A Canadian man who spent years behind bars in China has filed a lawsuit accusing a mining company of conspiring with Chinese authorities to have him arrested and detained.
Kun Huang was an investigator for a hedge fund manager who in September, 2011, claimed that ore estimates at a Chinese mine owned by Vancouver-based Silvercorp Metals Inc. were too good to be true. Three months later, Chinese officials detained Mr. Huang at the Beijing airport, strip-searched him, seized his computer and placed him in a lengthy detention that culminated in a single-day closed-door trial and a two-year sentence for criminal defamation.
He was released on July 17, and returned to Canada the next day.
Now, in a lawsuit filed Tuesday in the Supreme Court of British Columbia, Mr. Huang claims that Silvercorp masterminded his detention as a reprisal for his research, whose publication prompted a steep decline in the company’s share price.
Silvercorp, his court filing claims, effectively enlisted the local Chinese police as its “agent,” giving them money, encouragement and guidance “to falsely imprison and then later knowingly bring baseless criminal charges against Mr. Huang.”
Silvercorp said Wednesday that it "will not comment on ongoing litigation." Silvercorp has, over the years, issued a series of statements saying it would “fight to the death” against the 2011 report.
A Globe and Mail investigation in 2012 found evidence and documents suggesting that a Silvercorp subsidiary paid for hotels rooms used by police who investigated Mr. Huang, and that those investigators at one point used a private car owned by that subsidiary. A Silvercorp regulatory filing also contained information that appeared to come from Mr. Huang’s computer, which was in the possession of the police.
Mr. Huang’s lawsuit seeks damages “for recovery of a life, reputation and freedoms that were critically impaired by the malicious actions of Silvercorp,” which, it says, resulted in “false imprisonment with predictable deleterious effects on his mental and physical health.”
In an interview, Mr. Huang said cash is not his primary consideration.
“I don’t think money is the issue here. It’s more like I want to rehabilitate my reputation and my life in Canada,” he said. “I felt like I was wronged in China. Somehow, there has got to be justice in Canada. There is no justice in China.”
The damaging report that Mr. Huang worked on was published in 2011 by Jon Carnes, who heads EOS Funds, a hedge fund that made nearly $2.8-million (U.S.) when the Silvercorp shares sank.
Mr. Huang worked, and continues to work, with Mr. Carnes, who said the Canadian civil case provides a venue to subpoena documents from Silvercorp.
“I would like the public to know the truth of what happened, to know that a Canadian company was able to seek revenge against its perceived enemies, that it was willing to pay Chinese police to arrest my researchers,” Mr. Carnes said in an interview.
Silvercorp has accused Mr. Carnes of orchestrating a “short and distort” campaign against the company, and argued that evidence of its involvement with local police seen by the Globe and Mail in 2012 was falsified. “These guys have a habit of fabricating things,” Silvercorp chairman and CEO Feng Rui said at the time.
Reached by telephone Wednesday, Feng Yi, the Public Security Bureau officer who oversaw the case against Mr. Huang, said he could not comment. He referred calls to the local PSB publicity office in Luoyang, the city nearby a Silvercorp mine that serves as a major regional economic engine. That office did not answer repeated phone calls.
Mr. Huang described arduous conditions in a detention centre that included living in a 320-square-foot cell with more than 30 other people.
At one point, when there was insufficient space on a large area used for sleeping, he had to sleep on the floor with his head three metres from a hole in the ground used as a toilet.
The provided food consisted of four steamed buns a day, and a mix of flour soup or vegetable soup. “I lost 40 lbs,” he said. There was no hot water to shower or properly wash clothes, and his skin has become prone to rashes and eczema.
His situation was partly improved by help from family and colleagues, who succeeded in purchasing him some better clothes and food. But, he said, “the conditions there were really bad,” and mentally distressing. Not knowing what would happen wreaked “torture on your mind,” he said. “Sometimes I couldn’t get to sleep at night because I was so worried about my case, and worried about the uncertainty of my future.”
The indignities extended to his release, he said. Three people – two detention centre guards and one officer from the foreign affairs office of the local PSB – accompanied him on a train to Beijing, and then in a car to the airport, where they stayed with him until he reached his boarding gate. He was placed in handcuffs on his way to the airport, and only released when he agreed to buy his own ticket back to Canada.
The officers then made him use his boarding pass to buy them duty-free cigarettes, which they secreted away in their bags before leaving, he said. It was “ridiculous,” he said.
Mr. Huang has been barred from returning to China for five years. He has already returned to work investigating Chinese companies with Mr. Carnes. “This is what I am good at. So I will continue to work on it,” he said.
He stood by his research on Silvercorp, saying the information he provided was “absolutely truthful.”
That narrative is complicated by a B.C. Securities Commission investigation that culminated in an allegation last December that Mr. Carnes committed fraud. The commission alleged he used fake names, fake companies and fake credentials to support the negative research about Silvercorp.
The commission also said he misrepresented the findings of experts, one of whom concluded that Silvercorp’s filings had no “blatant obvious errors,” and attributed a lack of clarity in the company’s reserves numbers to differences in the way Chinese and Canadian companies are required to report the ore quality. Mr. Carnes “wrote a false negative report,” the commission said.
Mr. Carnes, in a statement at the time, called the commission’s allegations “false and without merit.” The commission has yet to make a ruling following a February hearing.
In 2012, a New York court found that Silvercorp “sufficiently alleged” that Mr. Carnes’s “statements criticizing the quality of the mines and ore were false.” But the court, in an August, 2012, ruling, denied a suit by the company against Mr. Carnes, saying his writings were “opinion.”