The U.S. Securities and Exchange Commission is investigating Silvercorp Metals Inc. and has issued a subpoena to the mining firm requesting all documentation relating to the Vancouver company's long-running battle with short sellers.
The SEC subpoena, obtained by The Globe and Mail, includes a request for all documents in Silvercorp's possession connected to the allegations made by the websites alfredlittle.com, chinastockwatch.com and "Kun Huang," a researcher and Canadian citizen who is currently in jail in China.
Mr. Huang has not been charged but is being investigated by Chinese police for allegedly criminally defaming Silvercorp with research he helped compile for a report published online in September, 2011, alleging the company overstated its production and the amount of precious minerals contained in its mines in China.
Last year, a Globe investigation uncovered evidence and documents suggesting that Silvercorp and its executives appeared to be working in concert with local authorities and helping to pay for the Chinese police investigation against Mr. Huang and his associates. Legal experts, at the time, said Silvercorp's alleged actions might be in violation of both Chinese and Canadian law.
Silvercorp, which trades on the Toronto Stock Exchange and the New York Stock Exchange, has denied any wrongdoing. However, the subpoena, issued March, 15, 2013, is the first indication that U.S. securities regulators are actively investigating the Canadian company. The British Columbia Securities and Exchange Commission has initiated its own Silvercorp investigation, and the RCMP is also conducting inquiries.
It is unclear if the SEC investigation's scope includes the possible corruption of Chinese police or any other conduct related to the company's battle against Mr. Huang and short sellers.
"This investigation is a non-public, fact-finding inquiry," the subpoena says.
"We are trying to determine whether there have been any violations of the federal securities laws. The investigation and the subpoena do not mean that we have concluded that Silvercorp or anyone else has broken the law."
Tony Frouge, the SEC division of enforcement official who is referred to in the subpoena, did not respond to requests for comment.
Silvercorp's director of investor relations, Jonathan Hackshaw, did not respond to requests for comment.
Last month, Silvercorp announced that it had withdrawn an appeal of a New York State Supreme Court Judge's decision to grant a motion dismissing a defamation lawsuit filed by the company against a group of short sellers, researchers and websites that had published, created research or made statements that Silvercorp claimed had unfairly characterized the mining firm. Silvercorp has called the statements made against it a "short and distort" campaign orchestrated by people who stand to gain financially if the company's shares decline in value.
"While Silvercorp disagrees with the decision of Justice Edmead – that 'short and distort' publications are statements of opinion and not statements of purported fact (in other words the defendants simply had the freedom to express their opinions pursuant to their constitutional rights), Silvercorp believes it is in the best interest of the company and its shareholders to end this potentially lengthy and expensive litigation," the company said in a March, 13 news release.
It was during that same case that Silvercorp filed a request, that was later withdrawn, that RBC Dominion Securities provide any trading account numbers and contact information associated with a list the company submitted to the court of what appeared to be 44 phone numbers and 20 addresses. In an interview with The Globe and Mail, conducted before he was incarcerated in a Chinese jail, Mr. Huang said the list could only have come from his laptop, which had been seized by Chinese police.
Silvercorp and its chief executive officer Rui Feng have previously denied that they have collaborated with Chinese police or have helped fund the investigation against Mr. Huang.
When told of the subpoena, Jon Carnes, the head of EOS Global Holdings, one of the main short sellers battling with Silvercorp, said he was pleased to hear of the SEC investigation.
"I am encouraged to hear that the SEC may be inquiring into Silvercorp's sources of information that the company used to conduct its war against short sellers. I believe a key source of information for Silvercorp was the local Luoyang police, who interrogated my researchers and extracted data from their laptops, as part of a corrupt investigation that resulted in the July, 2012, illegal imprisonment of my research analyst Kun Huang, without charging him with any crimes," Mr. Carnes said.