by Mike Caswell
Silvercorp Metals Inc. is still pursuing its defamation lawsuit in New York against a group of short-sellers, despite a judge's ruling earlier this month that dismissed the case against almost all of the defendants. The company has asked for permission to amend the suit to include a number of new defendants it had previously only listed as John Does. They include employees of hedge fund manager Anthion Management LLC, the firm that wrote an allegedly defamatory letter about a potential $1.3-billion accounting fraud at the company.
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The request comes just one week after New York Judge Carol Edmead dismissed the lawsuit against Anthion and almost all of the other defendants (except several John Does), finding that a reasonable reader would have understood Anthion's statements to be opinion and not fact. She said the tone of a letter that Anthion sent to regulators and reporters showed it was expressing its views. The letter described Silvercorp as a "potential" fraud and stated it was the writer's "belief" there were massive accounting issues. Silvercorp is appealing the dismissal.
The amended suit, which Silvercorp filed as an exhibit on Monday, Aug. 27, adds as defendants Anthion employees Gerard Goetz, David Moradi and Roman Roik. According to the complaint, Mr. Goetz was the primary researcher behind Anthion's Silvercorp letter while Mr. Moradi was a portfolio manager who oversaw its publication. Mr. Roik is a junior analyst who sent the letter to regulators and reporters from a Federal Express office in New York, giving a false name and non-existent return address.
Another new defendant is Vancouver resident Kun Huang, one of a number of people Silvercorp claims are connected to the website alfredlittle.com (which published statements similar to those of Anthion). Also added is a Cayman Islands company called Oasis Management Company Ltd. and two of its employees, Seth Fischer and Alexander Shoghi. Silvercorp claims that they helped with and benefitted from the publications on alfredlittle.com.
The allegations in the amended complaint remain nearly the same as those in the original. Silvercorp claims that the defendants were behind a "short-and-distort" scheme in which they took up a large short position in the company and then drove its price down with false information. Among other things, they accused the company of a substantial accounting fraud. They said it reported 2010 earnings of $66-million in North America, when government filings in China showed a $500,000 loss. The accusations left Silvercorp at $7, down from $9 prior to the messages.
The problems, as described by Silvercorp, began on Aug. 29, 2011, when Anthion sent a 14-page letter to regulators and reporters. The letter claimed there was a "Potential $1.3 Billion Accounting Fraud at Silvercorp" and was titled "Proof Silvercorp is just another China Fraud."
Two weeks later there was a posting on alfredlittle.com that questioned the value of the company's key mine, stating that independent testing showed its silver content was low. The website also stated that Silvercorp had failed to disclose its largest customer was a related party. Silvercorp claims those statements, as with the Anthion letter, were false.
The amended suit seeks compensatory damages of over $1-million, punitive damages of at least $10-million and orders barring the defendants from future postings. The company is also asking for disgorgement of all profits from the scheme, which it says could be as much as $100-million based on the artificial drop in its market capitalization.
None of the defendants have responded to the amended suit (which has so far been filed only as an exhibit), but Anthion did respond to the initial complaint. In a March 12, 2012, answer it said its writings were "good-faith criticisms" and not a short-and-distort conspiracy. Anthion also said it had little to do with Silvercorp's depressed stock price, which had fallen to $8.13 from $15.99 in the months prior to the letter.
According to the response, Anthion wrote the letter after discovering substantial inconsistencies between Silvercorp's financial results in North America and the information the company reported to China's State Administration for Industry & Commerce. After making the discovery, Anthion believed that Silvercorp was overvalued, so it took a short position and wrote its letter.
Anthion asked that the suit be dismissed.
Silvercorp closed at $5.80 on Monday, down four cents.
© 2012 Canjex Publishing Ltd.