Carl --
First, my apologies for bringing along the "gang" from another chat forum. They really like me and follow me everywhere.
Second, I'm afraid I can't post a link to Roy Carson's original material. What I'm posting are summaries of his e-mail news-service items from printout versions. They are not in cyberspace for the viewing.
Further, I can't post the entire Carson story because that would violate copyright law and SI's rules. However, these summaries contain direct quotes from Carson's e-mails, to help verify our interpretation of his originals.
This is something Stockwatch has been doing for 14 years and is a big part of our data base.
On another topic, below is Stockwatch's story of the Rabin & Peckel class-action suit. I wouldn't normally point out that I wrote it, but CSW's no-byline policy has raised questions among the "gang" that I'm not proud of my work. (To the contrary, I find Stockwatch's coverage of Crystallex holds up very well over time; Carson's, IMO, not so well.)
Monday Jul 20 1998
CLASS ACTION SUIT SINGLES OUT OPPENHEIMER
by Stockwatch Business Reporter
A class-action lawsuit filed in federal court in New York late last week has made
Crystallex International president Marc Oppenheimer the target of a lawsuit that
seeks to recover losses suffered by shareholders when the highly touted stock
crashed last month.
The lawsuit, launched by Madison Avenue class-action specialists Rabin &
Peckel, alleges that between March 3, 1997 and June 12, 1998, Mr.
Oppenheimer "engaged in a course of conduct that operated as a fraud on the
integrity of the market for shares of Crystallex common stock by artificially
inflating the market price for such securities."
The allegations focus on the way in which the company portrayed its "ownership
rights" to Las Cristinas 4 & 6 concessions in southern Venezuela, and its chances
of success before the Venezuelan Supreme Court. Both Crystallex and Mr.
Oppenheimer are named as defendents in documents filed in the court.
In a brief statement released Monday, July 20, Mr. Oppenheimer said the
company has not seen the Rabin & Peckel statement of claim, but will fight
whatever disgruntled shareholders throws its way. "Crystallex stands by its record
of public disclosure, including with respect to the Cristinas concessions, and
intends to vigorously defend the action," he says.
The initial complaint was made by Costa Rican-based company Inversiones
Capitana Uno, which is named as the plaintiff. In January and February, ICU
bought 42,250 shares for prices as high as 7-7/8 on the American Stock
Exchange, and sold them for as little as 3-1/2 in March.
ICU's losses would have been much greater had it held on until resolution of the
Venezuelan court action that went against Crystallex on June 11. The supreme
court's admissions division in Caracas ruled Crystallex lacked the legal standing to
sue the government over how it granted mineral rights to the Cristinas concessions.
The court ruled further that even if it had legal standing, it still did not have a case
to bring forward.
In three days of frantic trading starting June 10, disappointed shareholders
dumped KRY shares. The stock plunged from $6 (the June 9 close) to end at
$1.08 at the close of trade on June 12 on the Toronto Stock Exchange.
The Venezuelan Supreme Court's 4-1 ruling was final and binding, and put an end
to Crystallex's legal challenge over the mineral rights. That case followed the
company's claims, beginning in March 1997, that it held title to the gold-laden
Cristinas concessions through its recent acquisition of local company Inversora
Mael. The court, however, ruled Mael never had legal title to Cristinas.
Vancouver-based Placer Dome had been working the concessions since 1992,
and is building a $600-million (U.S.) mine on the site.
The conflict between KRY and Placer was portrayed by a fervent and determined
legion of Crystallex supporters as a David and Goliath battle -- and as a struggle
between the old and corrupt Venezuela which did business with Placer Dome, and
the new and less-corrupt Venezuela that wanted to do business with Crystallex.
The company never actually put forward this position in public statements, but the
message was distributed, repeated and amplified through a number of tireless
sources on the Internet.
A procession of directors and shareholders at KRY's annual general meeting on
June 25 referred to information found in these sites. Few, if any, shareholders at
the meeting disputed the information or the people who propagated it.
Rabin & Peckel's putative lawsuit does not mention this aspect of the Crystallex
promotion, although lawyer Jacqueline Sailer told Stockwatch she was aware of
allegations of Internet touting and that it was something that may ultimately have a
bearing on the case.
Other pro-Crystallex statements concerning the company's favourable chances of
winning what became popularly known as the "fourth and final" Cristinas court
case can be found in a number of junior-stock newsletters. These are not
mentioned in the lawsuit, either.
Rabin & Peckel's action is referred to as a putative lawsuit because it has not yet
received official status as a class action. The Manhattan-based law firm says it has
recovered hundreds of millions of dollars for its clients in various kinds of
class-action claims, including those relating to securities law.
Asked how its case against Crystallex compares with other cases involving
allegations of securities fraud, Ms. Sailer says: "All of our cases have merit. I think
it stacks up -- is equal -- with all of the other suits we've filed." She estimates the
number of potential claimants in the thousands. A spokesman for Crystallex was
not available to comment.
Filed in the Southern District of New York, the suit claims that under Mr.
Oppenheimer's direction, Crystallex's share price was "artificially inflated" by
issuing a series of "false and misleading financial statements, and other false
positive public statements."
These statements include KRY's initial news release, on March 3, 1997, which
announced the acquisition of Inversora Mael "whose ownership rights (to Las
Cristinas) have been confirmed by final and binding decisions of the Supreme
Court in 1991 and 1996", the KRY news release said. The suit adds Crystallex
falsely claimed Placer's rights to explore the concessions were in doubt, which
Rabin & Peckel says was a key aspect of the wrongful promotion.
Further, the statement notes comments from Mr. Oppenheimer immediately
following the adverse July 15, 1997 ruling, in which Crystallex was denied the
right to sue over the gold rights (the court admitted a challenge over copper rights,
however). "We are exactly where we wanted to be at this stage of the legal
process," Mr. Oppenheimer claimed soon after the ruling. "All of our motions for
enforcement will now be addressed by the full court, and we are confident the rule
of law will prevail."
In the end, the supreme court also denied admission of Crystallex's challenge over
the copper rights.
The Rabin & Peckel statement of claim says another key component of the
promotion was the role played by at least three analysts who indirectly boosted
KRY's share price by stating Crystallex had title to the Cristinas concessions "and
that the Supreme Court of Venezuela would confirm the company's ownership
thereof." The three analysts are not named. Rabin & Peckel adds that KRY
executives "knew all along" that the company had no legal standing to bring a
challenge to court about ownership rights, but does not say why.
Crystallex's "continuous affirmation of its rights" to the concessions caused the
price of its stock to rise over 250 per cent from March 1997 to June 1998, the
statement says, from a low of 2-1/2 to a high of 8-5/16. During this time, it
alleges, Crystallex insiders sold at least 448,760 shares for proceeds in excess of
$2-million (U.S.).
Further, the claim says that when Crystallex made its claim of title to Las Cristinas,
the stock shot up 58 per cent in two days of trading on March 2 and March 3.
The statement quotes KRY investor-relations officer Richard Marshall as telling
Bloomberg news service that the company plans "to take the steps necessary to
protect our interest in the project."
The claim also quotes a statement by Mr. Oppenheimer in a Form 20 filed with
U.S. federal regualtors on May 20, 1997. In this Form 20, the company listed Las
Cristinas 4 & 6 on a chart of its property holdings. Also in this filing, the company
reported that Mael had commenced an action in the supreme court "seeking a
ruling requiring the (Ministry of Energy and Mines) to recognize fully Mael's
ownership of the Cristinas 4 & 6 concessions."
KRY, it says, "continued to portray its interest in the Las Cristinas concessions as
certain and as having received the official stamp of approval from the Venezuelan
Supreme Court." As evidence, the claim notes a June 4, 1997 statement from Mr.
Oppenheimer: "The publication of the Official Gazette was the final legal formality
required under Venezuelan mining law to perfect the transfer for all purposes and
confirms Mael's ownership rights over the concessions." As it turned out, the court
on June 11, 1998 ruled an alleged transfer of title to Mael was never made legal,
and that the gazetting of the transfer was a legal non-sequitor so far as ownership
status was concerned.
Crystallex said it agreed to pay $30-million for Mael.
Rabin & Peckel contends that Crystallex "relied heavily on its securities to fund its
business operations and business ventures, meaning that it was of critical
importance to maintain the price of its stock at as high a level as possible." In this,
however, KRY is no different than most junior listed companies. Still, the law firm
sees a pattern of promotion that it says reached fraudulent lengths.
That pattern included significant increases in the estimation of the gold contained in
LC 4 & 6. While Placer has pegged the number of ounces in the concessions at
11.8 million, "Crystallex was earlier reported to have estimated the amount of gold
in these concessions by as much as 22 million ounces," the statement says.
The statement also calls attention to comments made by Crystallex board
members on March 18, 1998, following a Miami press conference by Venezuelan
Congressman Rafael Rodrigues Acosta. The document quotes a Bloomberg
report that states: "Now Crystallex officials say they are only suing to void the
claim on Las Crstinas that Placer Dome received from the Venezuelan government
later on."
On May 20, 1998, Mr. Oppenheimer was quoted in a PR Newswire item as
congratulating his company: "Among our accomplishments: . . . Acquiring
Inversora Mael -- and with it our title ownership rights to the promising Las
Cristinas concessions in Venezuela . . . We continue to puruse enforcement of
those rights through the Venezuelan Supreme Court."
The statement alleges Mr. Oppenheimer and other Crystallex insiders sold over
603,760 shares of KRY stock, for a total of over $3.5 million, "to personally
profit from the artificial inflation in Crystallex's stock price which (the) defendants'
fraudulent scheme had created." It adds that Mr. Oppenheimer sold over 301,260
shares during the class-action period for total proceeds of $1.68-million (U.S.).
Fellow directors Robert Nihon sold at least 175,000 shares for a gain of
$887,000 (U.S.); Daniel Ross sold at least 50,000 shares for a gain of $419,000
(U.S.); Luca Riccio sold over 53,000 shares for total proceeds of $362,250
(Cdn.); Armando Zullo sold at least 24,500 shares for total proceeds of
$160,015 (Cdn.).
The Rabin and Peckel statement alleges the defendants acted with "reckless
disregard" for the truth, and will request a trial by jury.
Mr. Oppenheimer is liable jointly and severally, which means he could be held
personally liable for the full amount of any potential judgement. Neither Mr.
Oppenheimer nor spokesman Marshall were available for comment.
(c) Copyright 1998 Canjex Publishing Ltd. canada-stockwatch.com |
