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Short seller Jon Carnes has been cleared of fraud allegations by a British Columbia Securities Commission panel, which found his attacks on Silvercorp Metals Inc. were not prohibited. The panel did, however, raise serious concerns with his conduct.
“While we may find Carnes’ conduct unsavory, we do not find it was clearly abusive to the capital markets,” the panel said in its decision. The panel added that it is “not our role to sanction conduct we find morally unsupportable.”
In an interview Thursday evening, Carnes said he was “relieved” by the decision. “That’s always the right word to use in a situation like this,” he said.
He added that he still believes Silvercorp is the party the BCSC should have been targeting, and he thinks the commission should be held “accountable” for its allegations against him. He also disagreed with assertions that there was anything “unsavory” about his actions.
Carnes, a hedge fund manager better known by the pseudonym “Alfred Little,” is one of many short sellers that accused Chinese companies of fraud a few years ago and helped to get them de-listed from North American exchanges. He operated under a web of fake aliases to protect his identity from the firms he was targeting.
Beginning in September 2011, he published reports under the “Alfred Little” name suggesting that Silvercorp, a Vancouver-based miner working in China, was exaggerating its silver resources and production. One of his reports drove the stock down 20 per cent in a single day, netting him a profit of $2.8 million from his short position. Silvercorp fought back fiercely, disputing all his claims and eventually revealing his identity and suing him.
Staff from the BCSC accused Carnes of making false statements against Silvercorp in his reports. Most significantly, they said Carnes misrepresented the findings of a geologist named John-Mark Staude, who Carnes hired to analyze Silvercorp’s resource data.
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