Silvercorp Metals Inc. v Anthion Mgt. LLC

Annotate this Case
[*1] Silvercorp Metals Inc. v Anthion Mgt. LLC 2012 NY Slip Op 51569(U) Decided on August 16, 2012 Supreme Court, New York County Edmead, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on August 16, 2012
Supreme Court, New York County

Silvercorp Metals Inc., Plaintiff,





Firm : K & L GATES LLP, by Steven Crimmins




ATTORNEY FOR THE DEFENDANTS, Alfred Little, Simon Moore, Jon Carnes, EOS Holdings, Andrew Wong, and International Financial Research & Analysis Group:





ATTORNEY FOR THE DEFENDANT Anthion Management and Roman Roik a/k/a Jerry Katz:

Firm : AKIN GUMP STRAUSS HAUER and FELD LLP by Douglass Maynard




Carol R. Edmead, J.


In this action, Anthion Management LLC (a/k/a ("Anthion") moves (007) to dismiss the Second Amended Complaint of plaintiff Silvercorp Metals Inc. ("Silvercorp") pursuant to CPLR 3211(a)(1) and (7). By separate motion (008),, Alfred Little, Simon Moore, Jon R Carnes, EOS Holdings LLC, Andrew Wong, and International Finance Research & Analysis Group (collectively, the " group") also move to dismiss on those grounds, as well as CPLR 3013, 3016(a), and 3211(a)(3).[FN2]

Factual Background

Silvercorp is a silver producer operating in China and Canada with stock that trades on the New York and the Toronto Stock Exchanges. Silvercorp alleges that Anthion and the group (collectively herein, "defendants") published defamatory letters and internet postings against it as part of a scheme to drive Silvercorp's stock prices down in order to profit from their short sale positions.

The first, a letter by Anthion dated August 29, 2011 (the "Anthion August 29 Letter"), was sent to the Ontario Securities Commission, several financial journalists, and Silvercorp's auditors, Ernst & Young LLP. Such letter indicated that the writer had a short position in Silvercorp stock and referenced a draft report which accused Silvercorp of engaging in accounting fraud.[FN3]

The second, a posting on September 13, 2011 (the "Alfred Little September 13 Posting") by the group, raised concerns about Silvercorp's production and quality of the ore being mined at its key mine, the overvaluation of its shares, questionable customers, and a questionable acquisition of a company from a relative of Silvercorp's chairman.

The third is a second letter sent by Anthion on September 14, 2011 (the "Anthion September 14 Letter") to the British Columbia Securities Commission, the Ontario Securities Commission and Ernst & Young. This letter referenced a September 14, 2011 posting on (the "Anthion September 14 Posting"), that accused Silvercorp of overstating its cash positions, misrepresenting the quality of its silver deposits and drilling costs, and falsely representing its financial condition.

Next, the group authored and disseminated a posting on its website on September 19, 2011 (the "Alfred Little September 19 posting"). This posting contained substantially similar claims as the Alfred Little September 13 Posting. On the same date, [*3]defendant Simon Moore republished the statements on Bloomberg news.

Consequently, Silvercorp commenced this action for defamation, unjust enrichment, trade libel, and unlawful deceptive acts and practices under New York General Business Law ("GBL") §349.

Anthion now argues that the defamation claim should be dismissed pursuant to CPLR 3211(a)(1) and (7) because the letters and reports at issue demonstrate conclusively that the challenged statements are non-actionable, constitutionally protected opinion. The content of the communications at issue, their tone and stated purpose show that Anthion was expressing its view that Silvercorp potentially committed accounting fraud.

Its August 29 Letter was sent to a select audience, raising concerns of accounting irregularities in Silvercorp's financial statements which Anthion viewed as fraudulent. Anthion's August 29 Letter enclosed a detailed report that Anthion intended to publish on the Internet, together with the research and analysis in support thereof. Copies of the supporting documents, referred to as "links," were enclosed with Anthion's Letter. Anthion also included a chart comparing the company's reported figures with other mines, cited the website that was the source of the information, and set forth the factual basis for its position. Therefore, the August 29 Letter cannot reasonably be understood to imply the assertion of undisclosed facts justifying the accusation. Also, the stated purpose of the Anthion August 29 Letter, which included phrases like the author "believed" Silvercorp committed "potential" fraud, and that the stated "opinions" could change, demonstrates that it was an expression of opinion. The Letter explicitly sought an independent investigation by the government regulator and the other sophisticated, professional readers. Thus, read as a whole, the challenged statements would be understood as allegations and accusations, to be investigated, not an actionable statement of facts. Also, since the Anthion August 29 Letter states that the author works for a firm that has a short position in Silvercorp's stock, readers knew that the writer had a financial interest, and this disclosed motive indicates that the author is expressing his opinion. The anonymous submission also indicates that the statements are not to be understood as fact. In the broader social context, its August 29 Letter is like an Op Ed letter to the editor, questioning whether Silvercorp was an accounting fraud and sought an independent investigation, or like whistleblower letters anonymously sent to government regulators, audit firms and members of the financial press.

Its anonymous September 14 Posting on was a revised version of the draft report that was enclosed with its August 29 Letter. The September 14 Posting contained updated analysis, with links to the articles, financial statements and work product that supported the opinions expressed. The point-counterpoint nature of Silvercorp's press release and the September 14 Posting is characteristic of opinionated debate. Like the draft report enclosed with the August 29 Letter, the September 14 Posting contained all the facts and analysis that formed the basis of the stated concerns about Silvercorp's accounting practices and stated that it represented an "opinion." There is no implication that the opinions expressed in the posting were based on undisclosed facts. Within the broader social context, the September 14 Posting on the internet, where debate is often caustic and free-wheeling, is reasonably understood as expressing the opinion of the writer.

Anthion also argues that the unjust enrichment claim fails, as it improperly merges into the defamation claim. New York courts do not allow plaintiffs to plead an unjust enrichment [*4]claim as a separate tort claim that arises from the same allegations as the defamation claim, as Silvercorp does here. Further, the Complaint fails to allege that Silvercorp conferred a benefit upon Anthion. And, based on the Complaint, Silvercorp could not have given a benefit to Anthion as they had no direct dealings.

Anthion further asserts that Silvercorp's trade libel claim is insufficiently pled because the challenged statements are protected opinion, they are not about Silvercorp's products, and the Complaint fails to sufficiently allege special damages. Anthion's trade libel claim also fails to allege that the challenged statements undermined its ability to sell its goods and services. The challenged statements concerning accounting fraud relate to Silvercorp's fitness as a business, and do not impugn the quality of the minerals it sells. While Silvercorp claims that these statements caused abnormal trading patterns in Silvercorp's stock price and volume, Silvercorp's stock is not its product. Further, the Complaint alleges round figures and general allegations, and thus, fails to plead fully and accurately special damages. The allegation that the alleged defamation "induc[ed] others not to deal with Silvercorp" as demonstrated by abnormal trading volume and decreases in the value of Silvercorp stock does not make sense, or state a claim for damages resulting from any denigration of Silvercorp's products.

It is also asserted that the deceptive trade practices claim under GBL 349 also fails, as securities transactions are not covered by the statute. Further, Silvercorp lacks standing to pursue the GBL 349 claim, in that it failed to allege that Anthion engaged in conduct that has "a broader impact on consumers at large" and is "directed to consumers." Also, there is no allegation of any "consumer-oriented" acts that directly caused "actual injury" to Silvercorp that is sufficiently direct to be of a kind consistent with purposes of the statute. And, GBL 349 applies to disputes between businesses in instances where an organizational plaintiff is similarly-situated to other consumers, which is not the case herein.

In support of their motion to dismiss, the group adds that the defamation claim fails to adequately allege what words, if any, were false. Nor does Silvercorp allege any facts contradicting the challenged statements. Thus, Silvercorp fails to sufficiently allege falsity to support a defamation claim. And, certain allegations are flatly contradicted by Silvercorp's admissions in the Complaint and in documents filed with the Securities Exchange Commissio ("SEC"). And, as to the claim that Simon Moore "republished" aspects of the September Postings, (¶ 41), Silvercorp failed to meet the heightened pleading requirements of CPLR § 3016(a), in that it does not set forth the particular words stated by Simon Moore. Thus, claims based on the allegations in paragraph 41 must be dismissed.

Further, the statements in their September 13 and September 19 Postings were protected opinions. A series of "press releases" which Silvercorp filed with the SEC, prior to defendants' postings, show that Silvercorp itself considered these postings' to convey opinions. On September 2, 2011, Silvercorp filed a press release which advised that it was dealing with such "serious allegations" because it recognized the widespread "concern in the [financial] market following recent news in relation to an alleged fraud involving . . . another company with Chinese assets." Thus, persons reading articles about Silvercorp were aware of a brewing controversy before the defendants allegedly published anything on the matter. Then, the day after the Alfred Little September 13 Posting was published, Silvercorp filed another press release which urged the public to disregard the recent posting because the authors were anonymous [*5]short-sellers who should not be considered disinterested observers. Moreover, Silvercorp's press releases announced that it would initiate an investigation of its own and cooperate with governmental agencies in their investigations. Thus, Silvercorp had no difficulty in discerning that the Postings, by virtue of their context (public debate; publication on the internet; anonymity; and calls for investigations), should be understood as expressing non-actionable opinions. In any event, any reasonable reader would reach the same conclusion.

As the Postings were anonymously published on a website which advises readers that the site provides "cutting-edge long and short investment ideas," one entering the website is aware that they are reading articles focused on expressions of opinions rather than assertions of fact. Further, the postings called for further investigation, indicating that opinions and allegations were being presented for readers to consider. Thus, the Postings constituted "pure opinion" subject to full constitutional protection. A "pure opinion" is a statement of opinion which is accompanied by a recitation of the facts upon which it is based.

Also, the phrase "revealed low silver content" in the September 19 Posting is inherently opinionated. The Posting explained how the ore samples were obtained and provided hyperlinks so that readers could view the lab reports on which that opinion was based. Elsewhere, the September 19 Posting proposed that a certain Silvercorp customer was "questionable." Such statement is inherently opinionated, and supported by documents and circumstances leading to that opinion that the questionable customer could not be located at its registered address.

It is also argued that since the allegations supporting Silvercorp's other claims for unjust enrichment, trade libel and interference, and unlawful deceptive acts and practices under GBL 349 mirror those alleged in the defamation claim, they must be dismissed.

The unjust enrichment claim also fails because there is no allegation of any direct dealings between Silvercorp and the group, or that Silvercorp conferred any benefit on them.

As to the trade libel claims, the ongoing public debate regarding valuation of Silvercorp's stock when the September 13 and 19 Postings were published, in which Silvercorp itself was a participant, negates any allegations that false statements were knowingly made. And, special damages are not adequately pled and the complaint does not identify any third-parties whose actual dealings with Silvercorp were influenced by the Postings.

As to the GBL 349 claim, financial industry professionals and investors do not qualify as consumers entitled to protection under this statute. Nor does Silvercorp claim that it suffered the type of non-remote and non-derivative damages necessary to have standing under Section 349. Instead, the Complaint's vague description of damages from actions taken as "secondary and tertiary responses to fluctuations in the value of Silvercorp's stock held by third-parties" is insufficient. This claim also fails because Silvercorp did not allege that neither it nor any other person, possibly constituting a "consumer," was deceived in New York. Silvercorp is a Canadian company focused on Chinese operations and the Complaint alleges that the group maintain residences or offices in places other than New York. And, Silvercorp's allegations concern purported securities transactions and have nothing to do with consumers.

In opposition, Silvercorp argues that defendants admit publishing the anonymous statements about Silvercorp, which are pled as false in the complaint. In response to the publications, Silvercorp appointed a three-member committee, which in turn, retained counsel [*6]which hired the KPMG accounting firm. The KPMG firm issued a 21-page report demonstrating that the allegations of accounting fraud were false. Nowhere do defendants state that their statements against Silvercorp were true, and they do not deny that their statements damaged Silvercorp.[FN4]

Caselaw holds that statements, including accusations of fraud and material misstatements, carry readily understood meanings and are capable of being proven true or false. Statements by defendants, such as "net profit, "loss," "revenue," "net income," "cash," "short-term investments," "drilling costs," "ore grades," and "financials" have precise meanings that are also readily understood.

Both the immediate (i.e., the documents in their entirety) and larger contexts (i.e., the anonymous request to regulators to investigate and the disclosure of personal interests in Silvercorp) in which defendants' statements were made support the statements' factual nature, and evince a seriousness that would lead a reasonable reader to believe that facts were being asserted, rather than mere opinions. Anthion implied the existence of undisclosed facts underlying its conclusions, and thus, the statements it made constitute unprotected mixed opinion. The "pure opinion" doctrine does not immunize defendants' statements of fact, inasmuch as the statements defendants made were false.

Further, in compliance with CPLR 3016, Silvercorp has quoted the alleged words and phrases from defendants' publications it contends are false, and caselaw does not require that the complaint identify which words in the statements are false.

Silvercorp also argues that its unjust enrichment claim seeks a remedy different from its defamation claim, and thus, does not merge with this claim. And, since Silvercorp requests a disgorgement of defendants' wrongful profits, and not restitution, whether Silvercorp conferred a benefit on the defendants is irrelevant to the inquiry.

It is also argued that Silvercorp properly states claims for trade libel in that defendants' falsehoods regarding its product (purity of its mines and ore) interfered with Silvercorp's supplier, employee and other relationships and exposed Silvercorp to increased expenses. These expenses, i.e., legal, forensic accounting fees, were adequately pleaded and discovery will permit Silvercorp to plead in more detail. Silvercorp also has standing to assert its GBL 349 claim against defendants' whose market manipulations have harmed the public's confidence in the market. Further, it is argued, Silvercorp's GBL 349 claim is not premised on defendants' buying and selling of its shares, but on defendants' consumer-oriented publication of defamatory statements, which affected the readerships of,, other financial media outlets, and stock traders. Even if the GBL 349 claim is stock related, the publication of false information about Silvercorp does not fall under the federal securities regime designed to protect investors. Silvercorp has also alleged significant reputational harm in addition to the added expenses incurred as a result of defendants' falsehoods. And, defendants' alleged statements were made in New York and the price of Silvercorp's stock was manipulated [*7]in New York.

In reply, the group asserts that the challenged statements are opinions accompanied by a recitation of information and links to documentary references.

The complaint never actually alleges that the postings are false or identify any particular aspects as false. The complaint lacks the degree of notice and particularity required as to the statements alleged as false.

And, all of Silvercorp's claims flow from reputational injuries allegedly stemming from the defamatory postings. Further, since the only predicate for a disgorgement remedy would be Silvercorp's defamation claim, if the defamation claim fails, the unjust enrichment claim fails.

Anthion also replies, arguing that Silvercorp's statement by statement approach in parsing Anthion's communications is not the proper analysis. The Court must consider each challenged statement as a whole, including its tone and purpose and how it fits in the broader context. All of the characteristics of Anthion's challenged communications are recognized as indicia of opinion. Anthion fully disclosed the factual basis for its opinion in the postings or the report attached thereto, and Silvercorp misconstrues caselaw on this issue. Anthion adds that Silvercorp does not challenge the accuracy of the facts underlying the opinions made, but only the conclusions drawn. In any event, any challenge by Silvercorp to a few of the facts would not substantially alter the character of the postings.

Anthion also adds that Silvercorp's unjust enrichment must, but fails to, allege that defendants received some benefit from Silvercorp. And, disgorgement as Silvercorp characterizes it, is not available as a remedy for unjust enrichment in New York.

Additionally, the one statement made by Anthion impugning Silvercorp's goods that the grade of deposits is too good to be true, was not calculated to induce others not to do business with Silvercorp, but to encourage further investigation into Silvercorp's financials. Thus, the trade libel claim fails.

Further, Silvercorp's GBL 349 claim fails because Anthion's criticism of Silvercorp was related to the true value of Silvercorp's securities, and market manipulation is prohibited by Sections 9 and 10(b) of the Securities Exchange Act of 1934 and regulated by the SEC. Thus, GBL 349 does not apply to the securities-related claims of Silvercorp.


A motion to dismiss pursuant to CPLR 3211[a] [l] on the basis of a defense founded upon documentary evidence may be granted "only where the documentary evidence utterly refutes [the complaint's] factual allegations, conclusively establishing a defense as a matter of law"(DKR Soundshore Oasis Holding Fund Ltd. v Merrill Lynch Intern., 80 AD3d 448, 914 NYS2d 145 [1st Dept 2011] citing Goshen v Mutual Life Ins. Co. of NY, 98 NY2d 314, 326, 746 NYS2d 858 [2002]). The test on a CPLR 3211 [a][1] motion is whether the documentary evidence submitted "conclusively establishes a defense to the asserted claims as a matter of law" (Scott v Bell Atlantic Corp., 282 AD2d 180, 726 NYS2d 60 [1st Dept 2001] citing Leon v Martinez, supra, 84 NY2d 83, 88; IMO Indus., Inc. v Anderson Kill & Olick, P.C., 267 AD2d 10, 11, 699 NYS2d 43 [1st Dept 1999]).

In determining a motion to dismiss pursuant to CPLR 3211 [1] [7], the Court's role is ordinarily limited to determining whether the complaint states a cause of action (Frank v DaimlerChrysler Corp., 292 AD2d 118, 741 NYS2d 9 [1st Dept 2002]). The standard on such a [*8]motion is not whether the party has artfully drafted the pleading, but whether deeming the pleading to allege whatever can be reasonably implied from its statements, a cause of action can be sustained (see Stendig, Inc. v Thom Rock Realty Co., 163 AD2d 46 [1st Dept 1990]; Leviton Manufacturing Co., Inc. v Blumberg, 242 AD2d 205, 660 NYS2d 726 [1st Dept 1997]). When considering a motion to dismiss for failure to state a cause of action, the pleadings must be liberally construed (see, CPLR § 3026), and the court must "accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit into any cognizable legal theory" (Nonnon v City of New York, 9 NY3d 825 [2007]; Leon v Martinez, 84 NY2d 83, 87-88, 614 NYS2d 972 [1994]). And, where the parties have submitted evidentiary material, including affidavits, or where the bare legal conclusions and factual allegations are "flatly contradicted by documentary evidence" the pertinent issue is whether claimant has a cause of action, not whether one has been stated in the complaint (see Guggenheimer v Ginzburg, 43 NY2d 268, 275 [1977]; R.H. Sanbar Projects, Inc. v Gruzen Partnership, 148 AD2d 316, 538 NYS2d 532 [1st Dept 1989]; Biondi v Beekman Hill House Apt. Corp., 257 AD2d 76, 81, 692 NYS2d 304 [1st Dept 1999], affd 94 NY2d 659, 709 NYS2d 861 [2000]; Kliebert v McKoan, 228 AD2d 232, 643 NYS2d 114 [1st Dept], lv denied 89 NY2d 802, 653 NYS2d 279 [1996]).

Dismissal of Defamation Claim

The elements of a defamation claim are a false statement, published without privilege or authorization to a third party, constituting fault as judged by, at a minimum, a negligence standard, and, it must either cause special harm or constitute defamation per se (Dillon v City of New York, 261 AD2d 34, 704 N.Y.S.2d 1 [1st Dept 1999] citing Restatement of Torts, Second § 558). CPLR 3016(a) requires that in a defamation action, "the particular words complained of ... be set forth in the complaint." The complaint also must allege the time, place and manner of the false statement and to specify to whom it was made (Dillon citing Arsenault v Forquer, 197 AD2d 554, 602 NYS2d 653 [2d Dept 1993]; Vardi v Mutual Life Insurance Co. of New York, 136 AD2d 453, 523 NYS2d 95).

"Distinguishing between assertions of fact and nonactionable expressions of opinion has often proved a difficult task" (Sandals Resorts Intern. Ltd. v Google, Inc., 86 AD3d 32, 925 NYS2d 407 [1st Dept 2011] citing Brian v Richardson, 87 NY2d 46, 51, 637 NYS2d 347, 660 NE2d 1126 [1995])). The Court of Appeals in Immuno AG. v Moor—Jankowski (77 NY2d 235, 243, 566 NYS2d 906, 909—10 [1991])"announced that the New York State Constitution provides broader speech protections than does the United States Constitution" (Sandals Resorts Intern. Ltd., v Google, Inc., supra, 86 AD3d at 40). "The dispositive inquiry, under either Federal or New York law, is whether a reasonable [reader] could have concluded that [the articles were] conveying facts about the plaintiff'" (Gross v New York Times Co., 82 NY2d 146, 603 NYS2d 813 [1993]).

"The approach now used in this State for determining which statements are protected opinion and which are unprotected factual assertions is based on a four-part formula . . . ." (Sandals Resorts Intern. Ltd. v Google, Inc., supra 86 AD3d at 39). The four factors are: "(1) whether the statement at issue has a precise meaning so as to give rise to clear factual implications, (2) the degree to which the statements are verifiable, i.e., objectively capable of [*9]proof or disproof', (3) whether the full context of the communication in which the statement appears signals to the reader its nature as opinion, and (4) whether the broader context of the communication so signals the reader (Sandals Resorts Intern. Ltd. v Google, Inc., supra 86 AD3d at 39-40 (internal citations omitted)). "Accordingly, the standard in this state for distinguishing protected expressions of opinion from actionable assertions of fact," is as follows: "A pure opinion' is a statement of opinion which is accompanied by a recitation of the facts upon which it is based. An opinion not accompanied by such a factual recitation may, nevertheless, be pure opinion' if it does not imply that it is based upon undisclosed facts. When, however, the statement of opinion implies that it is based upon facts which justify the opinion but are unknown to those reading or hearing it, it is a mixed opinion' and is actionable. The actionable element of a mixed opinion' is not the false opinion itself—it is the implication that the speaker knows certain facts, unknown to his audience, which support his opinion and are detrimental to the person about whom he is speaking" (68 NY2d at 289—290, 508 N.Y.S.2d 901, 501 N.E.2d 550 [citations and footnote omitted] Sandals Resorts Intern. Ltd. v Google, Inc., supra 86 AD3d at 40).

Thus, in determining whether a particular communication is actionable, the Court must distinguish "between a statement of opinion that implies a basis in facts which are not disclosed to the reader or listener . . . and a statement of opinion that is accompanied by a recitation of the facts on which it is based or one that does not imply the existence of undisclosed underlying facts" (Gross v New York Times Co., 82 NY2d at 154). "The former are actionable not because they convey false opinions' but rather because a reasonable listener or reader would infer that "the speaker [or writer] knows certain facts, unknown to [the] audience, which support [the] opinion and are detrimental to the person [toward] whom [the communication is directed]" (id. at 153-154; Hotchner v Castillo-Puche, 551 F2d 910 [2d Cir. 1977] (Liability for libel may attach, when the negative characterization is coupled with a clear but false implication that the author is privy to facts about the person that are unknown to the general reader; "If an author represents that he has private, first-hand knowledge which substantiates the opinions he expresses, the expression of opinion becomes as damaging as an assertion of fact (id.)). "In contrast, the latter are not actionable because, . . . a proffered hypothesis that is offered after a full recitation of the facts on which it is based is readily understood by the audience as conjecture" (id. at 154). "Indeed, this class of statements provides a clear illustration of situations in which the full context of the communication " signal[s] ... readers or listeners that what is being read or heard is likely to be opinion, not fact' " (id.).

Initially, the Court notes that Silvercorp's second amended complaint and the affidavits by Silvercorp's Director Myles J. Gao and Chief Executive Office Rui Feng identify specific statements it claims are false.

Since the Court is dealing with multi-page writings, it must address both the words and the context of the statements as a whole, as well as its broader social context, to determine whether the content of the letters and postings constitutes defamation.

Considering the letters and postings here as a whole, the Court finds that they are not [*10]actionable.

Anthion's August 29 Letter

At issue are 23 statements made by Anthion concerning Silvercorp's alleged "massive accounting fraud," including statements that Silvercorp made "numerous material misstatements" in its financials filed with regulators, that financials "from the Chinese State Administration of Industry and Commerce (SAIC) show that" Silvercorp suffered a "LOSS of US $0.5 million in calendar year 2010" instead of a "net profit of US$66 million," Silvercorp's "JV Partner to the Ying asset sold . . . a 5% interest" for "US $7 million" implying that Silvercorp is worth $1-2.50/share compared with the current trading price of $8.00/share, that the grade of the deposits is "too good to be true," and that the drilling costs were underreported (Second Amended Complaint ¶54B, pp 20-21)

While the allegation of "fraud" "in particular carries a readily understood meaning that is capable of being proven true or false," the allegation of fraud must be read in the full context of letters and postings and in the broader social context in which such letters and postings were published (cf. Twelve Inches Around Corp. v Cisco Systems, Inc., 2009 WL 928077 S.D.NY 2009] (finding allegation of fraud actionable because "most important in this case, a reasonable reader encountering the full context of the letter, in particular the affirmation made under penalty of perjury' and the format of the letter resembling an affidavit could reasonably believe that the statements are fact not opinion')).

The immediate context of the statements leads to a conclusion that a reasonable reader would likely believe that Anthion was conveying its opinion about Silvercorp. The documents themselves reveal the disclosure of the author's self interest in that the author "works for a firm that currently has a short position" in Silvercorp. Such motive, as noted in Immuno, Brian and Sandals, indicates to the reader that the author is expressing his opinion. That Anthion did not disclose the extent to which it stood to profit is immaterial; that it disclosed its short position, namely to the particular group of addressees who would appreciate the significance of a short-position, is sufficient to indicate to these particular readers that Anthion was not disinterested. The tone of Anthion's August 29 Letter indicates that the writer is expressing an opinion about the financial condition of Silvercorp. The Letter's subject states "Potential $1.3 Billion Accounting Fraud at Silvercorp," indicating that it is a statement of allegation, not fact. (Emphasis added). It also expressly reflects the author's "belie[f]" that Silvercorp committed a "massive accounting fraud." Anthion further claims that "Grade of Deposit is Too Good to be True," "Interviews suggests Grade at Ying are Lower Than Reported," and "In our opinion, the writing is on the wall."

Critically, Anthion's conclusions about Silvercorp's misstatements in its financial statements and value of its shares were premised on "facts" that it uncovered from the public filings and private sources, all of which where disclosed and provided along with the Letter. Anthion's statements about the sale of a 5% interest for US $7 million, which indicated that Silvercorp stock was worth only $1-$2.50/share as opposed to its $8.00 current trading price was accompanied by a weblink or other identifying sources in support. The same holds true regarding Anthion's statements about the purity of its mines, drilling costs, and use of a certain minerals consulting firm. Thus, it cannot be said that the Anthion August 29 Letter was based [*11]upon undisclosed facts; instead, the challenged statements were derived from data accessible by the provided hyperlink, giving readers the opportunity to review the underlying facts and form their own conclusions (Brian v Richardson, supra, 87 NY2d at 53-54; Sandals Resorts Intl Ltd., v Google, Inc., supra, 86 AD3d at 43)). As the challenged statements were "accompanied by a recitation of the facts upon which it is based," such statements qualify as "pure opinion" under Steinhilber v Alphonse (68 NY2d 283, 289, 501 NE2d 550 [1986]; Kidd v Epstein, 79 AD3d 650, 915 NYS2d 38 [1st Dept 2010] ("As the Court of Appeals has explained, [o]pinions, false or not, libelous or not, are constitutionally protected and may not be the subject of private damage actions, provided that the facts supporting the opinions are set forth'.")).

The anonymous submission of the letter further informs a reasonable reader that the challenged statements are not to be understood as fact. As the court recognized in Sandals, the anonymity of a communication "makes it more likely that a reasonable reader would view its assertions with some skepticism and tend to treat its contents as opinion rather than as fact." (86 AD at 44, 925 NYS2d at 416).

While "linguistic devices" such as "belief" and Anthion's "deep concern" of Silvercorp's financial matters, "will not guarantee immunity from defamation actions since, even where the utterance is "couched in the language of hypothesis or conclusion," it will still be actionable if it "would be understood by the reasonable reader as assertions of fact" (Silverman, supra, 35 AD3d at 16, citing Gross v New York Times Co., 82 NY2d at 154), the Court is constrained to conclude that given this contextual background, a reasonable reader would understand the statements Antion made about Silvercorp as mere allegations to be investigated rather than as facts.

Finally, consideration of the "broader social context into which the statement fits" (Ollman, 750 F2d at 983) also requires the conclusion that Anthion's August 29 Letter be treated as an expression of the writer's views and opinions, which he is asking the reader to consider. It is clear that the purpose of this Letter was to "invite all addressees to replicate/confirm [its] existing research" and conduct an independent investigation into the purported financial misrepresentations made by Silvercorp (see Brian v Richardson, supra).

The caselaw cited by Silvercorp are either inapposite or inapplicable to the factual circumstances of this action, in light of fact that Anthion's August 29 Letter included a recitation of facts and was written with the purpose of instigating an investigation.

Anthion's September 14 Posting

The September 14 Posting also cannot support Silvercorp's defamation claim for the reasons noted above. Again, the challenged statements are understood as claims to be investigated rather than assertions of facts.[FN5] The conclusions reached were expressly "Based on . [*12]. . research,"[FN6] indicating to a reasonable reader that the claim of accounting fraud is an opinion, and not a statement of fact. The September 14 Posting was also based on disclosed facts. The Report was anonymous, and advised the reader that the author had a short position in Silvercorp's stock and thus had a financial interest in any decline in the stock price. Further, the September 14 Posting, posted after Silvercorp's press release, became part of a debate about matters of public concern and thus part of the "marketplace of ideas" that New York Courts aim to protect (see Immuno, 77 NY2d at 255, 566 NYS2d at 917). And, readers give "less credence to allegedly defamatory remarks published on the Internet than to similar remarks made in other contexts" (Simpson v The Village Voice, Inc., 2007 WL 2815376, 2007 NY Slip Op. 32532(U) (Trial Order) (N.Y.Sup. Aug 07, 2007) (NO. 0118713/2006)).

Therefore, like the August 29 Letter, the September 14 Posting cannot form the basis for a defamation claim because it expressed a hypothesis based on disclosed facts.

Alfred Little September 13 Posting

Silvercorp challenges nine statements made by group in the September 13 Posting, including claims that "Outside Tests of Ore . . . Reveal Low Silver Content," a "Recent Auction Sale of 5% of Henan Found Values it at a 90% Discount to SVM's Market Value," that Silvercorp produced less ore, silver and lead compared to what was reported in its "40-F fiscal filing." (Second Amended Complaint ¶54C). However, a review of this Posting reveals that such statements fail to support a defamation claim.

It is noted that a debate had ensued concerning Silvercorp's financial matters prior to the Alfred Little September 13 Posting, in that Silvercorp issued a press release on September 2 addressing "serious allegations" of fraud. The day after this Alfred Little September 13 Posting, Silvercorp published a second press release, addressing the claims by the group. Therefore, readers were aware of a controversy involving Silvercorp's valuation, signaling that the statements in the Alfred Little September 13 Posting were expressions of non-actionable opinions.

Like Anthion's statements, group's alleged statements were anonymously made and posted on a website, and were all supported by sources made accessible by hyperlinks contained in the Posting. The Alfred Little September 13 Posting noted that its contributors "believe all the information is accurate" and revealed that they held "short" positions [*13]in Silvercorp. The group noted that the "board, in our opinion [has] so far fallen short in its duty to investors," and urged Silvercorp's directors to investigate these facts. The tone and immediate and social context of this Posting signal to the reasonable reader that the statements are non-actionable opinion.

Alfred Little September 19 Posting

Finally, Silvercorp challenges 13 statements the group made in its September 19 Posting, which criticized Silvercorp for inflating it earnings, overstating its net income, inflated its production levels, provided contradicting estimates of its mining production and quality of ore, and overvalued the value of the company (Second Amended Complaint ¶54E).

The September 19 Posting, read in context, shows that the statements made therein are non-actionable opinion, for the reasons applicable to the September 13 Posting.

The Court recognizes that this result could be viewed as a green light to those who could use this kind of vehicle to manipulate the market. However, the Court is constrained to conclude that the challenged statements fail to support a claim for defamation.[FN7]

Dismissal of Unjust Enrichment Claim

Defendants established that the unjust enrichment claim improperly merges into the defamation claim (Anyanwu v Columbia Broadcasting System, Inc., 887 FSupp 690 [SDNY 1995] (stating in a defamation action for an injunction, an apology, and punitive damages, "a separate cause of action for what are essentially defamation claims should not be entertained"]; Butler v Delaware Otsego Corp., 203 AD2d 783, 610 NYS2d 664 [3d Dept 1994] (stating that "facts alleged by plaintiff are, in essence, inseparable from the tort of defamation and, as such, plaintiff is relegated to any remedy that would have been available on that basis")).

Here, the factual allegations supporting Silvercorp's unjust enrichment claim are identical to those giving rise to the defamation claim. The Second Amended Complaint alleges that defendants were "unjustly enriched at Silvercorp's expense" through its "receipt of profits from their short selling scheme." However, the unjust enrichment in this action derives from and is the result of the alleged defamation. The foundation of the unjust enrichment claim is the alleged defamation. As pled, the defamatory statements depressed Silvercorp's value resulting in a windfall (i.e., unjust enrichment) to defendants. Because the unjust enrichment claim has no independent basis, this claim is dismissed.

In any event, Silvercorp fails to allege that defendants received a benefit from Silvercorp. In seeking the disgorgement of defendants' profits, Silvercorp cannot allege that defendants have been unjustly enriched at Silvercorp's expense, since Silvercorp did not make any payments or financially contribute to the profits defendants received (see IDT Corp. v Morgan Stanley Dean Witter & Co., 12 NY3d 132, 879 NYS2d 355 [2009]). The profits defendants received simply did not come from Silvercorp, but from the shares bought and sold on the stock exchanges.

Dismissal of Trade Libel Claim [*14]

Silvercorp sufficiently alleged that Anthion's statements criticizing the quality of the mines and ore were false. Further, Silvercorp alleges, with sufficient particularity, specialized damages in the form of "out-of-pocket legal, forensic accounting and investor and public relations expenses, "increased cost of capital," "increased insurance costs," costs incurred through business disruption" and loss of sales" (Charles Atlas, Ltd. v Time-Life Books, Inc., 570 F Supp 150 [SDNY 1983] (i.e., "special advertising expenses" incurred to counteract the alleged product disparagement").

However, as with any claim for defamation, trade libel is also "subject to a defense that the material, when read in context, would be perceived by a reasonable person to be nothing more than a matter of personal opinion" (Penn Warranty Corp. v DiGiovanni, 10 Misc 3d 998, 810 NYS2d 807 [Sup. Ct., New York County 2005] citing Immuno AG. v Moor—Jankowski, supra, 77 NY2d 235). Here, the statements forming the basis of the defamation claim form the basis of Silvercorp's trade libel claim. Thus, based on this Court's findings above that the alleged defamatory statements are non-actionable opinion, such statements cannot support Silvercorp's trade libel claim.

Dismissal of General Business Law 349

GBL 349 prohibits "[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service ...." (GBL 349(a)). GBL 349 permits a private right of action in that "any person who has been injured by reason of any violation of this section may bring an action in his own name to enjoin such unlawful act or practice, an action to recover his actual damages ..., or both such actions." (GBL 349(h)).

To state a claim under GBL 349, a plaintiff must allege three elements: "first, that the challenged act or practice was consumer-oriented; second, that it was misleading in a material way; and third, that the plaintiff suffered injury as a result of the deceptive act" (Pew v Cardarelli, 2009 WL 3165759 citing Stutman v Chemical Bank, 95 NY2d 24, 29, 709 NYS2d 892 [2000]). Actionable deceptive acts or practices are "limited to those likely to mislead a reasonable consumer acting reasonably under the circumstances" (Pew v Cardarelli, 2009 WL 3165759 citing Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20, 26, 623 NYS2d 529 [1995]), and the challenged act or practice must be "consumer oriented, that is, it must have a broad impact on consumers at large" (Gray v Seaboard Sec., Inc., 14 AD3d 852, 853—54, 788 NYS2d 471, 473 [3d Dept 2005] citing U.W. Marx, Inc. v Bonded Concrete, Inc., 7 AD3d 856, 858 [2004] [emphasis added]).

Contrary defendants' contention, Silvercorp's GBL 349 claim, as alleged, does not arise out of a securities transaction. It is noted that courts have found GBL 349 inapplicable to claims arising from securities transactions, essentially for two reasons: (1) "individuals do not generally purchase securities in the same manner as traditional consumer products, such as vehicles, appliances or groceries since securities are purchased as investments, not as goods to be consumed' or used'" and (2) "because the securities arena is one which is highly regulated by the federal government, it is questionable that the legislature intended to give securities investors an added measure of protection beyond that provided by the securities acts'"(Gray v Seaboard Sec., Inc., 14 AD3d at 854) ("[T]he clear weight of authority is that claims arising out of securities transactions are not the type of consumer transactions for which General Business [*15]Law § 349 was intended to provide a remedy")); Feesha v TD Waterhouse Inv. Servs., 305 AD2d 268, 761 NYS2d 22 [1st Dept 2003] [holding that GBL 349 was inapplicable to plaintiff's claim where TD Waterhouse allegedly liquidated his account pursuant to an agreement "to grant defendant TD Waterhouse the right to liquidate securities in plaintiff customer's account")).

Instead, Silvercorp's claims derive from alleged statements made about its value, management, and quality of its ore/mines. Although defendants' alleged statements regarding these matters affected the stock of Silvercorp, Silvercorp's claim does not arise from a securities transaction. The cases on which defendants rely in this regard involve claims by persons who conducted an allegedly improper or fraudulently-based securities transaction (Dweck v Oppenheimer & Co., Inc., 30 AD3d 163 [1st Dept 2006] (investor's claim arose out of his alleged oral acceptance of defendants brokers' alleged oral offer to sell certain bonds"); Pew, supra (plaintiffs/investors claimed to have been "misled about the nature and extent of the risks associated with investing in Agway Certificates"); Fesseha, supra (defendant allegedly liquidated securities in plaintiff customer's account without notice); Gray, supra (plaintiffs allegedly relied on defendants' representations, purchased numerous stocks, and paid "full service" brokerage commissions, and defendants failed to provide the promised investment advice); Schwarz v Bear, Stearns & Co., Inc. 1998 WL 672708 (plaintiff alleged that defendant was liable for his losses because defendant breached its obligation to plaintiff by continuing to clear "Baron's" transactions while knowing that "Baron" was engaged in a scheme to defraud its customers)). Here, Silvercorp's GBL 349 claim seeks damages it sustained allegedly as a result of the statements defendants made to consumers, and the securities transactions which caused defendants to profit were indirect consequences of defendants' statements.

There are three issues that must be considered with respect to the viability of Silvercorp's GBL 349 claim: (1) whether Silvercorp's claim is indirect or derivative; (2) whether Silvercorp's injury derives from damages to its readership; (3) and whether Silvercorp can utilize GBL 349 as a consumer for purposes of GBL 349.

"While a private cause of action under GBL § 349 does not require privity of contract or any particular consumer transaction if sufficient consumer-oriented harm is alleged, a plaintiff may not recover damages under GBL § 349 for purely indirect or derivative losses that were the result of third-parties being allegedly misled or deceived (In re Nassau County Consol. MTBE (Methyl Tertiary Butyl Ether) Products Liability, 29 Misc 3d 1219(A), 918 NYS2d 399 (Table) [Sup. Ct., New York County 2010] [citing] City of New York v Smokes—Spirits.Com, Inc., 12 NY3d 616 [2009] [The plaintiff has failed to establish standing here because its claimed injury, in the form of lost tax revenue, is entirely derivative of injuries that it alleges were suffered by misled consumers who purchased defendants' cigarettes over the Internet'])." Here, Silvercorp alleges that defendants' misleading and deceptive statements were directed at and affected the readerships of and, and that such statements injured Silvercorp's reputation and caused it to incur its own legal, forensic accounting, and public relations expenses. Thus, defendants' reliance on Blue Cross & Blue Shield of N.J., Inc. v Philip Morris USA Inc. (3 NY3d 200 [2004]) for the proposition that Silvercorp failed to "plead" that it "suffered an actual injury' that was directly caused by . . . the alleged deceptive trade practices" is misplaced. [*16]

Further, the above alleged expenses were not paid on any consumer's behalf, as was in the case in Blue Cross [stating that "derivative actions are barred" under section 349 (h); "An injury is indirect or derivative when the loss arises solely as a result of injuries sustained by another party"]). To the extent that Silvercorp's expenses do not derive from damages incurred or sustained by its readership, Silvercorp's claim for such damages is not barred by Blue Cross & Blue Shield of N.J., Inc (supra).

However, Silvercorp cannot utilize GBL 349 as a consumer, or similarly situated consumer, as that term is described in its own complaint. Silvercorp's claim falls outside the protection of the GBL 349 to the extent that GBL 349 "is a consumer protection statute" designed to afford "consumers" who suffer a direct injury from deceptive acts to bring suits on their own behalf without relying on the Attorney General (Blue Cross & Blue Shield of N.J., Inc (supra). According to Silvercorp's Second Amended Complaint, defendants' alleged deceptive acts were aimed at the "readerships" of defendants' respective websites, who then took certain action based on defendants' acts. Silvercorp, however, is not part of this "readership" (cf. Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20 [1995] (plaintiffs/union fund non profit associations "have satisfied the threshold test in that the acts they complain of are consumer-oriented in the sense that they potentially affect similarly situated consumers", i.e., customers of defendant bank)).

And, while "any person" may pursue a GBL 349 claim, "any person" has been limited to the typical consumer and business competitors, and Silvercorp is neither a consumer nor business competitor of defendants or defendants' services (Securitron Magnalock Corp. v. Schnabolk, 65 F3d 256 [2d Cir. 1995] ("Although the statute is, at its core, a consumer protection device . . . corporate competitors now have standing to bring a claim under this [statute] ... so long as some harm to the public at large is at issue']).

Therefore, as Silvercorp lacks standing to state a claim under GBL 349, such claim is dismissed.


Based on the above, it is hereby

ORDERED that motion sequence 007 and motion sequence 008 are consolidated for joint disposition and decided herein; and it is further

ORDERED that the motion by Anthion Management LLC (a/k/a ("Anthion") (Seq. 007) to dismiss the Second Amended Complaint of plaintiff Silvercorp Metals Inc. pursuant to CPLR 3211(a)(1) and (7) is granted; and it is further

ORDERED that the motion by, Alfred Little, Simon Moore, Jon R Carnes, EOS Holdings LLC, Andrew Wong, International Finance Research & Analysis Group, and Zane Heilig (Seq. 008) to dismiss the Second Amended Complaint pursuant to CPLR 3211(a)(1), (3), and (7), CPLR 3013 and CPLR 3016(a), is granted pursuant to CPLR 3211(a)(1) and (7); and it is further

ORDERED that the action as asserted against the moving defendants noted above is severed and dismissed; and it is further [*17]

ORDERED that counsel for Anthion shall serve a copy of this order with notice of entry upon all parties within 20 days of entry.

This constitutes the decision and order of the Court.

Dated: August 16, 2012__________________________________

Hon. Carol R. Edmead, J.S.C. Footnotes

Footnote 1: Motion sequence 007 and 008 are consolidated for joint disposition and decided herein.

Footnote 2: Zane Heilig has not answered, appeared, or moved for relief in this action. Subsequent to the filing of this motion, Roman Roik, incorrectly named herein as Jerry Katz, was granted leave to appear in this action, without opposition (See Order dated August 15, 2012). Katz was also permitted to join in the instant application with Anthion.

Footnote 3: Allegedly, on September 2, 2011, Silvercorp issued a press release that summarized some of the criticisms made by the August 29 Letter and attempted to respond to that letter by attaching various documents.

Footnote 4: Silvercorp claims that following the defamatory publications, Silvercorp's stock price dropped, and Jon Carnes recently admitted to Bloomberg news that the 20% stock price drop enabled him to personally make $1 million on that single day.

Footnote 5: The heading of the letter reads "Potential $1.3 Billion Accounting Fraud at Silvercorp." The letter states that Anthion "believe[s]" that Silvercorp "is a massive accounting fraud." The attached Internet report states "Proof Silvercorp. . . is Just Another China Fraud," contains a disclaimer, which expressly notes that it is an "opinion," discloses the author's self interest and advised readers to "do your own research and due diligence."

Footnote 6: "Based on the extensive research we detail below, we believe SVM [Silvercorp] is a FRAUD and that SVM is worth at most US $1.00-2.50/share."

Also for example, the Posting states: (1) The subsidiary's sale price "Indicates Something is Very Wrong Here" and the price "implies [Silvercorp's] financial statements are seriously exaggerated ...", (2) "Company

Drilling Costs At Ying Mine Appear Underreported ... The table above suggests that the cost at the Ying Mine should be much higher ...," Silvercorp's reported grade of its ore deposits found to be "suspicious in conjunction with all the other red flags we highlight in this report," "Taken in the context of all the other evidence presented herein, this evidence [regarding reported ore grade] further suggests something is seriously wrong here."

Footnote 7: In light of this holding, the Court does not address whether dismissal of the defamation claim is warranted pursuant to CPLR 3013 or 3016(a).

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