Before its stock price doubled in a month, before its trading volumes more than quadrupled in four weeks, and before regulators in two countries froze its shares, Liberty Silver Corp. was just another junior miner on the Toronto Stock Exchange.
But the regulatory probe into Liberty Silver in Canada and the United States has raised one simple question: How did a junior miner that's spent just $1.5-million (U.S.) on exploration become worth 85 times that amount?
As recently as two months ago, Liberty Silver was a little-known mining company. Then from late August to early October, the company's share price and trading volume soared, sending the firm's market value to $128-million (Canadian).
Owing to its 20-for-1 stock split in 2010, 68 million of Liberty Silver's 80.7 million shares were effectively issued at less than 1 cent each, meaning that those investors who still held them would make enormous sums of money for selling at a stock market price of $1.58.
Even Liberty's chief executive officer is at a loss to explain the explosion in value and trading volume, acknowledging that there was very little news to trade on. "We have no material information, positive or negative, that would be affecting the stock," Geoffrey Browne said in an interview.
Behind the scenes, however, a big-name stock promoter named Bobby Genovese, or "Bobby G" as he dubs himself on his website, had been aggressively marketing the company. In late August, his firm, BG Capital, kick-started a promotional campaign with a press release that alerted investors to what it believed was Liberty's solid standing in a coming "silver rush."
What Mr. Genovese says typically attracts attention. He cut his teeth promoting junior miners during Vancouver's heyday in the 1980s and his outsized personality is on display on his personal website, with photo spreads for magazines such as Vanity Fair and Hello! Canada and links to episodes of a short-lived reality TV show, Bobby G: Adventure Capitalist.
It is hard to determine just how much of an influence his press releases and e-mails had on investors, but Liberty's stock undoubtedly jumped higher during the marketing campaign.
Before long, the U.S. Securities and Exchange Commission suspended Liberty Silver's trading, citing "a lack of current and accurate information about the company concerning, among other things, the control of its stock, its market price, and trading in the stock." The Ontario Securities Commission followed suit. Liberty's stock is suspended from trading until Oct. 18.
For now, regulators aren't saying much, but public filings show the Mr. Genovese, through a company, invested $3.25-million (U.S.) in 2011, which wasn't clear in an August press release promoting the stock, and there are questions about how many shares he currently controls.
Of course, publicizing the merits of a stock is perfectly legal, and Mr. Genovese has a track record in doing so over several decades.
He has also been involved with other companies that altered their share structures ahead of big runups in their stock price. In 2009, Nugget Resources conducted a 4-for-1 stock split and changed its name to American Lithium Minerals. Mr . Genovese financed the firm in 2011. A few years earlier, BG Capital invested $1-million in sparkling water company Clearly Canadian, which had earlier split its stock. A few months later the company completed a 10-for-1 stock consolidation and in less than a year the stock shot up to $4.50 from $1.
However, the stock then plummeted, and Clearly Canadian filed for bankruptcy a few years later.
The evolution of a junior miner
Founded in 2007 under the name Lincoln Mining, the company was virtually dormant until 2010, when it split its shares 20-for-1 and renamed itself Liberty Silver.
Later that year, Liberty assembled a new management team with reputable backgrounds. Mr. Browne, the chief executive officer, was once a mining investment banker at CIBC World Markets, and appointed directors such as Paul Haggis, the current chairman of Canadian Pacific Railway Ltd. Mr. Haggis declined to comment.
Liberty's only asset is the Trinity Silver project in Nevada. Although the mine's high-grade silver was extracted by another firm in the 1980s, Liberty has ambitions to mine the remaining lower-grade metal. However, it needs money to do just that; last year, management hired a boutique Canadian investment bank to help it raise about $10-million from institutional investors.
That marketing campaign ultimately proved futile, but a white knight appeared late in the year. In November, 2011, Panama-based Look Back Investments Inc. invested $3.25-million (U.S.) through a private placement that was topped up above that by investments from Liberty's management and directors.
Yet even with cash in the bank, which helped the firm get its much desired Toronto Stock Exchange listing, Liberty struggled to attract attention. It wasn't until Mr. Genovese started to promote Liberty that the share price gained any traction.
According to Look Back's subscription agreement, the firm is run by a Robert Genovese, which Mr. Browne confirmed is the same Mr. Genovese who owns BG Capital. Mr. Genovese declined to comment for this story. In Liberty's latest annual report, filed Sept. 28, neither Mr. Genovese nor BG Capital nor Look Back is listed as holding more than 5 per cent of the company's shares.
Mr. Browne said that as far as he is aware, BG does not hold more than 5 per cent of Liberty's shares, equivalent to four million shares. His company recently filed its annual report, and the chief financial officer reached out to BG Capital to ask if they own more than 5 per cent of the company – the level at which ownership must be publicly disclosed in the U.S. "We have written confirmation that they said no," Mr. Browne said.