more on silvercorp « Mining Blog

more on silvercorp

24. September 2011,

Silvercorp (see story on this blog, 20 September 2011) now claims it has identified the alleged short-sellers behind an effort to drive down the company’s stock price.

The company is suing two New York-based websites – Chinastockwatch.com and Alfredlittle.com – for spreading false information.

(A “short sale” involves a person, of fund, selling shares that it has borrowed from a broker or banker, planning to buy them back again at a lower price when confidence in the company begins to fade.
It then gives the shares back to the lender, hoping that the difference between the cost of borrowing the shares in the first place, and the cheaper price of the shares it paid on the buy-back results in a tidy profit)

Silvercorp is now seeking punitive damages of at least $10 million and compensatory damages of more than $1 million, suing the two defendants for defamation, unjust enrichment, trade libel and tortious interference, and deceptive acts and practices.

It promises to be an interesting case, and raises some important questions about the statements , each day put out in their scores by promoters, brokerages and other “stock watchers” (including many of the funds listed on the From Money to Metals wiki) in order to boost the fortunes of their favoured investments. (Or alternatively, to advise investors that they run a risk in making such investments).

Short selling isn’t illegal (though it was widely identified as one of the main practices contributing to the 2008 financial meltdown, and weak attempts were made to curb it). Making allegations of corporate impropriety are certainly not uncommon. When the two are put together, they can clearly damage a company’s fortunes – to the point of its collapse.

moreKey to a resolution of the Silvercorp suit will be deciding whether any of the accusations by the two New York websites have a basis in fact – something that could take months, if not years, to determine.
(For an example of a hedge fund which recently sought to influence a company’s practices by making such allegations, see:
http://moneytometal.org/index.php/Jaguar_Financial_Corp

Meanwhile, many of us will be bemused at the controversy stirred up by the case. While others – even if they’ve no direct interest in Silvercorp, or indeed in other mining companies – will want to know how far “short selling” is prevalent in the companies in which they do invest.

Source: “Silvercorp Files Lawsuit in New York Against Stock Manipulation Scheme”, Marketwire, 23 September 2011

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