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BCSC looking for person alleging new Chinese fraud

The British Columbia Securities Commission is getting involved in Silvercorp Metals Inc.'s campaign to track down the anonymous person who alleges the company is engulfed in a billion-dollar accounting fraud.

On Sept. 1, the company was forwarded a copy of a letter alleging a "Potential $1.3 Billion Accounting Fraud at Silvercorp." The author did not provide his or her name, but acknowledged holding a short position on the stock. The letter was sent to the Ontario Securities Commission, the company's auditors and some media outlets.

The stock plummeted about 20 per cent on the news, and has yo-yoed since. Overall, the shares are down about 14 per cent since the letter was first revealed. And this isn't a small name. Silvercorp has a market capitalization of about $1.4-billion.

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Despite having such a big effect on the company's shares, Silvercorp has not been able to track down who wrote the letter. That prompted the BCSC to get involved and request that the letter writer come forward. The regulator is also looking into the nature of the complaint and the allegations contained in the letter, so it's not as though Silvercorp isn't being investigated, but the company is simply happy that someone with authority is looking into the matter.

Mailed on Aug. 29, the letter alleges that Silvercorp reported a profit in 2010 in a Securities and Exchange Commission filing, while also reporting a loss to Chinese regulators. Defending itself, Silvercorp shot back claiming that the allegation was totally false and provided what it claims is proof from the website for the Chinese State Administration of Industry and Commerce. The anonymous letter writer also claimed that Silvercorp.'s cash position is overstated. To try to prove that wrong, Silvercorp. uploaded copies of its bank statements.

The letter has caught many investors' attention following Carson Block's report that alleges fraud at Sino-Forest Corp. Much like Sino-Forest, Silvercorp has its operations in China, but is listed on the Toronto Stock Exchange. (The company is also listed on the New York Stock Exchange.)

Silvercorp is China's largest silver producer.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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