Silvercorp Metals Inc. (SVM), which mines the metal in China, said an allegation of accounting fraud contained in an anonymous letter addressed to Canadian regulators is false.
The letter circulated by e-mail alleges Silvercorp reported a profit in calendar 2010 to the U.S. Securities and Exchange Commission while posting a loss to regulators in China, Vancouver-based Silvercorp said yesterday in a statement. The letter was addressed to the Ontario Securities Commission, the company’s auditors and various media outlets, Silvercorp said.
Silvercorp, which fell as much as 16 percent in Toronto Stock Exchange trading, closed down 80 cents, or 9.7 percent, at C$7.43 as on 4 p.m. yesterday. The shares have declined 42 percent this year.
Allegations of fraud against Sino-Forest Corp., a Hong Kong- and Mississauga, Ontario-based tree-farm operator in China, have heightened investors’ concern about other North America-based companies with operations in the world’s most populous country. Sino-Forest’s Canadian shares have plunged 67 percent since short seller Carson Block’s Muddy Waters LLC published a June 2 report alleging that the company overstated its timber holdings. Sino-Forest has denied the allegations.
The allegations against Silvercorp are “entirely bogus,” Lorne Waldman, a Silvercorp spokesman, said yesterday in a telephone interview. “If we didn’t have assets in China this wouldn’t be happening.”
Not Reverse Takeover
Waldman denied the mining company was created in a so- called reverse takeover, as was Sino-Forest. He said that Silvercorp’s auditor is Ernst & Young LLP, the same firm that audited Sino-Forest’s financial statements.
In a reverse takeover, a closely held firm goes public by purchasing a shell company that already trades.
Silvercorp also said that the anonymous author said that his firm held a short position in the company’s shares and intended to make his concerns known through Internet postings. The company cited yesterday a “dramatic” increase in the short position of its shares. Silvercorp said it hasn’t confirmed whether the letter actually was sent to the OSC or any other organization.
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