Allegations that Silvercorp Metals (NYSE:SVM,TSX:SVM) misled investors have evolved into a foundation for two class-action lawsuits.
Silvercorp describes itself as China's largest primary silver producer and notes in a 2011 press release that its key SGX mine, located within the Ying mining district, has “some of the highest grades in the industry.” The same press release, which was circulated in response to scrutiny that surfaced in 2011, notes that the company's most recent NI 43-101 report grades the mine's silver at 845 g/t. It is these statements — and others like them — that some are now calling into question. Anonymous reports of deception In the press release mentioned above, Silvercorp claims that on September 1, 2011, it received an anonymous letter alleging that it had participated in potential fraud and deception. The letter was addressed to the Ontario Securities Commission, the company's auditors and various media outlets. About two weeks later, the company said malicious writings were published on the websites AlfredLittle.com and Chinastockwatch.com. Silvercorp has said it is the victim of a short-and-distort scheme whereby short sellers profit from bets on falling share prices. That, the company believes, is the motive behind the scathing accusations against it, which have ranged from overstating profits and production to misleading investors about the size and quality of its resources. The claims made against Silvercorp are allegedly supported by extensive due diligence that includes video coverage of trucks transporting the company's ore, assay results conducted on ore that fell from some of these trucks and documents from government agencies. The impact has not been negligible. Silvercorp saw its stock price drop about 20 percent in one day after the allegations began circulating.