Submitted by an SD reader & an Individual Shareholder of SVM
I have written a rebuttal to the recent law firms Gainey & McKenna, Bernstein Liebhard LLP, and Rosen Law Firm’s attempt to manipulate SVM’s stock price lower as it has just hit its 52 week low. I believe these firms were hired by the consortium of hedge funds under the pseudo-name “Alfred Little” which is Jon Carnes of the failed fund, EOS Funds and his partners.
Comments to Rosen Law Firm, Bernstein Liebhard LLP, Gainey & McKenna Concerning the Recent Manipulation to SilverCorp’s Shareprice
By: An Individual Shareholder of SVM
The allegations and lawsuits by the aforementioned lawfirms are highly negligent at best and manipulative at worst. If one does a search about the “Alfred Little” whose real name is Jon Carnes, you will find that his fund, EOS funds failed miserably (do a google searh of “EOS Funds”).
If you click on the “News” tab at the top of their site, they provide a timeline of investments going back to 2007. The stated objective of the EOS Fund is:
“Eos focuses on finding early stage companies with superior management performance, capable of achieving substantial market share and high return on invested capital. These three elements make up what Warren Buffet calls a “franchise” or business that is protected from competition due to barriers to new entrants. A franchise is therefore said to have durable competitive advantages.”
According to a list of EOS Funds investments, none of the companies it had a vested interest in were franchises. That is the first sign that Jon Carnes and his EOS Funds primary focus is not to tell the truth as they have gone against their own stated mission and objective.
So let’s take a look at their record, and figure out why Jon Carnes, aka “Alfred Little” radically changed its posterity into “short and distort” strategies. Their first major investment was a preferred stock investment’ in China Education Alliance (CEAI) in May 2007 of $3.4 Million. The stock was not listed on a western exchange at the time, but it was listed on the (OTN Exchange) as recently as 2009 under ticker symbol (CEAI). Now, if the timeline on the EOS Funds website (whose President was Jon Carnes, aka Alfred Little) is truthful then it appears they lost almost their entire equity stake as (CEAI’s) most recent stock price is $0.52 a share. (CEAI) was hovering near $20 a share in 2009. (CEAI’s 52 week low is $0.41)
There are numerous statements on the timeline that show the EOS Fund (if they are reporting truthful data) focused on numerous Chinese Infrastructure, Pharmaceutical, and Technology companies. So the case I just described above is 1 instance of an investment going foul. Their next investment was a $10 Million preferred stock purchase of Tianyin Pharmaceuticals (TPI) during January 2008. (TPI) was not listed on the American Stock Exchange (ASE) in Jan of 2008 but its earliest recorded price was in the $3 range in November 2008. (TPI’s) stock price as of this writing is $0.64, an extreme devaluation from the likely amount it was at in January 2008. (TPI’s 52 week low is $0.61)
The list goes on and on of all the EOS Fund’s investments in Chinese companies that went sour. The EOS fund also did one other highly risky investment strategy which likely destroyed its total capital and cash resources; they gave bridge loans to companies that could not pay off the interest on their loans. A bridge loan is a highly risky situation when a company is insolvent and can not pay off their creditors because they have no cash flow.
There are 2 instances of bridge loans occurring, according to the news timeline on EOS’s website:
“Eos arranged and funded a $1,000,000 bridge loan to MDRNA Inc., (NASDAQ: MRNA) secured by the intellectual property and equipment of the company. MDRNA is a biotechnology company focused on developing therapeutics based on RNA interference (RNAi) techonology.”
At the time of this ‘bridge loan’ (MRNA) was trading around $34 a share. (MRNA) now trades at $0.43 and a 52 week low of $0.20 a share.
The other bridge loan that EOS Funds provided was to Southwest China Cement. Southwest China Cement doesn’t even exist anymore and it appears the company went bankrupt sometime in December 2010, 10 months after EOS gave a $2 Million Bridge loan to them:
“Eos arranged and funded a $2,000,000 bridge loan to Sichuan based Southwest China Cement, to repay existing debt in advance of a $20 million high-yield debt plus warrants financing to fund the completion of its Ziping cement plant expansion at the heart of the 2008 earthquake devastated region.”
A search on Google of ‘Southwest China Cement’ will lead you to the linkedIn profile of the former CFO, Johnson Yang. It appears he left when the company when it went bankrupt in December 2010, according to his LinkedIn profile. He is now working for a subsidiary of Chart Industries, in Sichuan Province.
The reason I took you through this timeline is because every investment EOS made, ended up sour and losing almost all of its value. This gave them motivation to change tactics to more desperate and unlawful manipulative measures of shorting..
Not that shorting is unlawful, but the tactic of shorting and/or buying put options and then claiming on their own affiliated website that the companies are involved in accounting scandals in order to manipulate the price to their own advantage is not only unlawful but morally wrong. Yes, I believe in freedom of speech just as much as the District Supreme Court of New York, but I do not believe one has the freedom to speak false accusations that are designed to manipulate the price of the stock in ones’ own favor.
After the failed bridge loan in Southwest China Cement, EOS updated its ‘News’ section of its website a whole 11 months after that investment went sour and released this statement: 1/01/2011, “Eos refocused its resources on identifying and investing in U.S. and Canadian biotechnology and natural resource companies.” Not only does it appear that at that time in Jan of 2011, did EOS have a terrible investment history in every firm and loan they made equity and debt offerings to, but now they totally changed their investment course and focus. Here are EOS Fund’s last 2 remaining updates on its timeline, in chronological order: 4/15/2011 “Eos re-opened its Vancouver, British Columbia office.”
6/30/2011 “Due to the poor performance of our investments we decided effective June 30th, 2011 to liquidate our fund and return the remaining cash to our investors.”
After 4 solid years of terrible returns and soured investments, there is one thing an investment firm like EOS can do to maximize returns. Simply short and distort. All they had to do was arbitrage and leverage the right time to scalp off of the perceived investment risk in China which was heightened in 2011 with the Muddy Waters, Sino-Forest incident. Shorting is different than buying long in that you don’t own the shares outright and you are borrowing the shares while only putting up small initial capital, while the rest remains on margin. All EOS had to do was take whatever remaining capital they had left and put it in a margin account with a broker and then start their nefarious ‘short and distort’ campaign.
As long as the share price goes down from the time of the investment, it is likely that they would never have gotten a margin call from their broker to satisfy unpaid liabilities. Why does this all make logical sense? Well, at the maxim of losses for the EOS fund which appears to be June 2011, going off of their timeline of events on their site, is precisely the time the number of shorts magically doubled, tripled, and almost quadrupled in SilverCorp (SVM) from around 1% of shares outstanding to approximately 4% of shares outstanding.
SilverCorp started the month of June (2011) at $11 a share when the percentage of shares on loan was 1%. The maximum amount of shorts in the month of June 2011 reached a then historic high of 4% of total shares. SVM started the month as you may recall at $11 a share, its low of the month happened to be June 17th at $8.10 a share according to Yahoo Finance, coinciding with the precise maximum number of shorts during that month. The Muddy Waters sell recommendation of Sino-Forest occurred on June 2, 2011 (which coincided with a 100% increase in shorts in SVM that same day). As the month of June went on, the number of shorts increased (per SVM’s chronology of events listed on their website) and reached its zenith on June 17th.
Since the price of SVM had plunged 28% ($11 to $8), the shorts took their profits as the percentage of shorts declined in half, very rapidly from the zenith of 4%, to just less than 2% on 6/20/2011. Now, that the former employees at EOS and his manipulative, connected friends had made a decent return, they waited for their next opportune time to short SVM. This came in August and September of 2011 when the percentage of shares short quickly moved from the 2% level (8/1/2011) to almost 16% by 9/16/2011. This coincided with 5 different reports being issued in the first 16 days of September 2011 on allegations made against SVM. SVM’s price slipped from $10.27 a share on 8/1/2011 (when the shares short started to quickly accumulate coincidentally days before the 5 reports were issued by Alfred Little, EOS Funds, and Jon Carne’s friends) all the way down to $6.30 a share by 9/13/2011.
Keep in mind silver’s per Troy ounce spot price was hovering between $38 and $44 during this time period, which can not be held responsible for SVM losing almost 40% of its share value in a matter of 2 months. Finally, with everything in hindsight it appears that the only distortion here is by a few well-connected individuals that had years of totally atrocious returns in China, which finally led them to change their tactics and perhaps get revenge at the very companies they perceived to have cheated them and finally earn a profit, however ill-conceived and malice filled it was.
In the end, it is the individual investor that is hurt the most. It is a lose-lose situation for everyone involved. You must ask yourself the motives of those interested parties that have money at stake and why did the amount of shorts quickly accumulate above normal levels, to over 10% of shares, just days before the 1st report were issued in the beginning of September 2011 to over 16% of shares by the time the 5th and final report was issued mid September 2011, all the while SVM’s share price tumbled from $10.27 a share to $6.30 a share?