SEC Says Investor Accused of Fake Gold Bid Fled to China

Jun 11, 2014 10:32 pm ET

(Updates to add comment from CB Capital Partners Inc. in the ‘Statement Retraction’ section.)

June 12 (Bloomberg) -- The U.S. Securities and Exchange Commission said the man behind a fake $750 million bid for Allied Nevada Gold Corp. profited from selling an undisclosed stake in the mining company and has fled the country.

Luis Chang and Everbright Development Overseas Ltd., a company he controls, “furtively” bought Allied Nevada stock while disseminating false information about the company, the SEC said in a complaint filed June 9 in federal court in New York. Everbright then sold the shares into a “falsely inflated market” for a profit of more than $7 million, the SEC said.

Chang, a naturalized U.S. citizen, is now in China, according to the SEC, which is seeking the return of profits from the alleged scheme and unspecified monetary penalties. U.S. District Judge Edgardo Ramos in Manhattan temporarily ordered that assets of Chang or Everbright be frozen, including those held for Everbright in a Charles Schwab Corp. account that the SEC says was used to carry out the scheme, and several properties in California and Nevada.

Shares of Allied Nevada, which operates a gold mine in the north of the state, surged as much as 63 percent on the morning of Jan. 14, before the start of regular trading. A statement was released by China Gold Stone Mining Development Ltd. at 6 a.m. that day saying it was offering $7.50 a share for the Reno, Nevada-based company. Neither the existence nor the financial condition of China Gold can be substantiated, the SEC said in its complaint.

No Disclosure

Later in the morning of Jan. 14 trading in Allied Nevada stock was halted and Allied Nevada issued a statement questioning the credibility of the offer. China Gold later withdrew its statement, which it said had been published “in error.”

Everbright had started amassing a “large” position in Allied Nevada shares back in May 2013, according to the SEC. By Jan. 13, the day before the China Gold statement, Everbright held about 6.2 million shares, the SEC said. Despite owning more than 5 percent of Allied Nevada, Chang and Everbright failed to disclose the position as required by securities rules.

At the end of Jan. 14, Reno, Nevada-based Allied Nevada closed 14 percent higher, and the stock also rose for the following three days. On Jan. 16, Chang and Everbright started selling the shares, according to the SEC.

E-mails seeking comment from Chang sent to addresses provided in a June 9 court order weren’t immediately returned. Jonathan D. Lupkin, a lawyer who previously worked for Chang, said yesterday by phone that he hasn’t been formally retained to represent him in the case and declined to comment further.

Tender Offer

Chang had represented himself as an agent of China Gold at least since November 2013, according to the SEC complaint. Chang worked with Christopher J. Baclawski, an investment banker and managing partner of CB Capital Partners Inc., the SEC said. Chang telephoned an attorney at New York law firm Patterson Belknap Webb & Tyler LLP about representing him in a tender offer for Allied Nevada, according to the SEC.

“Chang discussed with the attorney the possibility of the firm representing China Gold, but China Gold did not retain the firm,” the SEC said. Still, Chang and Baclawski asked the attorney to review a letter to Allied Nevada outlining an offer, and the attorney, who was “concerned about the letter’s lack of professionalism,” suggested some edits, the SEC said.

Statement Retracted

On Jan. 13, Baclawski, at Chang’s direction, sent the letter to Allied Nevada proposing a cash tender offer by China Gold to acquire the company. Chang also directed Baclawski to issue the press release. That statement named CB Capital as China Gold’s financial adviser and Patterson Belknap as legal counsel. Its retraction later was demanded by Patterson Belknap, according to the SEC.

Baclawski, who isn’t named as a defendant in the case, said his firm is still working with a “large” Chinese group behind China Gold Stone that remains interested in Allied Nevada. Baclawski said he was “shocked” to read the SEC allegations against Chang, who he said served as an intermediary but is not affiliated with Baclawski’s firm or its Chinese client, which he declined to name.

Tracey Thom, a spokeswoman for Allied Nevada, declined to comment on the SEC case. Michael J. Greis, a spokesman for Patterson Belknap, confirmed the SEC’s description of its actions and its response to the unauthorized use of the firm’s name. Greg Gable, a spokesman for Charles Schwab, declined to comment on the case.

The case is U.S. Securities and Exchange Commission v. Chang, 14-cv-4132, Southern District of New York (Manhattan).

--With assistance from Christie Smythe in Brooklyn.