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Canadian citizen Huang Kun, seen here in May, is now in a jail in central China, expecting to face criminal charges.
Canadian citizen Huang Kun, seen here in May, is now in a jail in central China, expecting to face criminal charges.

SPECIAL REPORT

In China, Silvercorp critic caught in campaign by police Add to ...

“I was freaking scared. I had been in jail for four days, and I didn’t know what they were going to do to me,” Mr. Huang said in an interview in Beijing before his re-arrest in July. “I mean, I hadn’t even been able to call anybody. So I started telling them.”

Mr. Huang said the PSB told him that his interrogation was part of an international investigation, one that had been approved at the highest levels in Beijing, and one in which the RCMP was also taking part. When contacted by The Globe and Mail, Feng Yi, the PSB officer responsible for the case, acknowledged Mr. Huang was in custody and predicted a conviction. He said other cases where Chinese firms were targeted by foreign short-sellers would also be investigated.

It was during that initial questioning that Mr. Huang said he first noticed the lead PSB officer was receiving text messages on his mobile phone that seemed to spark new and more-specific lines of questioning.

Mr. Huang said he explained to the police that he had worked for EOS Funds – the Vancouver-based investment fund – since 2006, and that his main job was to “investigate investments,” focusing on Chinese companies that had obtained listings on North American stock exchanges via a tactic known as a “reverse takeover.” That involves acquiring an already-listed shell company, and thereby bypassing an exchange’s lengthy approval processes and the scrutiny of securities regulators.

Mr. Huang said he hired local investigators who made videos of the trucks going to and from Silvercorp’s main mining property, and collected ore samples from the side of the road. That evidence led to the report alleging that Silvercorp had overstated the production, quality and resource estimates of one of its mines. Silvercorp strongly denied the allegations.

Mr. Huang slept the night of Jan. 1 on a couch in the PSB office before being moved next door into Green Tree Inn, a two-star hotel that would be his home for the subsequent three weeks of off-and-on interrogations.

The PSB still had his passport, cash and laptops, and Mr. Huang was told that he wouldn’t be allowed to leave Luoyang until he paid 200,000 yuan (about $32,000), a seemingly arbitrary amount that the PSB officer said Mr. Huang needed to hand over because he had made “illegal proceeds” from his investigation of Silvercorp.

Mr. Huang began to get suspicious about who was really investigating him when the PSB officers asked him to provide passwords for his company e-mail and trading accounts.

The police officer, he said, didn’t have the laptop with him, and wasn’t familiar with the English-language programs. He was getting instructions over the phone from someone who didn’t appear to work for the PSB.

“I heard a female voice on the other end asking ‘does your [PSB] office in Luoyang have anyone who knows Outlook Express?’ ” Mr. Huang recalled. “They were getting orders from the other side of the phone … it had to be from the company.”

While Mr. Huang was allowed to leave Luoyang at the start of the Chinese New Year in late January, he was told he could not leave China and was repeatedly summoned back to Henan province for further questioning.

Mr. Huang’s belief that Silvercorp was managing the PSB investigation grew firmer after he and the lead PSB agent travelled together in February to the city of Wuhan, where Mr. Huang was born. The trip was made in order to cancel his Chinese passport and extend the visa in his Canadian one, a necessary precondition to keeping Mr. Huang in the country for further questioning. (China doesn’t allow its citizens to be dual nationals.)

When Mr. Huang and the PSB agent checked out of the Home Inn on Feb. 10 after a two-day stay, Mr. Huang paid his own room bill. But he said he was shocked to hear the officer ask to have the second room’s receipt made out to Henan Found Mining Co., a subsidiary owned 77.5 per cent by Silvercorp. Later, while free from Luoyang but still unable to leave China, Mr. Huang returned to the hotel and asked for a copy of the two receipts.

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