“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.”

The complete article can be found here.

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.

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While the $11 million in fees are likely unrecoverable, the SEC took swift action to freeze $145 million in cash, preserving nearly all of the duped Chinese investors’ assets.

Comment: Can China please now reciprocate and take similar legal action to freeze the assets of dozens of Chinese fraudsters such as Ming Zhao who deceived U.S. investors?

More mainstream media attention to the billions of investor dollars stolen by corrupt Chinese companies is probably what it will take to get U.S. securities regulators to take a tougher stand.

You can watch ABC’s reports by clicking this link or the following image:

This decision follows from our great success exposing fraud and corruption in China in 2012, a terrifying but remarkable year, highlighted as follows:

1. Our Investment Opinions on Trial

In 2011, Deer Consumer Products (“DEER”), Sino Clean Energy (“SCEI”) and Silvercorp Metals (“SVM”) banded together to sue A*L for allegedly defaming them.  In 2012, A*L won all three lawsuits after the New York Supreme Court strongly upheld our First Amendment free speech right to share our investment opinion.

2. Investment Analysts Illegally Arrested in China

In 2011, Silvercorp Metals (“SVM”) filed a complaint about A*L’s reports with local police in the mining town of Luoyang, China.  In response, the Luoyang police hunted down and illegally arrested investment analysts suspected of providing research services to A*L.  The police threatened the analysts to stop conducting any more research into SVM.  One analyst, Kun Huang, is still in prison, despite not being charged with any crime (see his supporters’ website http://www.publiccompanyprisoner.org)

3. Chinese Police Retaliation was Funded by Silvercorp

In September 2012, The Globe and Mail published a special report confirming evidence that SVM funded the Luoyang police investigation and illegal arrests of investment analysts in China.  The Royal Canadian Mounted Police commenced a criminal investigation of SVM’s illegal payments that funded the cost of the retaliatory and corrupt Chinese police action.

We view 2012 as the year that Chinese companies’ management learned the hard way that the use of frivolous lawsuits, threats, kidnappings, physical violence, illegal arrests, and corruption to silence their critics would ultimately fail.

Consider the complete failure of the three companies that together attempted to silence A*L:

1. SCEI was delisted by the NASDAQ after A*L blew the whistle that SCEI was only producing a tiny fraction of the coal slurry it claimed.
2. DEER is in the process of being delisted by NASDAQ after A*L found that DEER’s factories were almost completely idled for much of 2012.
3. SVM now faces a class action lawsuit by shareholders angry over management’s dramatically lowered grades and resources of its key Ying (SGX) mine, supporting the core arguments of A*L’s negative reports published in 2011.

A*L finished 2012 with the best track record of any of the China focused investment blogs.  From 2010 to 2012, A*L accused 7 companies of defrauding their investors.  All 7 companies have been delisted by the stock exchanges.

Following these victories, A*L is now focused on publishing new reports uncovering both long and short investment ideas beginning soon in the new year.

Best Wishes to All Our Friends in 2013!

Jon Carnes

Owner,

A*L

Note: Beginning in 2013, reports older than 12 months will be archived and available upon request to researchers or regulators on a case-by-case basis.  Please email us for more information.

Website Malfunction: Last week as we archived the old reports on A*L the WordPress server sent out unintended emails announcing the re-posting of our oldest reports.  We apologize and will make up for it with exciting new reports very soon.

The Q&A session began and ended with two questions from Brad Humphrey, a research analyst from Raymond James who has an “outperform” rating on SVM and whose employer seeks investment-banking fees from SVM.   Then following a 15 second pause Rui Feng said “Ok, Jon[athan], so no questions [inaudible]” and Jonathan Hackshaw, Silvercorp’s IR Director replied “Yep” and the operator affirmed “there are no questions registered at this time.”

However, there were definitely more questions to be asked.  I know at least four investors who entered the queue by pressing “*1” as instructed by the operator.  Barring some bizarre system malfunction, in which case the call should have been rescheduled, SVM management simply did not allow any investors to ask questions on the call.  Thus Rui Feng lied to investors by ending the call claiming there were no questions.  I learned over my years of exposing Chinese stock frauds that legitimate public companies never engage in this type of deception.

The following is a list of questions that investors, including myself, deserve to have answered:

1. What was the average head grade produced from the SGX mine this quarter?  Why did you decide to stop reporting this key metric just as the grade went sharply lower last quarter?
2. When and why did Lorne Waldman resign?  Why did he stop signing SEC filings just prior to the exposure of lower grades and resources of the Ying (SGX) mine?
3. What steps have you taken to confirm whether or not SVM management reimbursed the Luoyang police expenses, as verified by The Globe and Mail 9/8/12 special report?
4. How do you explain the precise match, including misspellings and typos, between the contacts the Luoyang police took from Kun Huang’s laptop and the contacts your lawyers submitted in the New York Supreme Court filing?
5. Why did you refuse to comment to The New York Times regarding the existence of the RCMP criminal investigation into SVM’s illegal payments to Chinese police?

SVM certainly has the right to refuse to answer questions from investors on its conference calls.  However, lying to investors by claiming there are “no questions” is fraud.  Rui Feng should have simply told the truth and announced “We are not taking questions from investors today.”

Disclosure: I am short SVM.

Then suddenly with no explanation in May 2012 Lorne stopped signing his name on SVM’s SEC filings.  Beginning with SVM’s 5/28/12 disclosure of a disruption of production at its key Ying (“SGX”) mine, CFO Maria Tang began signing off on SEC filings.   The very next week, Ms. Tang signed off on SVM’s 6/5/12 6-K filing disclosing dramatically lower “Inferred” and total silver resources for its key SGX mine, validating my key concerns regarding SVM. 

By the beginning of July 2012, SVM went one step further and stopped listing Lorne as the investor contact on its press releases.  When questioned by phone at the time, SVM’s receptionist replied that Lorne was on vacation.  When questioned again, the receptionist replied that the vacation was a “sabbatical” that would last through year-end.  Since late July, SVM listed Jonathan Hackshaw, a new hire, as the company’s investor relations director on all press releases.

On 11/8/12, SVM announced the “management appointments” of Shaoyang Shen, Jonathan Hackshaw, and Peter Torn, each of whom already worked for SVM.  The highly material news of Lorne’s resignation “to pursue other interests” was only briefly mentioned at the end of the 3^rd paragraph of the press release.  SVM did not mention whether Lorne’s departure resulted from any dispute.  SVM did not attach a copy of Lorne’s resignation letter.

What really happened to Lorne?  Why did one of SVM’s most ardent defenders quietly depart amidst major negative material developments for SVM? 

The events since SVM lost its multi-million dollar New York Supreme Court defamation lawsuit to silence its critics portend a very limited future for SVM as a publicly traded company:

1. On 8/24/12, I showed how SVM management intentionally tried to mask dramatically lower grades and resources for its key SGX mine.
2. On 9/8/12 The Globe & Mail published a special report that independently confirmed evidence that SVM’s Chinese subsidiary, Henan Found, paid for the costs of a corrupt local police investigation leading to the unlawful detention of my research analyst Kun Huang, a Canadian citizen.  The Chinese police have never charged Kun with a crime.  Kun has been jailed in utterly inhumane conditions in the town nearest SVM’s key Ying (SGX) mine since 7/21/12.
3. Subsequent to Kun’s arrest, the Royal Canadian Mounted Police commenced a criminal investigation of SVM’s payments to Chinese police.  SVM has failed to disclose and declined to comment on the existence of this criminal investigation.

For all these reasons, I strongly suspect that Lorne Waldman resigned because he is an honest, well-intentioned individual who could no longer tolerate Rui Feng’s completely unjustifiable quest for revenge.  No longer willing to serve as Rui Feng’s mouthpiece and right-hand man, Lorne Waldman has wisely abandoned a sinking ship.

Disclosure: I am short SVM stock.