On Saturday, Barron’s published a feature story on SVM’s corruption of the Luoyang Police, titled “The High Price of Digging Up Dirt in China.” The article was written by Bill Alpert and Leslie P. Norton, who together won a Society of American Business Editors and Writers award for their 2010 investigation of “reverse-merger” Chinese stocks.
The article introduces Michael Wei, a Chinese research analyst who the Luoyang Police forced to sign a false confession statement implicating Kun Huang, a Canadian research analyst detained in a Chinese jail for over a year. The Luoyang Police threatened that Michael must testify against Kun or else face a long imprisonment.
Rather than falsely testifying against Kun, Michael left China and offered his full cooperation to the RCMP as they continue to conduct a criminal investigation of the bribes paid by SVM’s management to the Luoyang Police.
The key evidence that Michael provided to the RCMP are video and audio recordings of his meetings with the Luoyang Police, in which he catches the police red-handed accepting bribes from SVM and discussing how they will “fabricate” charges against Kun.
According to the Globe & Mail today:
“The U.S. Securities and Exchange Commission is investigating Silvercorp Metals Inc. and has issued a subpoena to the mining firm requesting all documentation relating to the Vancouver company’s long-running battle with short sellers.”
In 2011, journalists Andy Hoffman and Mark MacKinnon won a National Newspaper Award (“NNA”) for their investigative reporting on the multi-billion dollar Sino-Forest fraud. Yesterday, Andy and Mark were nominated for a 2012 NNA for their special report calling into question illegal payments Silvercorp Metals Inc. (NYSE: SVM) made to bribe Chinese police to investigate and arrest a Canadian research analyst, Kun Huang, in retaliation for negative reports I published on Silvercorp. The Globe and Mail report found that Silvercorp had reimbursed police hotel expenses and had provided luxury cars and drivers for the police to use as needed during the course of their investigation. Not charged with any crime, Mr. Huang has been illegally imprisoned since 7/22/12 in the town of Luoyang adjacent to Silvercorp’s Ying mining district.
On Monday, March 11th, 2013 Silvercorp Metals Inc. (NYSE: SVM) quietly conceded defeat in its two defamation lawsuits as well as its appeal of A*L’s New York Supreme Court victory. Copies of the discontinuance notices Silvercorp filed with the Court can be found here and here. Like most bad news events, Silvercorp has not yet bothered to notify its investors of its court losses, despite pledging in a press release to “provide progress updates” on these matters. Silvercorp acknowledged spending millions pursuing the claims.
According to recent reports, the new Chinese administration and media are becoming much more aggressive on fraud and corruption in China. As such, I believe that Silvercorp management will soon be held accountable for funding Chinese police retaliation against my researchers, one of whom is still being held, effectively as a hostage, in a Chinese prison. His story, and the truth about Silvercorp, has only just begun to be told.
Disclosure: Short SVM.
I am blowing the whistle today on Silvercorp Metals Inc. (NYSE: SVM) for misleading investors by publishing and repeatedly promoting a patently false fiscal 2013 operating cash flow forecast of $160 million, an increase of 42% over 2012. SVM management published and touted this forecast despite only generating $43 million in operating cash flow in the first half of fiscal 2013, a decrease of 38% from 2012. Furthermore, I will show that SVM management selectively disclosed lower operating cash flow guidance in presentations to one group of investors, while continuing to show the higher cash flow forecast to all other investors. Then in early 2013 SVM management staged a series of positive announcements to boost the stock price while delaying disclosure of negative developments including a write-down, project delay and sharply reduced production guidance.