The Securities and Exchange Commission last week took legal action against an investor who, regulators claim, booked a $7 million profit with a phony takeover bid for Reno-based Allied Nevada Gold Corp. in January.
Ever since the mysterious bid emerged, only to disappear seven hours later, investors had been wondering what the story was all about.
The SEC says the investor behind the purported offer to buy Allied Nevada, Luis Chang, a naturalized American citizen who owns property in New Jersey, now is on the run in China.
The SEC said that the 51-year-old Chang, claiming to be the agent of a Chinese mining company called “China Gold Stone Mining Development Ltd.,” asked self-styled Los Angeles investment banker Christopher J. Baclawski to send a letter on Jan. 14 to the board of Allied Nevada proposing an all-cash offer of $7.50 a share for the mining company.
That was 74 percent above the price at which the stock had closed the day before, and a press release about the offer sent shares up sharply.
But seven hours after a press release was issued, China Gold Stone Mining retracted it, and the Allied Nevada shares retreated.
In a complaint filed in federal court for the Southern District of New York, the SEC said the letter and press release “contained material misrepresentations and omission.”
Among them:
• Chang failed to disclose that an entity he controls, Everbright Development Overseas Ltd., had amassed nearly 6 percent of Allied Nevada’s shares before he made the takeover offer. The company sold its shares after announcing the phony tender offer and apparently booked about $7 million in profit on shares that it had purchased through the second half of 2013. Chang’s ex-wife and her mother also are involved in Everbright.
• No evidence supports the claims in the press release that China Gold Stone is a $15 billion company that owns three gold mines in China. In fact, officials haven’t been able to find evidence of the actual existence of China Gold Stone. “There is no evidence that China Gold had any assets, if it even existed,” the SEC said in its complaint.
• A law firm cited on the press release as an advisor to the deal, New York City’s Patterson Belknap Webb & Tyler LLP, hadn’t been retained by Chang, hadn’t agreed to use of its name and angrily demanded a retraction when the press release was distributed.
• The 49-year-old Baclawski, a friend and business associate of Chang, isn’t registered with the SEC in any capacity. He had worked on two previous transactions in which Chang said he was trying to acquire American companies.
Allied Nevada officials, who questioned the credibility of the offer from the first, had asked the SEC to investigate. It formally rejected the offer on Jan. 15.
The SEC has asked the court to order Chang and Everbright Development Overseas Ltd. to give back the profits, with interest, from their dealings in Allied Nevada stock and also seeks civil penalties.
