Silvercorp Says Canadian Police Offered to Find Source of Anonymous Letter

Silvercorp Metals Inc. (SVM), the Chinese miner accused in an anonymous letter of an accounting fraud, said Canadian federal police have contacted the company and offered to help find who made the allegations.

Two members of the Integrated Market Enforcement Team, an arm of the federal Royal Canadian Mounted Police, met with Silvercorp executives yesterday morning, Chief Executive Officer Rui Feng said in an interview at the company’s Vancouver headquarters.

“The RCMP are aware of the situation and offered to help” determine the source of the letter, Feng said yesterday. He said the police didn’t elaborate on what assistance they would offer.

The anonymous letter, circulated by e-mail last week, alleges that Silvercorp reported a profit in calendar 2010 to the U.S. Securities and Exchange Commission while posting a loss to regulators in China, Silvercorp said Sept. 2 in a statement. The letter was addressed to the Ontario Securities Commission, Ernst & Young LLP, Silvercorp’s auditors and various media outlets, Silvercorp said.

Silvercorp denied the allegations and provided tax and other financial documents related to its Chinese silver mining operations in its Sept. 2 statement to back up its assertion that the anonymous accusations are false.

A call by Bloomberg to the RCMP’s IMET office in Vancouver wasn’t immediately returned.

Tip From Shareholder

Silvercorp had expected allegations of wrongdoing after the company was contacted by a shareholder, Feng said. Ralph P. Aldis, a San Antonio-based money manager at U.S. Global Investors Inc., called the company Aug. 16 to say that a U.S. stock brokerage was spreading information that short seller Carson Block’s Muddy Waters LLC was preparing to publish a report on Silvercorp, Feng said.

Aldis didn’t immediately respond to a telephone call and an e-mail requesting comment.

Silvercorp executives said they received no response when they tried to contact Muddy Waters last month. Still they don’t believe Muddy Waters is involved. Block also denied a connection to the anonymous letter.

“We had no knowledge of, or involvement in, the letter sent to Silvercorp,” Block said today in an e-mail request for comment from Bloomberg. “Regarding the possibility of upcoming reports, it is our policy not to comment on market rumors.”

Muddy Waters’ allegations of fraud against Sino-Forest Corp. (TRE), 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 China.

Sino-Forest

Sino-Forest’s Canadian shares have plunged 67 percent since Muddy Waters published a June 2 report alleging that the company overstated its timber holdings. Sino-Forest has denied the allegations and established an independent committee of directors to examine and respond to the accusations.

Silvercorp said last week that the author of the anonymous letter said his firm held a short position in Silvercorp’s shares and intended to make his concerns known through Internet postings.

Silvercorp cited Sept. 2 a “dramatic” increase in the short position of its shares. Silvercorp said yesterday it has contacted the Ontario Securities Commission and the U.S. Securities and Exchange Commission.

Silvercorp rose 22 cents, or 2.8 percent, to C$8.05 at 11:44 a.m. in Toronto Stock Exchange trading. The shares have fallen 37 percent this year, giving the company a market value of C$1.41 billion ($1.43 billion).

To contact the reporter on this story: Christopher Donville in Vancouver at cjdonville@bloomberg.net.

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net.

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