop in Solv-Ex stock caused FIBAto renegotiate the $30.69 million placement of Solv-Ex shares previously announced. The revised transaction, which was announced on April 2 l, l 996, was much less favorable than the original equity placement. The new terms of the finaninmg were directly attributable to the actions of the Short Seller defendants, and they damaged Solv-Ex by, among other effects, impairing its ability to complete its Alberta plant.
51. As a consequence, Solv-Ex was unable to locate financing sufficient to complete its Alberta plant. In June l 997, work on the plant ground to a halt. On August 1, l 997, Solv-Ex petitioned for relief under Chapter 1 l of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of New Mexico.
52. As a result of their access to Confidential Solv-Ex Information, the Short Seller defendants knew that the financing of Solv-Ex's project in Alberta -- and the commercial viability of its technology -- depended on a stable and orderly market for Solv-Ex shares. They also knew and intended that their concerted actions to bombard the market with misleading and inaccurate information would have a detrimental effect on Solv-Ex's timely acquisition of financing and its reputation with entities willing to extend financing opportunities. The Short Seller defendants' wrongfull conduct was intentional, malicious, and designed to harm Solv-Ex and thwart its financing, plans, and projects, and thereby drive down the price of its stock.
53. The Short Seller defendants also well knew that, in locating financing for Solv-Ex, Charter Oak was entitled to certain fees and corurnissions. By disclosing Confidential Solv-Ex Information obtained from Charter Oak, the Short Seller defendants intended to interfere -12
with its efforts to secure financing for Solv-Ex and thereby to deprive Charter Oak of fees and commissions. Their conduct achieved its objective, as Charter Oak was unable to locate suitable financing for Solv-Ex and did not receive its fees and commissions.
Deutsche Bank Defendants
54. Deutsche Bank is the largest bank in the Federal Republic of Germany and one of the largest in the world, with offices in over 40 countries. In 1989, Deutsche Bank acquired Morgan Grenfell P.L.C.,a British investment banking house, in an attempt to expand its role in global finance and asset management. Since that acquisition, Deutsche Bank's U.S. investment operations have been conducted principally through its subsidiary DMG. In the U.K., Deutsche Bank has used Morgan Grenfell as its entree into the London-based asset management market
55. In early 1996, the Deutsche Bank defendants expressed an interest in helping Solv-Ex obtain financing. Through employee Peter Young, Morgan Grenfell executed a confidentiality agreement binding these defendants to Solv-Ex. They pledged to maintain the secrecy of Solv-Ex's confidential information end not to use it except as specified. By the terms of the agreement, Morgan Grenfell's obligations were binding on its parent and all affiliates, such as Deutsche Bank and DMG
56. The Deutsche Bank defendants then began secretly buying Solv-Ex stock. According to public filings, they acquired approximately 12.5% of Solv-Ex's stock by the spring of 1996. In fact, the amount controlled by these defendants may be as high as 16%.
57. The effect of these acquisitions was to all but corner the market on publicly available Solv-Ex shares, which in turn artificially inflated the price of the stock. The Deutsche Bank defendants' purpose in manipulating Solv-Ex stock was to cover losses associated with -13
investment portfolios under Young's direction, who at the time they touted as their "superstar" fund manager. In carrying the scheme, the Deutsche Bank defendants misused confidential information belonging to Solv-Ex.
58. This market manipulation was part of an immense international financial fraud. After the scandal was revealed, Deutsche Bank was forced to inject some $270 million into funds managed by Young to prevent the funds from collapsing. Deutsche Bank also paid $300 million as compensation to injured investors. Four employees of Morgan Grenfell have been disciplined by British regulators, and Morgan Grenfell itself has been fined two million pounds. Indeed, the United Kingdom's Serious Fraud Office recently announced that criminal charges have been initiated against several of those involved in the scandal, including Young himself.
59. The Deutsche Bank defendants' market manipulations began in early 1996, when they acquired shares issued by Solv-Ex in connection with private placements of its stock.
60. The first private placement closed on January 23, 1996, in which Solv-Ex issued 489,474 shares to Russ Oil in exchange for $8 1 million. In the second private placement, which closed on March 8, 1996, Solv-Ex issued 649,180 shares to Sandvest Petroleum and 432,787 shares to Alulux Mining, in exchange for a total of $30.69 million. Unknown to Solv-Ex, Russ, Sandvest, and Alulux were owned or controlled by the Deutsche Bank defendants. As a result of the transactions, the Deutsche Bank defendants became beneficial owners of over 1.5 million shares of Solv-Ex stock.
61. The DeutscheBankdefendantalso secretlyacquired 1,016,000 Solv-Exshares that were issued in connection with a $33 million convertible debt financing obtained by Solv-Ex on or about April 22, 1996. Although Solv-Ex was informed that the entity providing the financing -14
was PheMex Establishment, a Liechtenstein legal entity, Deutsche Bank's public filings state that PheMex is owned andlor controlled by the Deutsche Bank defendants. Their ownership of PheMex was actively concealed from Solv-Ex.
62. This financing was detrimentalto Solv-Ex because its terms were extremely disadvantageous, particularly in comparison to the private placement previously announced on March 21, 1996. By way of example, the PheMex transection featured unfavorable payment terms, negative covenants, and a short term for repayment. In a material way, these terms helped cripple Solv-Ex's ability to raise future financing and were in fact a proximate cause of Solv-Ex's bankruptcy filing.
63. The Deutsche Bank defendants further manipulated Solv-Ex stock by means of secret open-market purchases. According to Deutsche Bank's later public filings, Sandvest acquired 908,140 Solv-Ex shares during ten days in March 1996, at an aggregate price of $27.11 million. Similarly, Alulux acquired 605,427 Solv-Ex shares at an aggregate price of $ 18.07 million. The Deutsche Bank defendants concealed from Solv-Ex that Sandvest and Alulux, both of whom secretly had acquired Solv-Ex shares in private placements, also were making extensive open-market purchases.
64. In addition, SilvaInvestmentLimited,a corporationorganizedunderthe laws of the Cayman Islands, purchased 750,000 shares of Solv-Ex for $12.22 million on April 8, 1996. According to DeutscheBanlc's later public f ilings, Silva was incorporated by Young for the purpose of investing in Solv-Ex stock Like earlier acquisitions,these purchases by Silva were not disclosed to Solv-Ex and further served to manipulate its stock
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65. These transactions produced erratic price swings in Solv-Ex stock. On January 2, 1996, prior to the Deutsche Bank defendants' secret acquisitions, Solv-Ex stock closed at $15.50 per share. By March 15, 1996, Solv-Ex stock had nearly doubled to $30.44 per share.
66. The Deutsche Bank defendants were motivated by a need to conceal losses in investment portfolios under their control. According to published news accounts, their agents (including Young) had invested heavily in unlisted securities in small high-tech firms -- so much so that they even had exceeded the 10% maximum allowed by regulators for investments that are illiquid and difficult to value. Many of the unlisted securities proved to be worthless, causing losses of at least $300 million to the portfolios.
67. Solv-Ex represented an opportunity to enhance the value of the troubled portfolios. It was a publicly-traded company whose stock could be manipulated on the basis of confidential information the Deutsche Bank defendants had obtained. The method they employed to accomplish their scheme was secret and illegal acquisitions of Solv-Ex stock.
Short Seller Defendants' Renewed Assault on Solv-Ex
68. As part of their continuing campaign to disparage Solv-Ex, the Short Seller defendants knowingly made false and malicious statements concerning the Deutsche Bank defendants' acquisitions of Solv-Ex stock, once they became public. Their purpose was to thwart Solv-Ex's efforts to locate financing and destroy the value of its stock, thereby producing windfall short seller trading gains.
69. For example, defendantAsensio,using various aliases, such as "Cruve66509" and '~Flyrow," authored anonymous Internet postings, falsely accusing Solv-Ex and its executives of unlawful dealings:
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