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In re Silvercorp Metals Securities Litigation

United States District Court, S.D. New York

June 23, 2014

RUI FENG, JIANGO " MYLES" GAO, MENG " MARIA" TANG, and SILVERCORP METALS INC., Defendants ALAN MARSCH, Individually and on Behalf of All Others Similarly Situated, Plaintiff,

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For Charles A Burnes, Dale Hachiya, Lead Plaintiffs: Jeremy Alan Lieberman, Pomerantz LLP, New York, NY; Marc Ian Gross, Pomerantz Haudek Block Grossman & Gross LLP, New York, NY; Matthew L Tuccillo, Pomerantz Haudek Grossman & Gross LLP, New York, NY.

For Alan Marsch, individually and on behalf of all others similarly situated, Plaintiff: Laurence Matthew Rosen, The Rosen Law Firm, P.A. (NYC), New York, NY.

For Rick Dawson, Movant: William Bernard Federman, Federman & Sherwood, Oklahoma City, OK.

For Jacob Fong, Movant: Joseph R. Seidman, LEAD ATTORNEY, Bernstein Liebhard, LLP, New York, NY.

For Lanson Family Trust, Movant: Phillip C. Kim, LEAD ATTORNEY, The Rosen Law Firm P.A., New York, NY.

For Deborah Lobo, Movant: Timothy John MacFall, Rigrodsky & Long, P.A.(LIS), Garden City, NY.

For Silvercorp Metals, Inc., Defendant: James Ellis Brandt, LEAD ATTORNEY, Latham & Watkins LLP (NY), New York, NY; Jeff G. Hammel, LEAD ATTORNEY, Latham and Watkins (NY), New York, NY; Craig Alan Batchelor, Latham & Watkins LLP, New York, NY.

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JED S. RAKOFF, United States District Judge.

On December 28, 2012, plaintiff filed this class-action suit against Silvercorp Metals, Inc. (" Silvercorp" ), and its officers, Rui Feng, Jiango Gao, and Meng " Maria" Tang, alleging violations of section 10(b) of the Securities Exchange Act of 1934 (the " Exchange Act" ), 15 U.S.C. § 78j(b), Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, and section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a). By Order dated April 12, 2013, the Court approved Charles A. Burnes and Dale Hachiya as co-lead plaintiffs for the proposed class. See Order, ECF No. 32 (S.D.N.Y. Apr. 12, 2013). On June 11, 2013, plaintiffs filed an Amended Complaint, which withdrew their claims against Jiango Gao but otherwise brought substantially the same claims as the original Complaint. See Am. Compl., ECF No. 35.

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On June 14, 2013, defendants jointly moved to dismiss the Amended Complaint, and the Court heard oral argument on the motion on July 17, 2013. On August 5, 2013, the Court, by " bottom-line" Order, granted defendants' motion to dismiss with respect to the individual defendants, including the section 20(a) claims, but denied the motion to dismiss with respect to Silvercorp itself. See ECF No. 46. This Memorandum Order explains the reasons for those decisions and directs further proceedings.

Silvercorp is a Canadian company that operates several mines in China and has stock traded on the New York Stock Exchange and Toronto Stock Exchange. Am. Compl. ¶ 15. The individual defendants named in the Amended Complaint, Rui Feng and Meng " Maria" Teng, served as CEO/Chairman and CFO, respectively. Id. ¶ ¶ 12-13. Silvercorp is a 100% owner of Victor Mining Ltd., which in turn owns a 77.5% stake in Henan Found Mining Co. Ltd., which has as its primary revenue-generating asset the Yuelianggou Ab-Pb-Zn Mine, a/k/a the " Ying Mine." Id. ¶ 18. On September 13, 2011, an investor report published by Jon Carnes (the " Carnes Report" ) raised allegations that Silvercorp's filings with the SEC about the Ying Mine were fraudulent, and its stock tumbled 20% that same day. Id. ¶ ¶ 84-85. This litigation is brought on behalf of the class of persons other than defendants who purchased Silvercorp stock between May 20, 2009 and September 13, 2011 (" Class Period" ).

Defendants moved to dismiss the Amended Complaint for failure to state a claim on two grounds -- failure to adequately plead falsity and failure to adequately plead scienter as to each of the defendants. On a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a court must assess whether the complaint " contain[s] sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell A. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Mere conclusory statements and " formulaic recitation[s] of the elements of a cause of action" are insufficient. Twombly, 550 U.S. at 555. " A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. " Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679.

To state a claim under section 10(b) of the Exchange Act, a plaintiff must allege the following elements: (1) falsity, i.e., a material misrepresentation (or omission), (2) scienter, i.e., a wrongful state of mind, (3) a connection with the purchase or sale of a security, (4) reliance, (5) economic loss, and (6) loss causation. Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341-42, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005). Under Rule 9(b) of the Federal Rules of Civil Procedure, these elements, other than scienter, must be pleaded with particularity. Additionally, however, the Private Securities Litigation Reform Act requires the complaint to " specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, . . . all facts on which that belief is formed," 15 U.S.C. § 78u-4(b)(1), and further requires that the complaint " state with particularity facts giving

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rise to a strong inference that the defendant acted with the required state of mind," Dura ...

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