Track Record

Since February 2010 I have publicly accused 7 Chinese U.S. listed companies of defrauding investors.  In addition, I seriously questioned the business practices of another 6 Chinese U.S. listed companies.

The following table summarizes the 7 companies I accused of defrauding investors and lists the major public outcomes to date:

(click the image to enlarge)

Screen Shot 2013-05-24 at 12.14.38 PM

Investors in these companies lost everything, as the average market capitalization fell from around $250 million to just $6 million, as shown in the following two charts:

Pre AL market cap

current market cap

The following table summarizes another 6 companies I questioned, without explicitly accusing them of defrauding investors, and lists the major public outcomes to date:

(click the image to enlarge)

Screen Shot 2013-05-24 at 12.15.16 PM

 

CLICK HERE TO DOWNLOAD a complete chronological history of all my reports on these 13 companies (including the public outcomes and other relevant events).

22 responses

  1. Companies don’t defraud investors, people do. A list of officers and directors of all defrauds should be compiled for future investors to have forever, to enable them to ferret out the skunks who will undoubtedly try to perpetrate other frauds in future. These are obvious crimes against americans and investors and should not go unpunished even if enforcement authorities are incapable of acting. These people should pay in eternity with their names on a shame list. Hang ‘em high.

  2. Troy makes a very good point. There should be some initiative to make a comprehensive list of all parties involved in these scams- promoters, management, auditors, bankers, etc- so capital markets have some reference in the future. Would be a shame for these individuals to slide by more than once in their efforts to commit fraud.

    • Of course. One way for companies to avoid being held accountable for lying to investors is to go private, which is feasible if a company has good Chinese banking connections. That is what happened to HRBN.

  3. Subject: Puda Coal
    Since the compay was delisted last year and it’s chairman subsequently charged with fraud by SEC, there has been barely any information regarding the results of legal actions taken by various aggrieved shareholders. Is this turkey burnt to a crisp or is it salvagable ?
    I appreciate all the great work you have done to expose these criminal fraudsters.

    • Anil,

      The SEC is powerless to do anything to recoup money stolen from U.S. investors by Chinese companies like Puda. Therefore the best case is that the class action suits can be settled for a few million dollars from the insurance policies that protected the Directors. Unfortunately that means essentially nothing to investors.

    • wasn’t the PUDA company assets transferred to a Chinese government bank? at least it is a government funded bank.

      cant the USA government just ask the Chinese government to pressure the bank to give back the company the assets?

      seems like a conspiracy at the federal level actually.
      Seems like the bank hired the CEO, to steal assets to transfer to them and he pocketed the money/bribe.

      seriously I want a list of the ones that IPO all these corps a list of all the banks that had their hand in this and lawyers. take down all names.

      I bet all of them were involved some how as well it can’t be just Chinese doing this. The banks and related parties had to have hid it for them as well and gave them these ideas too. Otherwise the banks just did an extremely incompetent job and should still be fired and put out of business.

      Same deal with appraisers that overvalue homes or banks that loan our bad mortgages. They should all go bankrupt for doing a bad job.

      • I absolutely agree that the U.S. government should pressure the Chinese government to charge Chinese citizens such as Ming Zhao, the crook behind PUDA, with fraud. Ming Zhao would then rush to pay back U.S. investors to avoid jail-time or worse in China. The Chinese government would thus set an excellent example of the rule of law and thus discourage further Chinese stock frauds.

  4. The SEC investigation of CGA led to no enforcement action. Is it possible that the SEC overlooked details, or do you think this company is legit?

    • The SEC has yet to charge any Chinese companies or managements with fraud that did not in one way or another admit to defrauding investors. The SEC seems focused on the easier cases to make where the CEO has confessed, such as Puda Coal or Yuhe. No, I do not believe CGA is legitimate.

  5. yes I am the ryu that you complained about just here to pay you a visit.

    now to mention lots of them were correct calls except a few things you should probably address ben wey is bad mouthing you on his website.

    but anyway he’s using svm as a supporttng platform shield lets just say to make himself more credible when he is clearly not that credible.

    he said you had accounts in Rodman and Renshaw

    but also you had ronman investments offerings of scei rino etc seems you may have some insiders there offering frauds and then they give you the information. No wonder you got that I suppose good work but next time shouldn’t you report them?

    as for svm: sorry but stop gloating when you got so many things wrong.
    I am going to get mad at you again. because you never admitted you were wrong.
    Yes you were flat out wrong in this case and still gloating about it.

    the decline in ore grades are happening in ALL mines that is not a big deal at all because we already know and see it.

    275 g/t report was also not published on seekingalpha
    you also constantly leave out important data on svm that is really bad.

    I liked your IOUSA documentary where you were producer as well but come on this is tarnishing your reputation because of the way you are acting.
    I lost lots of respect for you because of this.

    And also your employee can actually be tried on charges of trespass or theft. someone had to have stolen the ore now right? whom did then. So one of your employees regardless would have had to take the fall. I’m sure you should have known the risks so you guys should just take it like a man and ask to be tried for those crimes in china and be done with it.

    the first amendment clause the judge gave you guys were a good opportunity to tone it down a notch. you do realize why correct? you were in fact pedaling lots of bad information and mainly gloating and trying to win sympathy on the web.

    I know you feel like you want revenge but that is not a good way of conducting business. you were the one that was wrong in this case.

    90% of the accusations from the articles you gave for this company were flat out wrong.

    But anyway I suspect whomever gave you the info or did the research was skipping corners or intentionally tried to find something to frame the company because they couldn’t find anything.

    so all that is left now is ore grades declining when no duh we know that all miners grades are declining.
    but the question is at what rate.

    you should have done an analysis of HL EXK AG paas gpl etc etc and use it as a comparison stating that svm or other miners were better or worse as their ore grades declined.

    that would have been a good analysis and prevented you from needing to even go to court.

    the data is already there actually svm did give accurate data, but you didn’t know how to read it correctly.

    ask the ceo riverside mining geologist to teach you maybe he has videos on youtube I know. seems like a nice guy but don’t get him into trouble next time.

    also always include ALL data.
    and double check your information you do not want to have commentators correct you as and then not even apologize for giving the bad information

    that is what is making me most angry not because you put out information on svm but you put out bad information and then wont apologize when proven false.

    yes yes you are being sued by them but you realize in this case you actually deserve to be sued right?

    and look at the way you acted during that time.
    It is embarrassing.

    also you and your partners are in fact trading on insider information

    We don’t need those trying to make a name for themselves and not care about collateral damage
    know that you are in fact taking the cash from the investors themselves and not the criminals you think are criminals.

    What would be best is if you can find a way to have the government to seize the criminals properties rather than the company.

    perfectly lowest collateral damage then.

    I am actually trying to find a justification for your actions thinking maybe there is a reason why you are acting like this that is more honorable than money since you did help do IOUSA.

    Is it because you think you are helping to save america by destroying china and anyone linked with China?

    No you are actually destroying america with what you are doing. You only hurt investors because you can gain from it while leaving the criminals out there unpunished. Your profits were actually full of blood as well.

    It is like saying if someone is drowning and you could save them but you don’t instead take their wallet from their belongings because you profited. Hey finders keepers right? Are you guilty of murder? nope! but are you morally corrupt? hell yes!

    You do realize the real problem with USA is in fact the government being corrupted right?
    It is now almost as corrupt as China. At least we know in China there is wide spread gov corruption but USA as well.

    HSBC laundering terrorist money
    laundering drug money
    mortgage fraud etc

    this goes on throughout the banking sector as you can see I suspect 90% of the china frauds were created by those types of TBTF banks. how else can you have so much fraud unless someone already established lets them happen.

    You already said Rodman and Renshaw was part of the problem. That I support.

    Anyway next time be more humble and stop asking the bankster community and partners to hound your victims that were innocent. Issue a press release stating what you got right AND what you got wrong not just you were correct.

    Because I know you got many things wrong even the ore grade is questionable to this day though you list it as reason for your article which btw was TOTAL BS as your reasoning.

    You know you made much more accusations that fell down. Ore grade is hard to prove because it is variable over time and all miners are likely to have them go down over time regardless so that was a CHEAP SHOT going with only ore grade unless it is extremely significant. which btw it is not that much compared to the industry.

    You definitely owe SVM a public apology which I doubt you will do.

    Yes the bare min you should have does was clear their name and say you were wrong that but I am still correct on some points or something like that.

    That would have helped you more than the way you are acting now.
    Don’t just say you were right.
    That is just being a total douche bag as such you still deserve to be sued then if that is the case.

    As long as you lie/embellish/leave out information instead and gloat

    I have no respect for you even if you got the movement of the stock right.

    morally you are still bankrupt.

    Is this how you want society to be like?

    You don’t need to publish this as you are in fact the moderator but at least read it and be more humble next time.

    I am done lecturing you. You are a grown man I hope you do these things for real justice next time instead of personal gain. (although unlikely)

    also don’t email me I don’t read with this email as it is fake and I am using a public computer.
    Just judge me by my content tyvm.

    Good day.

    • Hi Ryu,

      I enjoy many of your colorful postings on the message boards. This is perhaps your best yet so of course I will let it appear on A*L. Thank you for the kind words about IOUSA. You might be surprised but I am a very die-hard libertarian and hard money, anti-Fed guy.

      I think our main disagreement is just over Silvercorp. You think I was wrong last year. I am confident I was right and argue that Silvercorp went out and paid for Chinese police to arrest my researchers so I never had a chance to follow up with more evidence.

      Give me some more time and I will nail SVM. Justice, not revenge.

      Jon

  6. Casey Research Gives No Credance to latest Lawsuits
    by windnut45 . Jan 7, 2013 1:07 AM . Permalink
    Casey Research’s posted a comment yesterday: Bottom Line: SVM holders should RELAX! They give no credence to these latest lawsuits. One has to wonder exactly WHY short sellers (if that’s what they are) are pushing these suits that have, for the most part, already been discredited. Nevertheless, fear is a powerful motivator, and you may be able to buy at ridiculously low prices if this negative hype catches fire. For my money, tho’, the prices are good enough to make substantial buys right now.

    Anyway, here’s what Casey’s Research’s team had to say about it:

    “The lawsuit is largely based on past allegations from the short sellers, and names Silvercorp and three senior executives, including CEO Rui Feng. It claims the company overstated their financial results from the Ying mine, causing investors to buy the stock at “artificially inflated and distorted” prices.

    A few points. We’ve commented extensively on these allegations before, including Jeff Clark’s site visit to Ying within a month of them surfacing in 2011, and found they had no merit. We’ll note that all analysts that were on site came to the same conclusion, and an independent audit from KPMG, a highly respected auditing firm, found no discrepancies. The only additional charge in the lawsuit is that the company reportedly influenced Chinese authorities to arrest and harass researchers working for the short-sellers, including funding a police investigation, and then tried to cover it up. There appears to be nothing that hasn’t already been made public and subsequently rejected by most reputable analysts.

    Keep in mind that management did lower the grade and the Resource at Ying last year. Part of this was the result of a new mining plan; with some of the veins trending deeper, an adjustment was necessary. But the lower grade – which is still high relative to other silver mines and very profitable – is permanent, and in the eyes of some could justify the short sellers’ accusations. Many of these allegations, however, show either a misunderstanding of mining issues or came from short sellers themselves. Bottom line, we give no credence to the lawsuit itself.

    The primary negative is that this could be a drag on the stock. Some investors could get scared off and sell, and we’ll point out that SVM has fallen 10.7% in the three days since the lawsuit was announced. We don’t know how low the stock could fall, but it could be significant if this gets a lot of press and begins feeding on itself. Further, we don’t know how long this process could drag out; obviously the longer it goes, the longer our shares could be impacted.

    CHANGE IN RECOMMENDATION: HOLD. Since it’s unknown how much and for how long this could affect the stock, the prudent thing to do is to place it on hold. It’s possible this could end up being a great buying opportunity – or the beginning of another long and torturous process. Given the uncertainty, we recommend no more buying until this gets sorted out and the winds for the company shift.

    Those who recently bought at $5 should not panic and sell. The company continues operating at full capacity, paying dividends (one of the highest among primary silver producers), and will begin seeing cash flow from the big new GC mine by Q2.”
    Sentiment: Buy

    • Casey cut to Hold. Smart. SVM is now at another multi-year low.

      I quote from the 3rd paragraph of Casey’s note, regarding the lower grades and resources:
      “Part of this was the result of a new mining plan; with some of the veins trending deeper, an adjustment was necessary.”

      What was the other part? Because SVM has NEVER explained the other reasons why the grades and resources at the Ying (SGX) key mine fell so much.

      Could it be that the historical grades and resources were exaggerated? Too good to be true is not coming back down to earth.

  7. metal argumentor: Silvercorp Shorts Schooled on Accounting and Sampling: 2011 about ore grades
    by ryugo82 . Jan 4, 2013 12:07 PM . Permalink
    The Silvercorp shorts are literally the blind leading the blind when it comes to anything like analytical skills, industry knowledge, basic accounting aptitude, sampling technique or … the list goes on and on. In the past day, the head blind mouse, “Alfred Little“, has stained the group’s so-called credentials even further by publishing two short, ill-informed, comical, recurring “analyses” that we will rip apart today.

    Earnings Overstated by 5x?

    The first recurring claim is that SilverCorp Management Fails To Refute Evidence Its Earnings Are Off 5X. We’ve already addressed this ridiculous allegation in the comments section to the Seeking Alpha article but let’s formalize it a bit here as well.

    Basically Silvercorp’s cooperative joint venture partner in the Ying Project, Henan Found, is owned 22.5% by an entity named Henan Non-Ferrous Geological Mineral Resources Co., Ltd. (“HNGMR”). Based on financial statements obtained by the shorts, it is alleged that HNGMR only reported 22 million RMB as investment income from Henan Found in 2010 vs. a “share” of income that should have been closer to 116 million RMB. This is an alleged overstatement by a factor of 5 but to arrive at that number requires some stupendously bad assumptions.

    The first bad assumption is that HNGMR would care nothing about the financial statements of its most-profitable equity investment, Henan Found, being “off” by 5 times. After all, “HNGMR is a Chinese state-owned enterprise (“SOE”) with no incentive to hide earnings or evade tax.” Yet HNGMR would apparently say nothing about its flagship investment inflating earnings and overpaying taxes!

    The second bad assumption is that HNGMR is accounting for the investment in Henan Found under the equity method of accounting whereby a pro-rata share of profits is included in investment income. In fact, it is apparent that HNGMR accounts for Henan Found under the cost method of accounting in which only profit distributions (dividends) are included in investment income (as Silvercorp indicated in its rebuttal to the initial allegation). Importantly, the cost method means that the books and accounting of Henan Found and HNGMR are indeed in agreement after considering the profit allocation described below.

    Anybody who has closely followed the Silvercorp and Ying story from the beginning (as we have) should remember that the project was originally held by members from the Henan Geological Brigades who were responsible for cataloging and exploring China’s mineral wealth under the old collective system. Although it is none of our business — or Silvercorp’s for that matter — the brigades as a collective made an allocation in the beginning to give 70% of their profit interest in the Ying project to the specific brigades (1st Brigades or “1st Bridge”) that was responsible for working in the area of the Ying project. This decision was helped along by the fact that the 1st Brigades members held the key exploration licenses for the project area.

    So to summarize, the Henan Geological Brigades were the original vendors of the Ying project to Henan Found and in exchange they received 22.5% of the project with 6.75% of the profits belonging to the brigades as a collective (HNGMR) while the other 15.75% belongs to the specific 1st Brigades members in whose names the actual exploration licenses for Ying were held. This has nothing to do with Silvercorp and neither the company nor some nosy “investigator” has the right to question or get into the business of the geological brigades, much less demand to be informed how and why they decided to allocate the brigades’ profit share a certain way.

    Moreover, the above understanding of the project history should bring into better focus the “auction” for the 5% of Henan Found that was in fact a transfer of an equity interest to an “affiliated” entity. Simply put, this was a move by the brigades to re-allocate the ownership among themselves.

    As a result of the above, HNGMR as a collective for the brigades does not actually hold a controlling stake in, or exert a significant influence over, Henan Found and therefore under Chinese accounting rules the cost method is being used as already mentioned above. With this knowledge, the shorts should now hopefully be able to successfully reconcile the financial statements of Henan Found to HNGMR by using 6.75% of the profit distributions (dividends). Importantly, the shorts should not be using the net income of Henan Found as they have attempted so far because net income and dividend income are entirely different things!

    Simple accounting lesson: income minus paid dividends equals retained earnings. The paid part is what the calculation should be based on when using the cost method for equity investments, not the retained.

    Finally, a point about the tax on dividend income. This in fact is being collected on profit distributions to HNGMR because the Henan Found cooperative joint venture involves a foreign enterprise (Silvercorp’s offshore holding company, Victor Mining) and therefore the earnings of the cooperative are not exempt from taxes assessed on foreign companies.

    Once again, we offer consulting at reasonable rates to those who need further explanation of any point discussed above.

    Roadside “Ore” Assay Results

    The second recurring claim involves the assay results from “ore” that the shorts have picked up from the road between the SGX mine and mill. This is quite interesting because the rocks, although apparently tested as a batch, still came back with an overall grade that is actually quite representative of the run-of-mine grades one would expect from SGX. Here is what they came up with:

    ■Silver 275 g/t
    ■Lead 1.93%
    ■Zinc 0.409%
    That is amazing considering (1) some of the rocks are clearly not even ore and (2) each sample should have been tested individually and not as a mixed-together batch. It is very likely that the rocks actually consisting of vein material from this pile (by our guess about 25% of the material) might be representative of the average high grade ore at SGX. This material would not be quite as good as the direct ship ore (such rocks would look quite metallic and that is why they can be hand sorted on a conveyor line) but it would be consistent with the grades reported in Silvercorp’s NI43-101 technical report [page 8]:

    Proven & Probable Reserves (SGX High Grade):

    ■Silver 410 g/t
    ■Lead 7.28%
    ■Zinc 2.91%
    Actually the silver grade is much higher for the “falling off the truck samples” at 275 g/t than we would have expected — probably by a factor of at least 2 — considering that many of the rocks are clearly not vein material. The high sampling bias (which of course means that the shorts’ “investigation” actually points to the exact opposite of what they want to show: namely that Silvercorp could actually be understating its ore grade) could be the result of several pieces of bona fide ore material containing silver sulfosalts or silver sulfides. Sulfosalts sometimes present as subtle, plain-looking, sooty gray rocks that in fact carry bonanza grades upwards of 50 or even 100 ounces per tonne silver. Or some of the rocks could contain silver sulfides or their oxidation products that again sometimes appear as unremarkable gray rocks. As we look over this pile again, there are a few candidates that catch our eye:

    In any case, the shorts made a huge mistake having these rocks assayed in a batch and should have instead submitted each one as an individual “grab sample”. Once again this shows how uninformed they are … but of course that hardly matters given that they don’t even realize the batch assay results point to the opposite of what they are claiming!

    Any mine would love to have ore of such rich grade that random rocks picked up from the haulage road grade almost 10 ounces per tonne of silver!!!

    Let us now bring things to a close with a bang by pointing the shorts and those who believe them to the report prepared in 2007 for Silvercorp by the renowned international geological firm SRK Consulting. Yeah, we know the shorts never mentioned it while pillorying the company about never having had any real independent experts look at the Ying Mine other than “two old guys out of Canada” who don’t even speak Chinese. After all the falsehoods, did you really believe them?

    In fact, Silvercorp planned to list on the Hong Kong Stock Exchange (HKSE) in 2007 before deciding to go to the NYSE instead, and as part of the HKSE application the company commissioned an independent review of the Ying Mine including the work of the two old Canadian guys (who are really just kids in an industry where you can tell the youngsters by their gray as opposed to bald heads). The conclusion of SRK Consulting in 2007 (just shortly after mine startup) was:

    The mines and concentrators owned and operated by Silvercorp through its joint venture companies in Luoning County, Henan Province, China have been operating and producing at their designed capacities. The Ying mine contains resources which have been reported in compliance with National Instrument 43-101 (“NI43-101”) of the Ontario Securities Commission. Measured and Indicated resources may provide mill feed at the current processing rate for eleven to twelve years. The HPG mine has resources compliant with Chinese regulations which can be mined and fed to current concentrators. Both mines have exploration permits surrounding current mining licenses, with potential to define and discover new mineralised bodies and new deposits. The NZ project also has some remaining gold resources compliant with Chinese standard, and exploration potential to discover precious and base metal deposits at depth.

    The underground mine developments of the Ying and HPG projects include adits and shafts to access underground, exploration drifts along the mineralised veins, and haulage tunnels. Both mines use the shrinkage mining method. Mining is labour intensive, but has yet to produce sufficient ores to satisfy the feed requirements of the ore processing plants which have throughput capacities of 600tpd at Ying and 200tpd at HPG. The geotechnical conditions in the mines are good; only localised support of the tunnels is necessary.

    The Ying and HPG concentrators use conventional flowsheets in common use in the industry. Additional hand sorting of high lead and silver (Pb and Ag) grade ores is employed, which produces ores which are sent directly to the smelter, thus reducing the cost of milling. The feasibility study of the Luoning smelter is a high quality document, and the technology has been developed and utilized by other smelters in China.

    Both the Ying and HPG operations have only recently started operating and SRK notes the efforts of the company to comply with Chinese regulations on various issues, including environmental and occupational health and safety. There is still potential for improvement on these aspects. Silvercorp utilizes the experience of Chinese technical personnel very well to control operating costs, and enjoys a very good relationship with governments and the local community.

    By the way, the curious can find small hints of the work that the “1st Brigades” conducted at these projects before they were vended to Silvercorp along with a few other goodies to be found in this independent report by an international firm with a major presence in China that casts very serious aspersions on the claims of the shorts.

    In conclusion, we remain vigilant and ready to take on any other challenges that the shorts throw at the wall in an increasingly desperate effort to see if anything — anything at all — can stick to Silvercorp. So far it’s been like eels on Teflon.

    Disclaimer: We own shares and various long put and call option strategies in Silvercorp. We have not been compensated by any party for this commentary. Options and warrants are particularly risky as you can lose your entire “investment”. Therefore, only buy options and warrants with money you can afford to lose and not lose sleep over. This is not investment advice, which you should seek from an investment advisor or licensed broker.

    • “Metal Augmentor” failed to address my allegations against SVM. One year later it turns out I was right. According to his own disclaimer “Metal Augmentor” owned shares in SVM. I was short SVM. People who listened to me made or saved money. Augmentor’s followers lost money. So did Casey’s, Raymond James, BMO’s, and every other SVM shill and pumper. Not only was I right, but SVM should be delisted and Rui Feng will soon be brought to justice for trying to stop me from finding the truth by for paying Chinese police to arrest my researchers.

  8. Jon,
    I’ve followed your research for a while and fortunately I haven’t been on the wrongside of your calls (knock on wood). My interest to reach out to you on here is regarding LPH, Longwei Petroleum. I’m sure you’re quite aware of what’s going on there but I guess I’m curious with your experience in China and all your calls, how you may have missed this one (not that anyone gets it right all the time)? Point is Geo obviously claimed Ming Zhao’s relationship with Cai @ LPH and PUDA was such a big call for you, was just curious what you think is going on here? Any insight would be greatly appreciated. Thanks in advance, Andy

    • GeoInvesting’s report on LPH was a masterpiece. I am certain that LPH avoided detection until now by “virtue” of its low stock price that made it an uneconomic target for short sellers. Like SVM, DEER, and SCEI before it, LPH also spent considerable effort trying to “prove” itself worthy to investors. Such companies are often able to perpetuate their fraud but sooner or later they get exposed. I personally recall LPH’s webcam announcement right after I exposed CBEH in 2011. Wow, webcams of their operation. Must be legitimate! That, along with the low stock price, had me lose interest in LPH. I never realized until recently that LPH never installed those webcams. But then last fall LPH started pumping away, drawing attention to itself and its obvious fraud. I was lucky to be short LPH thanks to GeoInvesting’s amazing research product that anyone considering investing in China should subscribe to.

      • Thanks for your reply Jon. But with all do respect, Geo’s videos were shady at best and connecting Puda’s Zhao to Cai was an interesting call. I can’t argue with some of your points about how they were PR’ing bullish news consistently makes you wonder. But in all seriousness, if there’s no rev, no cash and truthfully no capital raises except in 2009 where there were some warrants and not many of them were exercised, just don’t know how were they stealing from the company?

      • Hi Andy, I assure you that Geo’s claim that LPH fueled only 5 tanker trucks in 49 days is correct. LPH really is the most brazen Chinese RTO fraud to date. In 3 weeks since LPH was exposed, all management has done was to post 2 completely fabricated 10 minute videos of tankers fueling under a floodlight in the dark. Geo has 49 X 24 hours = 1176 HOURS of continuous surveillance JUST from their main cameras supplemented by hundreds of additional hours of surveillance from their secondary cameras.

  9. I hope you beat this, it came in my inbox today from Securities (I NOTE: IT SAYS ” THESE ALLEGATIONS HAVE NOT BEEN PROVEN):
    Category: Enforcement
    Release Number: 2013/100
    Release Date (YYYY-MM-DD format): 2013-12-19
    Title: Securities regulator alleges fraud against Silvercorp short-seller
    Body:

    Vancouver – The Executive Director of the British Columbia Securities Commission has issued a notice of hearing alleging that Jon Richard Carnes, a man who ran a hedge fund and operated the “Alfred Little” financial blog, committed fraud.

    The notice alleges that beginning in 2010, Carnes began writing negative reports about issuers traded on a North American exchange with business operations in China. Carnes attempted to profit from his negative reports by shorting the issuer’s securities before publishing the negative report, and then covering his short position after the issuer’s share price dropped in response to his negative report.

    BCSC staff contends that in about June 2011, Carnes targeted Silvercorp as the next issuer he would try to profit from by issuing a negative report. Silvercorp is a mining company and reporting issuer with its head office in Vancouver, B.C. It has business operations in China, and its securities trade on the Toronto Stock Exchange and the New York Stock Exchange. On August 15, 2011, Carnes began building a short position in Silvercorp’s shares by purchasing put options that expired on September 17, 2011.

    In the notice, staff alleges that Carnes attempted to find a mining expert to support his theory that Silvercorp’s Chinese filings contradicted its North American regulatory filings for the company’s SGX mine, as the Chinese filings had lower production, quality and resource estimates.

    When two mining experts failed to support his theory and with his put options about to expire, staff maintains that Carnes wrote a false negative report about Silvercorp and published it anonymously on September 13, 2011 on Alfredlittle.com, a financial blog controlled by Carnes.

    Carnes also made numerous false claims about the second mining expert to support his theory, including that the expert had “serious concerns” about the reliability of Silvercorp’s North American filings. In reality, the second mining expert had explained that the differences between the Chinese filings and the North American filings were due to different reporting standards and different legislated cut-off grades.

    After Carnes published his report on AlfredLittle.com, Silvercorp’s share price closed down 20% for the day, wiping out over $275 million in shareholder value. Carnes closed his short position in Silvercorp’s shares by the next day, earning a gross profit of almost USD $2.8 million.

    During the period in question, Carnes was a resident of Vancouver and ran a hedge fund called EOS Holdings LLC. EOS Holdings was operated through a number of corporations and entities in various jurisdictions and had a staff that reported to Carnes.

    The BCSC wishes to thank the U.S. Securities and Exchange Commission for its assistance throughout the investigation.

    These allegations have not been proven. Counsel for the Executive Director will apply to set dates for a hearing into the allegations before a panel of commissioners on February 4, 2014 at 9:00am.

  10. Pingback: Meet Benjamin Wey, Media Mogul | Southern Investigative Reporting Foundation

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