Crystallex International Corporation - Street Wire
Crystallex's legal merry-go-round continues apace
Crystallex International Corporation KRY
Shares issued 37,616,966 May 25 close $2.18
Thu 25 May 2000 Street Wire
LAWSUITS AND TALKS MORE PROMOTABLE THAN MINES
by Stockwatch Business Reporter
When shareholders gather for Crystallex's annual meeting on June 9 in
suburban Richmond, B.C., one of the questions on their minds will be the
future of legal proceedings designed to wrest control of Las Cristinas 4 &
6 properties in Venezuela from the Placer Dome-controlled joint venture,
Minca. Crystallex vice-president Richard Marshall said following its win on
May 3 before the Venezuelan supreme court that the company does not expect
to file any additional lawsuits. Instead, Mr. Marshall indicates that the
immediate future for the company lies in discussions with government
officials of unknown status.
Recent disclosures, however, indicate the company is as feisty as ever to
protect and advance what it contends are its "ownership rights" over the
Cristinas property owing to a title document it bought in early 1997.
Crystallex's 1999 annual report, released earlier in May, contains yet
another legal threat from president Marc Oppenheimer, who indicates in the
report's commentary that should the ministry of energy and mines replace
Minca's work contract with a permanent concession for Las Cristinas,
Crystallex will be there to challenge it. "Such application has not been
published in the Official Gazette," Mr. Oppenheimer says in the annual
report. "But should it be published, the Company will be entitled to file
an opposition."
Placer is not likely to lose much corporate sleep over Mr. Oppenheimer's
latest bluster. Placer spokeswoman Brenda Radies says anyone is welcome to
file an opposition to the granting of a concession, including Crystallex.
"It's their endless nuisance suits and not particularly surprising," she
says of the annual report entry. "I think that's what they've decided their
career is. They won't do anything to generate cash -- they'll just file
nuisance suits."
Crystallex's skillful use of the legal system was probably never more in
evidence than in early March, 1998, when it loudly threatened to "initiate
(legal) proceedings" against U.S. short seller Manuel Asensio, who in a
series of press releases directly charged that the company disseminated
fraudulent information concerning its challenge for Las Cristinas.
Crystallex quietly let the matter drop.
At the June 9 meeting, shareholders will be asked to approve six
resolutions. One of these is for approval to issue up to 750,000 shares and
one million warrants to help pay legal costs for the company's challenge
over the Cristinas properties. The shares-for-lawyers proposal is dressed
up as more good helmsmanship on the part of management, which states that
the company's "pursuit of its legal rights in relation to the Cristinas 4 &
6 concessions in Venezuela must not impair the company's ability to pursue
other opportunities for growth." Crystallex's legal counsel in Venezuela
has agreed to be paid partly in fees but mostly on what is described as a
"success-fee basis."
The definition of success is not provided, nor is a breakdown of exactly
how much the lawyers will take in shares and warrants as opposed to
billings that are paid in cash. Unknown is whether Crystallex's
wide-media-coverage "win" in a Caracas court on May 3 would count as a
success for such accounting purposes. Crystallex's big win sent its share
price tumbling by about 25 per cent in one day; at Thursday's closing price
of $2.18 means its shares are worth about half of what they were
immediately following the decision -- but before the market grasped the
essential meaninglessness of the decision.
Crystallex continues to tell any investor who will listen that it
"believes" it has legal remedies open to it "which, if advanced
successfully, could lead to the enforcement of its rights over the
Cristinas 4 & 6 concessions," according to the April 26 information
circular.
Crystallex also continues to draw from its quiver of courtroom victories in
Venezuela, which formed the basis of a tort-based promotion that ended with
the stunning June, 1998, rejection of its request to sue the government
over how it awarded mineral rights at Las Cristinas to Minca. With the May
3 win, Mr. Oppenheimer will presumably claim that the courts have affirmed
Crystallex's legal standing in 1991, 1996, 1997 and, now, 2000.
The resolution about how Crystallex will pay for future legal expenses may
be an indication that the company plans over the long run to find ever-more
imaginative ways to keep in play its legal efforts. Certainly, challenging
obscure portions of court decisions made years earlier did little to harm
its defence of a class-action suit in New York that was brought a month
after the June, 1998, decision, in which Crystallex was ruled to have no
interest in the matter.
Many investors had bought Crystallex shares under the misguided notion that
the court was about to make a "fourth and final" ruling on Crystallex's
right to Las Cristinas. Although Crystallex itself never directly made the
"fourth and final" claim, the company -- inadvertently or otherwise -- set
the groundwork for teams of disseminators to sing that mantra both on-line
through the Internet and off-line through other means.
(One non-Internet disseminator of the chant was letter writer Robert
Bishop. Stung by the reversal in spite of plenty of evidence that the
decision was by no means final, even if Crystallex had won, Mr. Bishop
thundered that "a suitcase full of money" can solve a lot of problems in a
lot of countries, a not-very-subtle allegation that the supreme court was
bribed. Mr. Bishop later denied he alleged the court was bribed.)
Still, Crystallex itself kept the bribery allegation alive, to the point
that in July, 1998, it hired a Toronto private investigations firm to probe
what Mr. Oppenheimer referred to as "irregularities and inconsistencies"
surrounding the court's unappealable decision. Mr. Marshall said earlier
this month that the investigation was active and continuing.
Some investors, who bought Crystallex shares at prices up to $11.85 based
on the court-case promotion, launched a class-action lawsuit against
Crystallex for fraud. A U.S. District Court judge, however, decided in
October, 1999, that Crystallex provided adequate disclosure and that no
promises were made by the company that the Venezuelan courts would decide
in Crystallex's favour. Class-action lawyers groused that such statements
were no more than boilerplate and the U.S. court did not adequately address
evidence that Crystallex officials knew all along that it was never in line
to win the concessions, only to have irrelevant procedural and
administrative points argued in Venezuelan courts.
The U.S. District Court in New York Lead counsel Milberg Weiss Bershad
Hynes & Lerach two months ago settled with Crystallex for a token $45,000
(U.S.) which was distributed to the 90-odd lead plaintiffs. Crystallex's
Mr. Marshall, vice-president of corporate development, was less than clear
when asked why the company paid anything at all to settle the matter.
"Why didn't we tell them to piss up a rope? Because when a class-action
lawsuit is filed against you, there's a deductible of $250,000 (U.S.) which
is taken to pay the legal expenses," Mr. Marshall told Stockwatch in early
May with characteristic clarity. "So that day we wrote a cheque for
$250,000 which was non-recoverable. In settling out of court, the insurance
policy that we have said that $45,000 (U.S.) will come out of that
deductible and you can get all your deductible back because the court found
absolutely no merit whatsoever. I think the $45,000 (U.S.) went to one of
the several attorneys that was trying to fight this for the other side."
Mr. Marshall's statement revealed that Crystallex had insurance, but did
little to explain why it paid $45,000 (U.S.) to make Milberg Weiss go away.
When told that Milberg Weiss in fact spread the settlement money among the
unusually large number of lead plaintiffs, Mr. Marshall responded, "Yeah?"
but did not deny Milberg's assertion.
Crystallex is unused to dropping its legal challenges, having had one on
the books since 1995 relating to a June, 1995, government order that
nullified absolutely transfer of the so-called Carabobo properties to
Crystallex from ACOMISUR, then known as ACOMIXSUR, and confirmation of the
nullification that came the following month by a Venezuelan court. The
challenge, which was last before a judge in November, 1997, is as good as
dead, but having an appeal on the books provides the company with the right
to imply that the properties belong to Crystallex. Certainly its
promotional material have included the Carabobo properties as part of the
Crystallex property portfolio.
Now Carabobo, the promotion, may be revived once again, in a deal worked
out with the Asociacion Cooperative de Produccion Minera del Sur, R.L.
(ACOMISUR), to begin exploring the Santa Elena 7 & 8 concessions. Santa
Elena 7 & 8 are part of a package of properties known collectively as
Carabobo. They comprise Carabobo, Santa Elena 7 & 8 and San Miguel and are
found in and around the Kilometre 88 region, along with Las Cristinas.
Details of the deal with ACOMISUR for Santa Elena are sketchy, but comments
from Mr. Oppenheimer in the current annual report indicate that a joint
venture has been worked out with the co-operative held 80 per cent by
Crystallex and 20 per cent by ACOMISUR.
"Santa Elena ... has long been the focus of local freelance prospectors,"
Mr. Oppenheimer states blandly in the 1999 annual report. "In 1992 and
1993, Crystallex, applying diamond drilling and trenching techniques,
identified several targets that contain potential bulk tonnage, open-pit
deposits." There ends Mr. Oppenheimer's Carabobo history lesson, and there
is good reason that the Crystallex president may prefer to say as little as
possible about Carabobo's past.
The company's handling of the ACOMIXSUR affair is quintessential
Crystallex, full of contradictions and carefully worded statements that
offer anything but a plain-English appraisal for investors about what is
going on.
As reported by Stockwatch (see Street Wire dated May 25, 1998) Carabobo was
the subject of great controversy several years earlier, when allegations
surfaced that Crystallex paid bribes and brutalized certain members of the
ACOMIXSUR co-operative in order to secure ownership of the asset. Many
ACOMIXSUR members and their families were less than enthusiastic about
signing away the community's main source of income to the Vancouver junior,
while a select few were keen to sell that which they were not entitled to
sell. The allegations were contained in a September, 1994, report to
Venezuela's congress by congressman Rafael Rodriguez Acosta.
Mr. Acosta brought up the matter of Carabobo in a Miami teleconference in
mid-March, 1998, whose sole purpose was to rail against Crystallex. "Our
congressional committee investigated the illegal sale of these rights from
ACOMIXSUR to Crystallex," Mr. Acosta said. "Based on our investigation, the
ministry of energy and mines in July of 1995 absolutely nullified this
sale. Crystallex has no rights to these parcels, but right here at this
(mining) conference, it continues to claim it does." In a brief,
three-paragraph statement notably short on specific rebuttals, Crystallex's
Mr. Oppenheimer denied Mr. Acosta's allegations in their entirety including
the charge that the company's Las Cristinas court challenge amounted to
"judicial privateering" designed to thwart development of the mine by the
Placer-led Minca joint venture.
In February, 1994, the company announced in a news release that subsidiary
Crystallex de Venezuela CA (later renamed Minera Venamo) "has been granted
title to 100 per cent of the Santa Elena 7 & 8, Carabobo, and San Miguel
concessions formerly owned by the Association Co-operative Minera Mixta del
Sur (ACOMIXSUR)." A note in its financial statements after the 1995
absolute nullification, however, tells an entirely different story.
Declining to mention the nullification of the properties' transfer,
Crystallex said in its Dec. 31, 1996, financials, "The Company has signed
an option agreement to acquire a 100% interest in four concessions from the
Associacion Cooperativa Minera Mixta del Sur R.L. (ACOMIXSUR)."
Crystallex has never stated that the government nullified the transfer of
ownership from ACOMIXSUR to Crystallex. Instead, Crystallex likes to say it
had an option that was never taken to consummation because of what it
implies were problems with ACOMIXSUR, not Crystallex. "During 1994, a
Venezuelan Congressional Committee started an investigation of certain
matters relating to the ACOMIXSUR, a body which granted the Company an
option on certain mineral properties in Venezuela," said Crystallex's Dec.
31, 1996 financials. "The committee's investigation includes a review of
ACOMIXSUR's administration as well as a review of various agreements
entered into by it."
In May, 1998, Mr. Marshall confirmed that there was no transfer, only an
option for which Crystallex paid $2.4-million (U.S.) of a total $11-million
(U.S.) for the properties. The government, he said, approved the
acquisition transaction and the court fight was all about (in an echo of
Mr. Oppenheimer's banalities) "title clarification."
"After the first two payments (following a 1992 agreement) the ministry of
mines for some reason said they did not recognize ACOMIXSUR at that point,
as an active co-operative, and I believe at that point extinguished the
titles to Santa Elena and Carabobo, even though we had entered into the
transaction blessed by the ministry, saying that at the end of the
transaction we would end up with title," Mr. Marshall said two years ago.
In a disclosure to the SEC that was filed on SEDAR on May 28, 1997,
Crystallex came about as close as it ever did to conceding that the
nullification took place. "The status of the company's interests in the
Santa Elena 7 and 8 concessions, the Carabobo concession, and the San
Miguel concession is uncertain at the present time, pending the outcome of
the company's application to the Supreme Court of Venezuela for an order
affirming its right to such concessions," it said.
With the new ACOMISUR agreement, Crystallex has finally admitted that it
does not have much of a claim on the properties and that ACOMISUR is indeed
the rightful and titled owner. Remarkably, however, Crystallex's current
annual report continues to maintain that the company has rights to the
properties and intends to have these rights enforced by the courts.
In a note to the 1999 financials, the company says: "On July 4, 1995, the
Ministry of Energy and Mines ("MEM") gave notice to Associacion Cooperativa
Mineira Mixta del Sur R.L. ("ACOMIXSUR") in connection with its right to
sell the Santa Elena 7 and 8, Carabobo and San Miguel 8 concessions to the
Company. ACOMIXSUR filed a response asserting its rights with the MEM and
awaits a response from the Ministry. Separately, the Company has filed a
petition with the Venezuelan Supreme Court seeking confirmation of the
title. ... The Company intends to be aggressive in pursuing its right to
these properties."
In fact, according to sources familiar with the situation, Crystallex has
not pursued any legal avenues -- aggressively or otherwise -- regarding
Carabobo since November, 1997, when the supreme court's Mr. Justice Alfredo
Ducharne accepted submissions on the matter. There it rests and probably
will rest indefinitely.
Reconciling the two parallel realities of both owning Carabobo and not
owning Carabobo proved as difficult for Mr. Marshall in May, 1998, as it
does for Crystallex in May, 2000, that is both making deals with ACOMISUR
and challenging its ownership of the properties in court. When told of the
February, 1994, press release that declared full ownership of Carabobo, the
Crystallex spokesman requested Stockwatch fax him a copy of the document.
Mr. Marshall said he would forward it to Crystallex counsel Richardo
Cottin, who would contact Stockwatch to explain the discrepancy.
Stockwatch continues to await a call from Mr. Cottin, who may also be able
to help with the contradiction in the 1999 annual report.
(c) Copyright 2000 Canjex Publishing Ltd. canada-stockwatch.com
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