svm shareholder class-action - amended complaint - june 11, 2013

7/28/2019 SVM Shareholder Class-Action - Amended Complaint - June 11, 2013

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Case 1:12-cv-09456-JSR Document 35 Filed 06/11/13 Page 1 of 160


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I. NATURE OF THE ACTION1. This is a federal securities class action brought on behalf of a class consisting of

all persons and entities, other than defendants and their affiliates, who purchased the publicly

traded common stock of Silvercorp Metals, Inc., from May 20, 2009, to September 13, 2011,

inclusive (the Class Period).

2. Silvercorp is a British Columbia, Canada, corporation, engaged in the business ofmineral mining with operations located principally in China. Its shares trade on the New York

Stock Exchange (the NYSE) and the Toronto Stock Exchange.

3. Throughout the Class Period, Silvercorp made a litany of materially false andmisleading statements in three key areas. First, in Form 6-K and 40-F filings with the SEC,

Silvercorp materially misrepresented three important metrics at its flagship Ying mine (which

accounts for the vast majority of its reported revenues): (1) the mines silver, lead, and zinc

resource (i.e., the amount in the mine, what had been removed, and what remained), (2) the

mines production level (i.e., how much silver, lead, zinc, and total ore was produced in 2010),

and (3) the grade (i.e., quality) of the silver, lead, and zinc taken from the mine. Second, in

various filings with the SEC, Silvercorp materially misrepresented its compliance with

applicable legal and regulatory requirements. Third, in its Form 6-K and 40-F filings, and in

violation with applicable Canadian GAAP and International Financial Reporting Standards,

Silvercorp reported its financial results without making required related party disclosures about

its largest customer, which accounted for nearly 30 % of its 2010 sales.

4. The truth was exposed when an investor report raising significant concerns aboutthese and other issues was made public on September 13, 2011 (9/13/2011 Carnes Report).

Silvercorps stock price immediately dropped, damaging Co-Lead Plaintiffs and the other Class



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members, who had purchased Silvercorp stock on the New York Stock Exchange at inflated

prices and were damaged by Defendants misconduct as alleged herein.

5. Events following these revelations have only served to buttress the already stronginference of Silvercorps scienter. In violation of Canadian law, Silvercorp paid Chinese police

to arrest a Canadian national who had investigated the Company in support of the 9/13/2011

Carnes Report. That individual remains incarcerated in China, having not yet been charged with

any crime. Amid allegations that Silvercorps Chinese financial reports were surreptitiously

changed, it hid behind a forensic accounting report, which it refused to release publicly, that

itself was based on the accountants review of the Companys financial reports on file with

Chinese regulators at the time of the [forensic accountants] visit. It has been revealed that

three of the Companys top 14 customers in 2010 were registered in the final four months of

2009 with minimal capitalization. Two of them have since cancelled their registration. The

Company now faces a Corruption of Foreign Public Officials Act investigation by the Royal

Canadian Mounted Polices Anti-Corruption Unit and a subpoena from the SEC.

II. JURISDICTION AND VENUE6. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of

the Exchange Act (15 U.S.C. 78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder (17

C.F.R. 240.10b-5).

7. This Court has jurisdiction over the subject matter of this action pursuant toSection 27 of the Exchange Act (15 U.S.C. 78aa) and 28 U.S.C. 133l.

8. Venue is proper in this Judicial District pursuant to Section 27 of the ExchangeAct (15 U.S.C. 78aa) and 28 U.S.C. 1391(b) as a substantial part of the conduct complained

of herein occurred in this District.



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9. In connection with the acts, conduct and other wrongs alleged herein, Defendantseither directly or indirectly used the means and instrumentalities of interstate commerce,

including but not limited to the United States mails, interstate telephone communications and the

facilities of the national securities exchange.

III. PARTIES10. Co-Lead Plaintiff Charles A. Burnes, Jr., as set forth in his Certification and loss

chart previously submitted to the Court (see Docket No. 18, Exhibits 2-3), purchased Silvercorp

stock on the NYSE at artificially inflated prices during the Class Period and has been damaged

thereby.

11. Co-Lead Plaintiff Dale Hachiya, as set forth in his Certification and loss chartpreviously submitted to the Court (see Docket No. 18, Exhibits 2-3), purchased Silvercorp stock

on the NYSE at artificially inflated prices during the Class Period and has been damaged

thereby.

12. Defendant Rui Feng (Feng) has been Silvercorps Chief Executive Officer andthe Chairman of its Board of Directors since September 4, 2003. Defendant Feng is a citizen of

Canada.

13. Defendant Meng Maria Tang (Tang) has been Silvercorps Chief FinancialOfficer since October 1, 2008. Defendant Tang is a citizen of Canada. Prior to joining the

Company, Defendant Tang had five years audit experience, most recently with Ernst & Young

LLP, where she focused on public company audits with China operations and was in charge of

Sarbanes-Oxley audits for U.S. public companies.

14. Defendants Feng and Tang are sometimes referred to herein as the IndividualDefendants.



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15. Defendant Silvercorp Metals, Inc. is a Canadian corporation with a head office,principal address and registered and records office of the Company is located at 1378-200

Granville Street, Vancouver, British Columbia, V6C 1S4. The Companys shares are listed for

trading on the Toronto Stock Exchange and New York Stock Exchange (the NYSE) under the

symbol SVM, it is an SEC reporting company, and it is a reporting issuer in British Columbia,

Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Nova Scotia and New Brunswick.

Substantially all of its operations take place in China.

IV. BACKGROUND FACTSSilvercorps Business and Operations

16. As described in its annual reports, Silvercorp was formed as Spokane ResourcesLtd. pursuant to an amalgamation of two entities under the Company Act (British Columbia) on

October 31, 1991. On October 5, 2000, it consolidated its share capital and changed its name to

SKN Resources Ltd. On October 20, 2004, its shareholders adopted new Articles of

Incorporation consistent with the transition of the Business Corporations Act (British Columbia)

and approved another name change. On May 2, 2005, it officially changed its name to

Silvercorp Metals, Inc.

17. During the Class Period, through subsidiaries, Silvercorp engaged in miningoperations based in China, in accordance with the following corporate structure:



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18. Most pertinent to the instant action is Silvercorps 100% stake in Victor MiningLtd. (Victor Mining) and, through it, Silvercorps 77.5% stake in Henan Found Mining Co.

Ltd. (Henan Found) and the Companys primary revenue generating asset, the Yuelianggou

Ab-Pb-Zn mine, a/k/a the Ying Mine, the SGX Mine, and/or the Ying Project. The other

22.5% stake in the Ying mine was, as of the beginning of the Class Period, owned by

Silvercorps formal cooperative joint venture partner Henan Non-Ferrous Geological and

Mineral Resources Co. Ltd. (HNGMR). The Ying mine is located in Lyoning County, Henan

Province, China.



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19. On March 30, 2006, Henan Found received a mining permit issued by the ChineseDepartment of Land and Resources of Henan Province. Pursuant to this permit, production from

the Ying mine began on April 1, 2006. During the Class Period, the Ying mine alone accounted

for approximately 90% of Henan Founds silver production in the year ended March 31, 2010

and 80% of Henan Founds silver production in the year ended March 31, 2011.

20. All told, Silvercorp operates four silver, lead, and zinc mines in China, and itpurports to be Chinas largest primary silver producer. During the Class Period, Silvercorp

operated its only revenue-generating activities through its subsidiaries Henan Found and Henan

Huawei Mining Co., Ltd. (Henan Huawei). As such, Silvercorps Class Period revenues

should never exceed the combined revenues of Henan Found and Henan Huawei.

Chinese Laws, Regulations, and Rules Governing Silvercorps Mining Operations

21. Under the well-developed legal and regulatory regimes established by the Chinesecentral government and by Henan province, which are strictly implemented, Silvercorp is

requiredto report to the relevant governmental supervisory departments, inter alia, its true

annual mine production for the entiretyof the Ying mine and any newly discovered resource

veins that affect original resource reserve estimates for the Ying mine as a whole.

22. In 1994, the Chinese State Council issued an administrative regulation entitledImplementary Rule of the PRC Mineral Resources Law, whose provision 31 specified that

[mining rights owners] are required to be supervised and administered by geology and mineral

resources departments, prepare and file mineral resources reserve forms and mineral resources

exploration and utilization statistical report.

23. In 2005, due to then-existing problems in mineral resources mining, the ChineseState Council issued Rules on Overall Rectification and Standardization of Mineral Resources



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Mining Order [Guofa [2005]28]. It specified that [land and resources departments] shall

proactively explore effective ways to monitor reserve dynamically; strictly examine performance

of mineral resources development and utilization plan; improve the annual reporting system;

effectively improve the level of mineral resources development and utilization.

24. To implement this mandate, and for protection and rational utilization ofresources, the PRC Ministry of Land and Resources (PRC L&R Ministry) implemented a

system of comprehensive supervision and management of mine reserves dynamics and, on May

10, 2006, issued the Circular of the Land and Resources Ministry on Comprehensive Dynamic

Supervision and Management of Mine Reserves (No. [2006] 87 of the MLR) (2006 L&R

Ministry Circular. See Exhibit 1 (Chinese) and 2 (English translation) hereto.

25. In China, such a Circular or Measure issued by the PRC L&R Ministry or theHenan Provincial Land and Resources Department (Henan L&R Dept) are considered

administrative regulative documents, administrative rules, and/or administrative normative

documents. They are comparable to U.S. federal administrative rules, in that they are of legal

binding force on relevant parties absent any conflict with superior laws, regulations or rules.

26. The 2006 L&R Ministry Circular requires annual reports on Silvercorps Yingmine to provide accurate, current information on the mine as a whole, including any changes to

the mine reserves. In particular, it requires, inter alia (with emphasis added) that:

Mine enterprises shall conduct geological survey on mine reserves as required,shall submit the changes in mine reserves to the land and resourcesadministration departments in accordance with laws and regulations. Those failingto conduct geological survey according to laws and regulations and to submitannual reports on mine reserves shall not pass through the annual inspection ofmineral resources development and utilization.

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Annual reports on mine reserves shall include: available and cumulativeidenti f ied reserves, basic reserves and quantity of resources; exploited and wastedreserves of the reporting year; explored and calculated changes to resourcereserves of the reporti ng year; reserves planned to be used in next year; otherinformation related to the management of mineral reserves.

27. As required by the 2006 L&R Ministry Circular, on August 8, 2006, the HenanL&R Dept issuedInterim Measures of Henan for the Dynamic Supervision and Management on

the Mineral Reserve (Yu Guotuzifa (2006)109) (2006 Henan L&R Dept Measure). See

Exhibit 3 (Chinese) and 4 (English translation) hereto. Article 22 mandates that annual mineral

reserve dynamic reconnaissance reviews and approvals shall include, inter alia, the annual

increase and decrease of reserves caused by recalculation and exploration; degree of accuracy

and reliability of reserves calculation result.

28. This requirement mirrors that set forth in Measures of Henan Province forImplementation of the Mineral Resources Law of the Peoples Republic of China (revised in

2004), Provision 42 of which also specified that Mining right owners are required to report

increased mineral reserves to land and resources bureaus for check and approval. See Exhibit 5

(Chinese) and 6 (English translation) hereto.

29. Moreover, as confirmed by Henan L&R Dept staff, in applying the foregoingrequirements, the Henan L&R Dept requires disclosure in each mines annual reserve dynamic

reconnaissance report whenever a mines resource reserve is increased due to newly found veins.

If a new vein is comprised of the same minerals as are currently being mined, the mine is

required to conduct exploration and reserve evaluation, to pay an additional fee, and to amend

both its production proposal and its mining permit. Failure to comply with these required steps

would render a mines dynamic reports to the Henan L&R Dept legally non-compliant, would



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render any production on the new veins illegal, and would expose a mine operator to significant

risks, liabilities, and penalties, including potentially the revocation of the mining permit.

Chinese Oversight and Enforcement

30. All of the foregoing legal and regulatory requirements are strictly enforced. Boththe Henan L&R Dept and local land and resource bureaus are required to supervise and monitor

the mine reserve dynamic reporting strictly, to ensure its compliance.

31. For instance, the 2006 L&R Ministry Circular mandates enforcement as follows(with emphasis added):

Land and Resources authorities shall carefully fulfill the function of supervisionand management. Mineral resources reserves statistical registration, collection ofmineral resources compensation fees and mining right evaluation must be basedon mine reserves annual report that has been reviewed. For mines with unclearresources and fraudulent mine reserves, land and resources authorities shall urgemine enterprises to do additional geological work to verify resource reserves andperform the filing and registration process of reserves evaluation. Mineenterprises shall conduct geological survey on mine reserves as required, shallsubmi t the changes in mine reserves to the land and resour ces admini stration

departments in accordance with law and regulations. Those failing to conductgeological survey according to regulations and to submit annual reports on minereserves shall not pass through the annual inspection of mineral resourcesdevelopment and utilization.

32. Likewise, the 2006 Henan L&R Dept Measure specifies how enforcement is toproceed, stating in Article 5, Mineral reserve dynamic reconnaissance shall be undertaken by

geological survey institutions with relevant qualifications. It shall be conducted in accordance

with the Technical Manual of Henan for the Dynamic Reconnaissance on the Mineral Reserves.

33. That Manual (the Henan Technical Manual) sets forth survey techniques, reportforms, and other information to facilitate enforcement and provides, inter alia:

Annual report of mine reserves dynamic reconnaissance is the annualachievement of dynamic reconnaissance of mining resources reserves, which shallbe reviewed, scrutinized and opined by technical expert team organized by the



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land and resources administration departments of province-governedmunicipality, city and county level. Small size and above mines dynamicreconnaissance reports shall be reviewed by a team consisted majorly byappraisers.

See Exhibit 7 (Chinese) and 8 (English translation) hereto.

34. Similarly, in March 2008, the Henan L&R Dept issued a Circular forStrengthening the Dynamic Supervision and Management on Mine Reserves (the 2008 Henan

L&R Dept Circular). See Exhibit 9 (Chinese) and 10 (English translation) hereto. It contains

extensive provisions requiring the implementation and enforcement of the foregoing legal

requirements, to ensure, inter alia, effective enforcement by Chinese taxation authorities,

assessment and collection of all applicable costs and fees, and proper registration and transfer of

mining rights. It contains the following provisions, among others (with emphasis added):

(a) Provision 1.1 states:Mine enterprises holding mining permits and mining shall perform the mineralreserves dynamic supervision and management system, and shall report theannual utilization plan, conduct the reserves dynamic reconnaissance, assess thereported reserves losses, submit the annual report and etc. according to the InterimMeasures of Henan for the Dynamic Supervision and Management on the MineralReserve. I f mine enterpr ises fai l to make dynamic supervision on the mineralreserves as per the above rul es, the annual report of mine reserves dynamic

reconnaissance shal l be determined as unqual if ied, and the annual inspection

of mineral resources development and uti li zation shal l be determined to be

unquali fi ed too.

(b) Provision 1.2 states that data concerning changes in the mine reserves dynamicreconnaissance annual report, as approved by authorities, is the basis for registered mineral

reserves that serve as the basis for the extension, amendment and transfer of mining rights.

(c) Provision 1.3 states:Reserves verification reports submitted by mine enterprises shall have a specificchapter describing in details about reserves utilization during the period betweenthis verification and the previous one, as recorded by the reserves dynamic



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reconnaissance. Results of each years reserves dynamic reconnaissance is thebasis for reserve changes in the reserves verification report. For the mineenterprise that failed to conduct reserves dynamic reconnaissance in

accordance with laws and regulations, or whose reserves verif ication report

lacked of relevant contents, reviewing institutions shall not accept their

submitted reserves verification report, neither shall land and resourcesauthori ties permi t fi li ng of such veri fi cation report.

(d) Provision 2 states, inter alia:M ine reserves dynamic reconnaissance shal l be conducted according to laws

and regulations. During the process of onsite reconnaissance, ledger recordingand report drafting, they shall refl ect the true utili zation of the mine, and areprohibited from making fraud.

It adds that geological survey institutions that fail to perform mine reserves dynamic

reconnaissance up to these standards, they face serious sanction, including a potential bar

from working on reconnaissance reports and potential revocation of their licenses.

(e) Provision 3 sets forth various verification processes to be employed by land andresources authorities, including regular and irregular inspections, supervision of survey

institutions reconnaissance work, operation of a database, and peer review. It adds, For mine

enterprises discovered of serious problems with dynamic reconnaissance, authorities shall check

the problems and report to the Department of Land and Resources of Henan Province.

35. Henan L&R Dept staff confirm that both the Henan L&R Dept and lower levelland and resource bureaus began mineral resources reserve dynamic monitoring in 2007 and that,

by 2009, they had ramped up such activities to cover the entirety of Henan Province, thereby

fully effectuating the foregoing legal regime by that time.

36. By way of example as to such layered enforcement during the Class Period, theLuanchuan County Land and Minerals Bureau (the LC L&M Bureau) issued on October 18,

2010 an official announcement regarding the 2010 mineral resources reserve dynamic



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monitoring and reporting work entitled Notification of Launching Mine Reserves Dynamic

Reconnaissance Work in 2010 (the 2010 LC L&M Bureau Notice). See Exhibit 11 (Chinese)

and 12 (English translation) hereto. Luanchuan is a neighbor city of Luoning, and both were

under the Lyoyang Citys administration. It states, All mining rights owners within our county

shall conduct mine reserves dynamic reconnaissance, prepare the reserves dynamic

reconnaissance report and accept supervision and management of geology and mining

authorities. Id., Provision A. Any entities refusing to do so shall be refused to be accepted or

deemed as disqualified for submission of mining permits extension, amendment, transfer and

annual check. Id., A.2. Governmental oversight bodies shall establish and improve the

working system, implement strictly the requirements in the technical specifications and technical

guide, conduct carefully the mine reserves on-site reconnaissance and establish and improve the

ledger for the reserves dynamic reconnaissance work. Id., C.1. Importantly, The sur vey

instituti ons shall report tru ly the current production situation of mine enterpr ise, and, in

particular, mines conducting unlawful act[s]shall report the situation carefully, minutely,

objectively and fairly.Id., C.2. (emphasis added).

37. All Chinese dynamic reports are prepared by government-approved professionalgeographic institutions, based on exacting inspection standards and through independent survey,

which are reviewed and approved by professional appraisals. Such dynamic reports serve a

litany of important governmental functions, including ensuring that each mine is operated safely,

legally, and in compliance with its permit and that each mine is assessed all applicable costs,

fees, and taxes. They also serve important private interests, including accurate description and

recordation of mineral resource and mining rights, which among other things, ensures effective

transfer of title in the event of sales or other dispositions.



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38. Silvercorp was not and is not legally entitled to any special exemption from theforegoing legal obligations or compliance duties, the totality of which required it to annually

report updated and current data on the reserves and production of the entireYing mine. For

Silvercorp to have operated the Ying mine legally during the Class Period, it must have adhered

to all the foregoing requirements. If it failed to do so, then Silvercorp operated the Ying mine

illegally during the Class Period.

Silvercorps Ying Mine Permit Imposed Strict Production Limits

39. Pursuant to and subject to all of the foregoing, Silvercorp operates its Ying minepursuant to permit # C4100002009093210038549, which was amended on September 30, 2009

and which provides for an annual production capacity of 198,000 tons per year (or roughly 542.5

tons per day). See Exhibit 13 (Chinese) and 14 (English translation) hereto (information

obtained from PRC L&R Ministry official website).

40. This mining production capacity limit set forth in the permit, which was in placethroughout the Class Period, is a strict limit on the Ying mines production level. If Silvercorp

desired to increase its production, it was legally obligated to apply for and obtain approval of an

amendment to its permit. This requirement is set forth in applicable Chinese regulations, as well

as prior statements prepared and issued on behalf of the Company itself.

41. For instance, in July 2010, the Chinese State Council issued a Circular of theState Council on Strengthening Safe Production of Enterprises (Guofa [2010] 23), which

governed the Ying mines operations during the latter Class Period. See Exhibit 15 (Chinese)

and 16 (English translation) hereto. It states, Enterprises organizing production with

overcapacity, over-intensification and over-authorized strength shall be ordered to stop



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production and shut down for rectification, and economic punishment with upper limits shall be

imposed to enterprises and their principals in accordance with laws. Id., Provision II.3.

42. Indeed, the Technical Update 2006 For Silvercorp Metals Inc. On The YingSilver-Lead-Zinc Project, Henan Province, Peoples Republic of China, dated April 18, 2006,

which was prepared by (among others) Chris Brioli of BK Exploration Associates, Silvercorps

purported independent qualified person, describes a similar limitation on the original permit of

the Ying mine. That report, in Section 17.2, states (with emphasis added):

As reported on March 30, 2006, [Henan] Found has been issued a mining permitby the Department of Land and Resources of Henan Province, covering the 9.945

square kilometres SGX area within the Ying Silver Project, where Found hasfocused its major exploration effort. The permit was issued on the terms appliedfor. It allows operation of a 600 tonne per day underground mine within thepermit area to produce silver, lead and zinc ores. The production rate can beincreased in the fu tur e by amending the existing min ing permit once expanded

resour ce estimates have been fi led with the Department of Land and Resour ces

of H enan.

43. Moreover, Henan L&R Dept staff independently confirm that governmentalauthorities do not allow production beyond the annual capacity approved in a mining permit and

that, if mining capacity is changed, mines are required to apply for an amendment to their permit.

44. In light of the foregoing, Silvercorps production at the Ying mine during theClass Period, in order to be legally compliant, was limited to 198,000 tons per year.

Official Chinese Dynamic Reports Evidence Silvercorps Actual Mining Activities

45. A Report of the 2010 Dynamic Reconnaissance on the Reserve of YuelianggouLead-Zinc-Silver Mine in Luoning County, Henan Province (the 2010 Dynamic Report)

concerning the Ying mine is attached as Exhibits 17 (Chinese) and 18 (English translation).



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46. The 2010 Dynamic Report is a report on the fullreserves and production of theentireYing mine, with updated data through 2009 and for 2010. It is nota report on only a

lesser segment or portion of the mine.

47. This conclusion is supported by numerous pieces of evidence, including interalia:

(a) The entire body of Chinese laws, Circulars, Measures, and other regulations, asdescribed in great detail supra, required the 2010 Dynamic Report to report to the relevant

governmental supervisory departments, inter alia, the true annual mine production for the

entirety of the Ying mine and any newly discovered resource veins that affect original resource

reserve estimates for the Ying mine as a whole. If it did not do so, Silvercorp would be

operating the Ying mine illegally, and thereby would risk revocation of its mining permit and

effective termination of its only revenue-generating activities.

(b) The text of the 2010 Dynamic Report itself evidences compliance with this legaland regulatory regime. Specifically, it states: This report has reflected the entire geological

results of the reconnaissance, and is in accordance with the relevant regulations and

requirements. It contains the complete text, graphs, tables, and attachments, and has reached the

aim of this reconnaissance.

(c) The layers of oversight and enforcement by Chinese governmental authorities, asdescribed in great detailsupra, ensured that the 2010 Dynamic Report set forth the Ying mines

true production and resource reserves, based on the most current and updated information. This

multi-tiered oversight and enforcement regime served to ensure, among other things, that

Silvercorp would be assessed all applicable costs, fees, and taxes.



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(d) Again, the text of the 2010 Dynamic Report itself illustrates that this multi-layered oversight and enforcement machinery indeed worked. The report concludes by stating,

It is therefore recommended to approve the review report. There is no dissension among the

appraisers and experts at the review conference. In addition: (a) a Review Expert signed and

dated the report; (b) an official at the municipal and county level bureau signed and dated the

report, signifying agreement with the Review Experts, and this signature was verified by another

individual; (c) a Bureau Chief signed and dated the report to signify consent; and (d) the

Luoyang City Land & Resource Bureau certified its approval with a dated and sealed signature.

This is the precise process outlined in the 2006 Henan L&R Dept Measure, Article 21, and in the

Henan Technical Manual, as discussedsupra.

(e) The 2010 Dynamic Report reports a total resource drawdown of 534,831 tons, outof a total resource reserve of 1.4639 million tons, during the period 2005-2009. Mining activities

at the Ying mine first began on April 1, 2006, after which a period of time elapsed before they

ramped up to full capacity. As such, the 534,831 ton figure is consistent with the mines full

capacity production level of roughly 200,000 tons/year, assuming that the mine ramped up

production during 2006-2007 and then operated at full capacity during 2008-2009.

(f) The 2010 Dynamic Report also reports 207,037 tons of resource drawdown for2010, which is corroborated by the total reported ore mined for calendar 2010 (as separately

reported in the Companys four quarterly 6-K filings made with the SEC within calendar 2010),

which was 310,749 tons, inclusive of the zero grade dilution material.

(g) The 207,037 tons of reported resource drawdown in the 2010 Dynamic Report isalso corroborated by the reported resource drawdown rates for the entire mine during the three-

year period 2009-2011, which were 639,312 tons (or just over 213,000 tons on average), as set



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(b) its Form 40-F for the fiscal year ended March 31, 2009 (fiscal 2009), filed with the

SEC on June 8, 2009 (the 2009 40-F), signed by Feng, which included (as exhibits)

certifications signed by Feng and Tang pursuant to Sarbanes-Oxley Act 302 and 906 certifying

that the 2009 40-F did not contain materially false and misleading statements;

(c) its Form 6-K for the quarter ended June 30, 2009 (Q1 of fiscal 2010), filed with the

SEC on August 14, 2009 (the 6/30/2009 6-K);

(d) its Form 6-K for the quarter ended September 30, 2009 (Q2 of fiscal 2010), filed with

the SEC on November 12, 2009 (the 9/30/2009 6-K), which was accompanied by Form 52-

109F2 certifications signed by Feng and Tang (separately filed with the SEC on February 16,

2010 as an exhibit to a 6-K) certifying that the financial statements did not contain materially

false and misleading statements;

(e) its Form 6-K for the quarter ended December 31, 2009 (Q3 of fiscal 2010), filed with

the SEC on February 16, 2010 (the 12/31/2009 6-K), which included (as exhibits) unaudited

financial statements signed by Feng, and Form 52-109F2 certifications signed by Feng and Tang

certifying that the financial statements did not contain materially false and misleading

statements;

(f) a letter from Silvercorp to the SEC, signed by Tang, dated February 23, 2010 filed

with the SEC the same day;

(g) its form 6-K for the quarter and fiscal year ended March 31, 2010, filed with the SEC

on May 13, 2010 (the 3/31/2010 6-K);

(h) its Form 40-F for the fiscal year ended March 31, 2010 (fiscal 2010), filed with the

SEC on June 24, 2010 (the 2010 40-F) signed by Feng, which included (as exhibits) audited

financial statements signed by Feng and Tang, and certifications signed by Feng and Tang



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pursuant to Sarbanes-Oxley Act 302 and 906 certifying that the Form 40-F did not contain

materially false and misleading statements;

(i) its Form 6-K for the quarter ended June 30, 2010 (Q1 of fiscal 2011), filed with the

SEC on August 16, 2010 (the 6/30/2010 6-K), which included (as exhibits) unaudited financial

statements signed by Feng, and Form 52-109F2 certifications signed by Feng and Tang


statements;

(j) a Management Circular, signed by Feng, dated August 26, 2010, filed with the SEC as

an attachment to a Form 6-K on September 1, 2010, as well as the Companys Code of Business

Conduct and Ethics which it referenced;

(k) its Form 6-K for the quarter ended September 30, 2010 (Q2 of fiscal 2011), filed with

the SEC on December 6, 2010 (the 9/30/2010 6-K);

(l) an Underwriting Agreement dated December 7, 2010, signed by Feng, which was filed

with the SEC as an attachment to a Form 6-K on December 8, 2010;

(m) its Form 6-K for the quarter ended December 31, 2010 (Q3 of fiscal 2011), filed with

the SEC on February 10, 2011 (the 12/31/2010 6-K), which included (as exhibits) unaudited

financial statements signed by Feng, and Form 52-109F2 certifications signed by Feng and Tang


statements;

(n) its form 6-K for the quarter and fiscal year ended March 31, 2011, filed with the SEC

on May 12, 2011 (the 3/31/2011 6-K);

(o) its Form 40-F for the fiscal year ended March 31, 2011 (fiscal 2011), filed with the

SEC on June 3, 2011 (the 2011 40-F) signed by Feng, which included (as exhibits) audited



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financial statements signed by Feng and Tang, and certifications signed by Feng and Tang

pursuant to Sarbanes-Oxley Act 302 and 906 certifying that the Form 40-F did not contain

materially false and misleading statements; and

(p) its Form 6-K for the quarter ended June 30, 2011 (Q1 of fiscal 2012), filed with the

SEC on August 11, 2011 (the 6/30/2011 6-K) which included (as exhibits) unaudited financial

statements signed by Feng, and Form 52-109F2 certifications signed by Feng and Tang


statements.

52.

Defendants false and misleading statements and omissions during the Class

Period predominantly concerned three key topical categories: (1) Silvercorps mining operations

at the Ying mine regarding in particular the Ying mines resource, head grade and productivity;

(2) Silvercorps legal compliance with U.S. and Chinese laws; and (3) related party transactions

with Silvercorps largest customer. Each category is alleged in detail below.

Defendants False And Misleading Statements About Silvercorps Mining Operations

53. As compared to the 2010 Dynamic Report, the data Silvercorp reported in its SECfilings dramatically and materially overstated three key metrics concerning the Companys all-

important Ying mine: (1) its silver, lead, and zinc resource (i.e., (i) the total amounts of silver,

lead, and zinc in the mine, (ii) silver, lead, and zinc already removed, and (iii) silver, lead, and

zinc remaining); (2) its production level (i.e., how much total ore, silver, lead and zinc was

produced in 2010); and (3) its silver, lead, and zinc run-of-mine ore head grade (i.e., the

measured grade of the silver, lead, and zinc actually taken from the mine, inclusive of minor

stockpile adjustments).



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54. First, as regards the Ying mines silver, lead, and zinc resource, the Companymade material misstatements in its 2010 40-F and its 2011 40F. In both, Silvercorp represented

the total resource remaining to be 4,801,139 tonnes of reserve, including 3,553 tonnes of silver,

765,940 tonnes of lead, and 292,946 tonnes of zinc. In both, Silvercorp represented the resource

grades to be 740 g/t (silver), 16.0 % (lead), and 6.1 % (zinc).

55. These statements were materially false and misleading when made, because the2010 Dynamic Report, which accurately describes the resources and reserves of the entire Ying

mine as discussedsupra, stated that: (a) in 2005, the Ying mine had a resource reserve of 1.4639

million tons, including 324.76 tons of silver, 65,359.96 tons of lead, and 37,778.84 tons of zinc;

(b) by the end of 2009, 534,831 tons had been mined from the Ying mine, leaving a resource of

929,069 tons, including 198.31 tons of silver, 41,208.30 tons of lead, and 23,111.95 tons of zinc;

and (c) in 2010, 207,037 tons was mined from the Ying mine, including 32.17 tons of silver,

5,911.40 tons of lead, and 5,162.80 tons of zinc, leaving 722,032 tons in the resource, including

166.14 tons of silver, 35,296.90 tons of lead, and 17,949.15 tons of zinc.

56. The following chart summarizes the differences at issue:Source 2010 Dynamic Report 40-F filings

Date 2005 2005-2009 2010 2010 and 2011

Resource reserve 1,463,900 tons 929,069 tons 722,032 tons 4,801,139 tonnes

Silver reserve 324.76 tons 198.31 tons 166.14 tons 3,553 tonnes

Lead reserve 65,359.96 tons 41,208.30 tons 35,296.90 tons 765,940 tonnes

Zinc reserve 37,778.84 tons 23,111.95 tons 17,949.15 tons 292,946 tonnes



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57. Second, Silvercorp misrepresented the Ying mines production of ore, silver lead,and zinc in 2009 and 2010 (as discussed in terms of either total ore mined or run-of-mine ore,

two figures that are generally track very closely to one another).

58. Silvercorps 6-K filings in calendar 2009 stated that the Company produced: (a)313,421 total tonnes of ore mined (57,842 tons reported in the 3/31/2009 6-K, 86,248 tonnes

reported in the 6/30/2009 6-K, 83,263 tonnes reported in the 9/30/2009 6-K, and 86,068 tonnes

reported in the 12/31/2009 6-K), (b) 145 run-of-mine ore tonnes of silver in total (31 tonnes

reported in the 3/31/2009 6-K, 40 tonnes reported in the 6/30/2009 6-K, 38 tonnes reported in the

9/30/2009 6-K, and 36 tonnes reported in the 12/31/2009 6-K), (c) 26,596 run-of-mine ore

tonnes of lead in total (5,723 tonnes reported in the 3/31/2009 6-K, 7,380 tonnes reported in the

6/30/2009 6-K, 6,821 tonnes reported in the 9/30/2009 6-K, and 6,672 tonnes reported in the

12/31/2009 6-K), and (d) 9,288 run-of-mine ore tonnes of zinc in total (1,950 tonnes reported in

the 3/31/2009 6-K, 2,514 tonnes reported in the 6/30/2009 6-K, 2,526 tonnes reported in the

9/30/2009 6-K, and 2,298 tonnes reported in the 12/31/2009 6-K). Its 2010 Form 40-F stated

that the total ore mined at the Ying mine for fiscal 2010 (the last three quarters of calendar 2009

and the first quarter of calendar 2010) was 312,171 tonnes, with 145 run-of-mine ore tonnes of

silver and 26,596 run-of-mine ore tonnes of lead.

59. All of these figures were materially false and misleading, because the 2010Dynamic Report, which accurately describes production at the entire Ying mine as discussed

supra, reported that Silvercorp produced only 534,831 tons of ore, including 126.45 tons of

silver, 24,151.65 tons of lead, and 14,666.89 tons of zinc from the Ying mine during the entire

period2005-2009.

60. The following chart summarizes the differences at issue:



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Source 2010 Dynamic Report 6-K filings 2010 40-F

Date 2005-2009 Calendar 2009 Fiscal 2010

Total Production 534,831 tons 313,421 ore mined

tonnes

312,171 ore mined

tonnes

Silver Production 126.45 tons 145 run-of-mine oretonnes

145 run-of-mine oretonnes

Lead Production 24,151.65 tons 26,596 run-of-mineore tonnes

26,596 run-of-mineore tonnes

Zinc Production 14,666.89 tons 9,288 run-of-mine oretonnes

9,674 run-of-mine oretonnes

61. Silvercorps 6-K filings in calendar 2010 stated that the Company produced: (a)310,749 total tonnes of ore mined (56,592 tonnes reported in the 3/31/2010 6-K, 83,212 tonnes

reported in the 6/30/2010 6-K, 85,204 tonnes reported in the 9/30/2010 6-K, and 85,741 tonnes

reported in the 12/31/2010 6-K), (b) 152 run-of-mine ore tonnes of silver in total (31 tonnes

reported in the 3/31/2010 6-K, 40 tonnes reported in the 6/30/2010 6-K, 38 tonnes reported in the

9/30/2010 6-K, and 43 tonnes reported in the 12/31/2010 6-K), (c) 26,065 run-of-mine ore

tonnes of lead in total (5,520 tonnes reported in the 3/31/2010 6-K, 6,904 tonnes reported in the

6/30/2010 6-K, 6,558 tonnes reported in the 9/30/2010 6-K, and 7,083 tonnes reported in the

12/31/2010 6-K), and (d) 9,220 run-of-mine ore tonnes of zinc in total (2.034 tonnes reported in

the 3/31/2010 6-K, 2,387 tonnes reported in the 6/30/2010 6-K, 2,324 tonnes reported in the

9/30/2010 6-K, and 2,475 tonnes reported in the 12/31/2010 6-K). Its 2011 40-F stated that the

total ore mined at the Ying mine for fiscal 2011 (Q2-Q4 of calendar 2010 and Q1 of calendar

2011) was 316,522 tonnes, with 149 run-of-mine ore tonnes of silver produced, 25,716 run-of-

mine ore tonnes of lead produced, and 8,889 run-of-mine ore tonnes of zinc produced..



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time period (save for the substitution of the quarter ended March 31, 2011 (Q4 of fiscal 2011) for

the quarter ended March 31, 2010)), represented that the run-of-mine ore head grade for the

silver produced at the Ying mine was 470 g/t (silver), 8.1 % (lead), and 2.8 % (zinc).

65. All of these figures are materially false and misleading, because the 2010Dynamic Report, which accurately provides full-mine data for the Ying mine as described supra,

from which its entire head grade can be calculated, reveals reported resource drawdown grades at

the entire Ying mine during 2010 of roughly 155 g/t for the silver produced (as calculated based

on the 207,037 tons of resource drawdown and 32.17 tons of silver produced), 2.9 % for the lead

produced (as calculated taking the lead tons produced divided by the total ore produced and

multiplied by 100 to get a percent figure), and 2.5 % for the zinc produced (same calculation as

lead).

66. These figures are absolutely irreconcilable with the run-of-mine ore grade figuresthat Silvercorp set forth in its SEC filings, as discussed above. Because the run-of-mine ore

would include waste rock (called dilution) that is excluded from the resource drawdown ore, the

run-of-mine ore should yield a lower, not a higher, grade. In other words, for silver the run-of-

mine ore figure in Silvercorps SEC filings should be less than, not greater than, the 155 g/t

resource drawdown grade that derives from the 2010 Dynamic Reports data. For lead, the run-

of-mine ore grade figure in the Companys SEC filings should be less than, not greater than, the

2.9% resource drawdown grade figure that derives from the 2010 Dynamic Reports data. For

zinc, the run-of-mine ore grade figure in the Companys SEC filings should be less than, not

greater than, the 2.5% resource drawdown grade figure that derives from the 2010 Dynamic

Reports data. Indeed, by using the dilution data in the AMC Technical Report, the difference

between the run-of-mine ore grade figures reported by Silvercorp in 2009 and 2010 and the



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resource drawdown grade figures reported in the 2010 Dynamic Report can be calculated. Such

calculations reveal that the reported run-of-mine ore grade figure should have been about 40%

lower than the resource drawdown grade figures from the 2010 Dynamic Report.

67. The following chart summarizes the differences at issue:Source 2010

DynamicReport

Calendar Year 2010 6-Ks 2011 40-F

Date 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Fiscal 2011

Silver ROMore headgrade *

155 g/t 429.3 g/t 470.5 g/t 461 g/t 499 g/t 470 g/t

Lead ROMore headgrade *

2.9% 7.6% 8.1% 7.9% 8.3% 8.1%

Zinc ROMore headgrade *

2.5% 2.8% 2.8% 2.8% 2.9% 2.8%

* ROM = run-of-mine

68. As further evidence that the data set forth in Silvercorps SEC-filed Forms 6-Kand 40-F are materially false and misleading, they also do not agree with the figures set forth in

the Companys technical reports, prepared by outside qualified persons, covering the same time

periods. For instance, the 2012 AMC Technical Report (as revised) reported 2010 run-of-mine

ore tonnage, produced silver tonnage, run-of-mine ore grade, and resource drawdown grade

figures for the Ying mine that also differed from those set forth in the Companys SEC filings.



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violations of laws or regulations, or through unscrupulous dealings. We intendthat the Corporations business practices will be compatible with the economicand social priorities of each location in which we operate. Although customs varyby country and standards of ethics may vary in different business environments,honesty and integrity must always characterize our business activity. I f a law

conf li cts with a policy in th is Code, you must comply with the law; however, if alocal custom or policy conflicts with this Code, you must comply with the Code.If you have any questions about these conflicts, you should ask your supervisorhow to handle the situation. This Code reflects our commitment to a culture ofhonesty, integrity and accountability and outlines the basic principles and policieswith which all employees are expected to comply. Please read this Codecarefully and sign at the bottom to acknowledge it has been read and that

you will undertake to comply with the Code at all times.

* * *Those who violate the standards set forth in this Code will be subject to

disciplinary action up to and including dismissal.

* * *

Compliance with the letter and spirit of all laws, rules and regulations

applicable to our business is cri tical to our reputation and conti nued success.

Al l employees must respect and obey the laws of the cities, provinces, states and

countr ies in which we operate and avoid even the appearance of impropr iety.

(d) In connection with the Companys December 2010 Offering, the Company filed a

Form 6-K with the SEC on December 8, 2010 that attached the Underwriting Agreement dated

December 7, 2010, in which it represented and warranted as follows (with emphasis added):

5.1 The Company represents and warrants to the Underwriters, andacknowledges that the Underwriters are relying upon such representations andwarranties in entering into this Agreement, that:

* * *

(aa) other than as disclosed in the Continuous Disclosure Materials, there are nomaterial actions, suits, judgments, investigations or proceedings of any kindwhatsoever outstanding or, to the Companys knowledge, pending, threatenedagainst or affecting the Company or the Material Subsidiaries, or to theCompanys knowledge, their respective directors or officers at law or in equity orbefore or by any federal, provincial, state, municipal or other governmentaldepartment, commission, board, bureau or agency of any kind whatsoeverand, tothe Company s knowledge, there is no basis therefor;



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* * *

(dd) none of the Company nor the Mater ial Subsidiari esand to the Companysknowledge their respective directors, officers are in breach of any law,

ordinance, statute, regulation, by-law, order or decree of any ki nd whatsoeverwhere non-compl iance woul d have a mater ial adverse effect on the Company or

the Mater ial Subsidiar ies;

70. These statements were materially false and misleading when made, because inactuality, the Companys Forms 6-K and 40-F during the Class Period, as described supra,

contained extensive false and misleading statements regarding Silvercorps mining operations

and its customer sales, as set forth in detail herein, in violation of U.S. federal securities laws.

71. In addition, the Companys 2010 production at the Ying mine 207,037 tons asstated in the 2010 Dynamic Report exceeded the production limit (198,000 tons) set by the

Ying mines permit. As such, in 2010, the Company operated the Ying mine in violation of its

permit, and by extension, in violation of the Chinese legal and regulatory regime described

supra. This is an additional reason why the Companys statements regarding legal compliance,

as described above, were materially false and misleading.

Defendants False And Misleading Statements About Silvercorps Largest Customer

72. During the Class Period, Silvercorps reported financial results were materiallymisleading due to a disclosure failure, in violation of Canadian GAAP, regarding its largest

customer, Yongning Smelting Co. Ltd. (Yongning). In 2010 alone, Yongning accounted for at

least 28.2% of Henan Founds sales (at least 272,154,827 RMB out of 964,812,316 RMB).

73. Yongning was in a construction phase through Q2 of fiscal 2010 (the quarterended September 30, 2009) and commenced trial production during Q3 of fiscal 2010 (the



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quarter ended December 31, 2009). Silvercorp made sales to Yongning as early as Q3 of fiscal

2010, thereby triggering the disclosure obligations discussed below.

74. During the Class Period, Silvercorps ownership interest in Yongning fluctuatedbetween 11.75 % and 18 %, becoming 15 % as of Q2 of fiscal 2011 (the quarter ended

September 30, 2010).

75. As such, as explained below, under Canadian GAAP and International FinancialReporting Standards (IFRS), Silvercorp was required to make related party disclosures

regarding its sales to Yongning.

76.

Canadian GAAP makes clear that [i]nformation about related party transactions

is often of more significance to a financial statement user than information about unrelated party

transactions, regardless of the size of such transactions. See Canadian Institute of Chartered

Accountants Handbook (CICA HB) 3840 48.

77. Under Canadian GAAP, [r]elated parties exist when one party has the ability toexercise, directly or indirectly, control, joint control or significant influence over the other. Two

or more parties are related when they are subject to common control, joint control or common

significant influence. See CICA HB 3840 3 (g). Silvercorps 15 % ownership stake and its

representation on Yongnings board of directors enabled Silvercorp to exercise joint control over

Yongning. Joint control of an economic activity is the contractually agreed sharing of the

continuing power to determine its strategic operating, investing and financing policies. See CICA

HB 3840 3(e). Ownership interest and joint control are examples of some of the most

commonly encountered related party relationships to which Canadian GAAP applies. See CICA

HB 3840 4. Thus, Yongning was a related party to Silvercorp under Canadian GAAP.



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78. As such, for all periods through the end of fiscal year 2011 (year ended March 31,2011), the Company was subject to extensive disclosure requirements under Canadian GAAP

regarding its sales to Yongning. These included, among others, disclosure describing the

relationship between Silvercorp and Yongning, a description of the sale transaction, and the

recognized amount of the sale transaction. See CICA HB 3840 46.

79. In violation of these Canadian GAAP standards, the Companys 12/31/2009 6-K,its 3/31/2010 6-K, its 2010 40-F, its 6/30/2010 6-K, its 9/30/2010 6-K, its 12/31/2010 6-K, its

3/31/2011 6-K, and its 2011 40-F all made materially false and misleading statements and

omissions in reporting financial results while failing to disclose related party sales to Yongning

in conformance with and with the level of detail required by Canadian GAAP, including in

particular CICA HB 3840 46.

80. During fiscal 2012, Silvercorp was subject to IFRS reporting standards. Underthese standards as well, Silvercorp was obligated to make related party disclosures regarding

Yongning, because the related party definition was met. See International Accounting Standard

No. 24 (IAS 24), 9.

81. As such, Silvercorp was required under IFRS to not only make disclosures aboutits sales to Yongning, but to also disclose information about its relationship with Yongning,

irrespective of whether there have been any transactions with Yongning. See IAS 24 13. In

addition, the Company was required to disclose the nature of its relationship with Yongning, the

amount of the sale transaction, and its terms and conditions. See IAS 24 18-19.

82. In violation of these IFRS standards, the Companys 6/30/2011 6-K madematerially false and misleading statements and omissions in reporting financial results while



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failing to disclose related party sales to Yongning in conformance with and with the level of

detail required by IAS 24 13, 18 and 19.

83. The foregoing allegations regarding Yongning are buttressed by those regardingthe problems and concerns regarding several other of Silvercorps customers, as discussed infra.

VI. THE TRUTH CONCEALED BY DEFENDANTS MISCONDUCT ISREVEALED, CAUSING INVESTORS LOSSES

84. On September 13, 2011, investor Jon Carnes published a report on alfredlittle.com(the 9/13/2011 Carnes Report) that revealed the truth about the matters alleged herein, by

raising significant concerns regarding aspects of Silvercorps business and operations. It

attached copies of the 2010 Dynamic Report, in both Chinese and English translation, among

other documents. It questioned, inter alia, the veracity of the Companys publicly reported

resource, production, and grade data for its Ying mine and the Companys nondisclosures

regarding related party customer Yongning.

85. In the wake of the revelations in the 9/13/2011 Carnes Report, Silvercorps stockprice fell $1.54 per share or nearly 20%, on heavy trading volume, to close at $6.30 per share on

September 13, 2011.

86. In its response to the 9/13/2011 Carnes Report, set forth in a pair of Canadian andChinese press releases dated September 14, 2011, Silvercorp told a series of falsehoods that

served to temporarily mute the stock price effect of the preceding days revelations. Notably, the

Company did not refute the accuracy of the figures set forth in the 2010 Dynamic Report.

Instead, Silvercorp merely asserted that the 2010 Dynamic Report: (a) was not a full-mine report,

(b) was based solely on limited pre-May 2005 exploration results, (c) was not reviewed and

checked by an independent qualified person, (d) does not include production figures from veins



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discovered and explored post-May 2005, and (e) need not be updated until renewal of the mining

permit for the Ying mine in September 2014. These were false exculpatory statements. Each of

these contentions runs directly afoul of the extensive body of Chinese laws, Circulars, Measures,

regulations, and rules described supra and, as such, lacks merit for that reason and others. The

Company also asserted that neither Canadian GAAP nor IFRS standards considered the

Companys sales to Yongning to be a related party transaction. This contention runs directly

afoul of the Canadian GAAP and IFRS provisions describedsupra, and, as such, lacks merit.

VII. ADDITIONAL FACTS PROBATIVE OF SCIENTER87. Defendants had a strong motive to inflate the price of the Companys stock during

the Class Period, in the form of the nearly $117 million December 2010 Offering.

88. In addition, events following the revelations in the 9/13/2011 Carnes Report haveonly served to buttress the already strong inference of Defendants scienter. In particular,

Silvercorps conduct has flagrantly violated laws, common sense, and common human decency,

lashing out at anyone who dares question the irreconcilable discrepancies between its reported

data in China and the U.S. To quote Shakespeare, The lady doth protest too much, methinks.

89. Retribution. Silvercorps aggression has targeted the investor who authored the9/13/2011 Carnes Report, suing him in U.S. court. As reported by The Globe and Mail (TGM)

on September 8, 2012, the Company also targeted the reports author through those he employed

to assist in the reports preparation. TGM stated it had obtained documents, including receipts

for police expenses, showing that Silvercorp worked with local Chinese authorities and paid for

an investigation that led to the arrest and long-term detention of Huang Kun (a Canadian citizen)

and the arrest and interrogation of two of his associates. Mr. Huang has been interrogated, held

without charge, had his personal property (phone, laptops, glasses, passport) confiscated, and has



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been forced to pay a $32,000 unofficial bail (only to be re-imprisoned). TGM reported that Mr.

Huang had reason to believe that Silvercorp provided interrogation instructions and a company

car (in which Mr. Huang was transported 150 km) to assist the police. Such conduct would

violate both Canadian and Chinese law. Defendant Feng virtually admitted the Companys

involvement, telling TGM that The police sometimes do contact me and We are big taxpayers

in the Luoyang County. Mr. Huang remains jailed and has yet to be charged.

90. Switched Chinese Financial Reports. On the heels of the 9/13/2011 CarnesReport, another investor, Anthion Management LLC, published a report on September 14, 2011,

raising similar concerns about the Company. Among other things, this report stated that the

investor had previously obtained financial statements filed by Silvercorp with the Chinese State

Administration for Industry & Commerce (SAIC) for the years 2008 and 2009, which

indicated a substantial conflict with the Companys reported financial results in its SEC filings.

However, a second version of Silvercorps SAIC financials was later delivered to the investor,

unsolicited, reporting financial results that were different from, and higher than, those it had

previously pulled. Later, the Company addressed concerns about discrepancies between its

SAIC and its SEC filings by relying on a commissioned report by KPMG Forensic, Inc.

(KPMG). However, Silvercorp did not release a copy of the KPMG report, instead providing

only a press release summary. Moreover, its summary described KPMGs work as being based

in part on KPMGs on-site review of the Companys audited financial statements filed with the

SAICat the time of the KPMG visit. (Emphasis added.) Silvercorp sued this investor, too.

91. Knowing Complicity In A Purported Government Fraud. On September 20,2011, yet another investor, Adam Gefvert, published an evaluation of Silvercorp. He had sought

to investigate the claim that the sale, at auction, by the Companys joint venture partner of a 5 %



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stake in Henan Found for $7 million implied a very low total value for Henan Found of $140

million. Specifically, he sought to challenge the Companys assertion that the sale was to an

affiliate of the joint venture partner, which is a Chinese government entity, such that it should not

be the basis of a full-Company valuation. When the investor highlighted that the sale was the

result of an auction, the Companys investor relations staff told him that the auction was a hoax

by the Chinese government, to create the appearance of a free society, but that things are done

differently in China as compared to the West. In other words, Silvercorps investor relations

staff asserted that the Company knowingly bore witness to a government-sanctioned fraud.

92.

Shaky Customer Base. In addition to the Companys false and misleading

statements and omissions regarding the Companys largest customer, Yongning, its roster of

largest customers is replete with questionable entities. The Companys # 5 customer in 2010

(accounting for sales of RMB 62,795,754, or roughly $9.2 million, equating to 6.5 % of 2010

sales), Jiyuan Zhongse Mining Co., Ltd. (JZM), was registered on September 9, 2009. In

September 2011, the author of the 9/13/2011 Carnes Report raised concerns about JZM, given

that he could not locate a valid phone number or registered address for it. Three months later,

JZM cancelled its registration. The Companys # 12 customer in 2010 (accounting for sales of

RMB 8,229,438, or roughly $1.2 million), Luoyang Linggang Minerals Trading Co., Ltd.

(LLMT) was registered just over a month later, on October 15, 2009. LLMT likewise

\cancelled its registration, on December 20, 2012. The Companys # 14 customer in 2010

(accounting for sales of RMB 5,680,711, or roughly $839,100), Luoyang Tonggang Trading Co.,

Ltd. (LTT), was formed just a month after the similarly named LLMT. All three of these

entities were created with registered capital of just RMB 500,000 (roughly $73,206).



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93. In the wake of all the foregoing, the Company now faces a Corruption of ForeignPublic Officials Act investigation by the Royal Canadian Mounted Polices Anti-Corruption Unit

related to the arrest and detention of Mr. Huang and his associates and a subpoena from the SEC

related to the concerns raised by various investors.

VIII.CO-LEAD PLAINTIFFS CLASS ACTION ALLEGATIONS94. Co-Lead Plaintiffs bring this action as a class action pursuant to Federal Rules of

Civil Procedure 23(a) and (b)(3) on behalf of a Class consisting of all persons who purchased the

common stock of Silvercorp during the Class Period and who were damaged thereby. Excluded

from the Class are Defendants, the present and former officers and directors of Silvercorp and

any subsidiary thereof, members of their immediate families and their legal representatives,

heirs, successors or assigns and any entity in which defendants have or had a controlling interest.

95. The members of the Class are so numerous that joinder of all members isimpracticable. Throughout the Class Period, Silvercorps stock was actively traded on the NYSE.

96. While the exact number of Class members is unknown to Co-Lead Plaintiffs atthis time and can only be ascertained through appropriate discovery, Co-Lead Plaintiffs believe

that there are at least hundreds, if not thousands, of members in the proposed Class. Class

members may be identified from records maintained by Silvercorp or its transfer agent and may

be notified of the pendency of this action by mail and/or publication, using a form of notice

customarily used in comparable securities class actions.

97. Co-Lead Plaintiffs claims are typical of the claims of Class members, as allmembers of the Class are similarly affected by Defendants wrongful conduct in violation of the

federal securities laws that is complained of herein.



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98. Co-Lead Plaintiffs will fairly and adequately protect the interests of the membersof the Class and have retained counsel competent and experienced in class and securities

litigation.

99. Common questions of law and fact exist as to all Class members and predominateover any questions solely affecting individual Class members. Among the questions of law and

fact common to the Class are:

a. whether the federal securities laws were violated by Defendants acts asalleged herein;

b.

whether statements made by Defendants to the investing public during the

Class Period misrepresented material facts about the business, and financial performance

of Silvercorp; and

c. to what extent the Class members have sustained damages and the propermeasure of damages.

100. A class action is superior to all other available methods for the fair and efficientadjudication of this controversy since joinder of all Class members is impracticable.

Furthermore, as the damages suffered by individual Class members may be relatively small, the

expense and burden of individual litigation make it impossible for Class members to redress

individually the wrongs done to them. There will be no difficulty in the management of this

action as a class action.

IX. NO SAFE HARBOR101. The statutory safe harbor provided for forward-looking statements under certain

circumstances does not apply to any of the allegedly false statements pleaded in this Complaint.

Many of the specific statements pleaded herein were not identified as forward-looking



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statements when made. To the extent there were any forward-looking statements, there were no

meaningful cautionary statements identifying important factors that could cause actual results to

differ materially from those in the purportedly forward-looking statements. Alternatively, to the

extent that the statutory safe harbor does apply to any forward-looking statements pleaded

herein, Defendants are liable for those false forward-looking statements because at the time each

of those forward-looking statements were made, the particular speaker knew that the particular

forward-looking statement was false, and/or that the forward-looking statement was authorized

and/or approved by an executive officer of Silvercorp who knew that those statements were false

when made.

X. THE CLAIMS ARE TIMELY102. The claims set forth herein are timely filed.103. The market was not aware until September 13, 2011 that the resource, production,

and grade of Silvercorps mineral production at its flagship Ying mine had been materially

misrepresented, or that it had significant issues regarding its legal and accounting compliance.

104. It likewise was not until September 13, 2011 that Co-Lead Plaintiffs were firstpresented with credible evidence of the probability that Defendants had made materially false

and misleading statements to investors during the Class Period. In the absence of publicly

available information prior to that date suggesting that Silvercorps mineral production data

included in its SEC filings during the Class Period were materially false and/or misleading or

that it had significant problems with its legal and accounting compliance, Co-Lead Plaintiffs

were not under any duty to inquire as to the truthfulness of the Companys public statements.

Therefore, Co-Lead Plaintiffs duty in that regard first arose on September 13, 2011.



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105. Prior to September 13, 2011, Co-Lead Plaintiffs and Class Members were not oninquiry notice of possible claims under the Securities Exchange Act. Co-Lead Plaintiffs

Securities Exchange Act claims against Defendants are brought within two years of discovery of

the probability that statements made by Defendants during the Class Period contained materially

false and/or misleading statements. Therefore, Co-Lead Plaintiffs have complied with the

requirements of 28 U.S.C. 1658(b).

XI. LOSS CAUSATION/ECONOMIC LOSS106. During the Class Period, as detailed herein, Defendants engaged in a scheme to

deceive the market and a course of conduct that artificially inflated the prices of Silvercorp

common stock and operated as a fraud or deceit on Class Period purchasers of Silvercorp

common stock by misrepresenting the material facts detailed herein. When Defendants prior

misrepresentations and fraudulent conduct were revealed to the market, the price of Silvercorp

common stock fell precipitously as the prior artificial inflation came out. As a result of their

purchases of Silvercorp common stock during the Class Period, Co-Lead Plaintiffs and the other

Class members suffered economic loss, i.e., damages, under the federal securities laws.

107. During the Class Period, Defendants presented a misleading picture ofSilvercorps business and prospects, financial position, and results of operations. Defendants

false and misleading statements had the intended effect and caused Silvercorp common stock to

trade at artificially inflated levels throughout the Class Period, reaching as high as $16.32 per

share on April 8, 2011.

108. In response to the issuance of the investor report on September 13, 2011, the priceof Silvercorp common stock dropped dramatically, declining from its closing price of $7.84 per

share on September 13, 2011, to $6.30 per share on September 14, 2011 a loss of nearly 20%,



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on heavy trading volume. This drop removed the inflation from the price of Silvercorp common

stock, causing real economic loss to investors who had purchased Silvercorp common stock

during the Class Period.

109. The decline was a direct result of the nature and extent of Defendants fraudfinally being revealed to investors and the market. The timing and magnitude of the price decline

in Silvercorp common stock negates any inference that the loss suffered by Co-Lead Plaintiffs

and the other Class members was caused by changed market conditions, macroeconomic or

industry factors or Company-specific facts unrelated to Defendants fraudulent conduct. The

economic loss, i.e., damages, suffered by Co- Lead Plaintiffs and the other Class members was a

direct result of Defendants fraudulent scheme to artificially inflate the prices of Silvercorp

common stock and the subsequent significant decline in the value of Silvercorp common stock

when Defendants prior misrepresentations and other fraudulent conduct were revealed.

XII. RELIANCE PRESUMPTION110. At all relevant times, the market for Silvercorp common stock was an efficient

market for the following reasons, among others:

a. Silvercorp stock met the requirements for listing, and was listed andactively traded on the NYSE under ticker symbol SVM. The NYSE is a highly efficient

and automated market;

b. Silvercorp had issued and outstanding approximately 162,287,528common shares as of December 31, 2010;

c. On average, over 6% of Silvercorps 162,287,528 outstanding shares weretraded on the NYSE on a weekly basis during the Class Period.



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d. As a regulated issuer Silvercorp filed with the SEC periodic public reportsand was eligible to file F-3 registration statements with the SEC during the Class Period;

e. Silvercorp regularly communicated with public investors via establishedmarket communication mechanisms, including regular disseminations of press releases

on the national circuits of major newswire services and other wide-ranging public

disclosures, such as communications with the financial press and other similar reporting

services; and

f. Silvercorp was followed by several securities analysts employed by majorbrokerage firms who wrote reports that were distributed to the sales force and certain

customers of their respective brokerage firms during the Class Period.

111. As a result of the foregoing, the market for Silvercorp common stock promptlydigested current information regarding Silvercorp from all publicly available sources and

reflected such information in the prices of the stock. Under these circumstances, all purchasers

of Silvercorp common stock during the Class Period suffered similar injury through their

purchase of Silvercorp common stock at artificially inflated prices and a presumption of reliance

applies.

FIRST CAUSE OF ACTION

Violation of Section 10(b) of The Exchange Act and

Rule 10b-5 Promulgated Thereunder Against All Defendants

112. Co-Lead Plaintiffs incorporate all paragraphs above as if fully set forth herein.113. During the Class Period, Defendants carried out a plan, scheme and course of

conduct which was intended to, and throughout the Class Period, did: (1) deceive the investing

public, including Co-Lead Plaintiffs and other Class members, as alleged herein; and (2) cause



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Co-Lead Plaintiffs and other Class members to purchase and/or sell Silvercorps securities at

artificially inflated and/or distorted prices. In furtherance of this unlawful scheme, plan and

course of conduct, Defendants, individually and as a group, took the actions set forth herein.

114. Defendants, individually and in concert, directly and indirectly, by the use, meansor instrumentalities of interstate commerce and/or of the mails, engaged and participated in a

continuous course of conduct to conceal adverse material information about the business,

operations and future prospects of Silvercorp as specified herein.

115. Defendants employed devices, schemes and artifices to defraud, while inpossession of material adverse non-public information and engaged in acts, practices, and a

course of conduct as alleged herein in an effort to assure investors of Silvercorps value and

performance and continued substantial growth, which included the making of, or the

participation in the making of, untrue statements of material facts and omitting to state material

facts necessary in order to make the statements made about Silvercorp and its business

operations and financial condition, in light of the circumstances under which they were made,

not misleading, as set forth more particularly herein, and engaged in transactions, practices and a

course of business that operated as a fraud and deceit upon the purchasers of Silvercorp

securities during the Class Period.

116. Each of the Defendants primary liability, and controlling person liability, arisesfrom the following: (a) Defendants each made materially false and misleading statements during

the Class Period, as set forth above; (b) Defendants were high-level executives, directors, and/or

agents at the Company during the Class Period and members of the Companys management

team or had control thereof; (c) by virtue of their responsibilities and activities as senior officers

and/or directors of the Company, were privy to and participated in the creation, development and



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reporting of the Companys internal budgets, plans, projections, operations, results, and/or

reports; (d) Defendants enjoyed significant personal contact and familiarity with the other

members of the Companys management team, internal reports and other data and information

about the Companys operations, and/or (e) Defendants were aware of their and the Companys

dissemination of information to the investing public which they knew or recklessly disregarded

was materially false and misleading.

117. Defendants had actual knowledge of the misrepresentations and omissions ofmaterial facts set forth herein, or acted with reckless disregard for the truth in that they failed to

ascertain and to disclose such facts, even though such facts were available to them. Defendants

material misrepresentations and/or omissions were done knowingly or recklessly and for the

purpose and effect of concealing Silvercorps true operations and financial condition from the

investing public and supporting the artificially inflated price of its securities. As demonstrated

by Defendants false and misleading statements during the Class Period, Defendants, if they did

not have actual knowledge of the misrepresentations and omissions alleged, were reckless in

failing to obtain such knowledge by failing to take steps necessary to discover whether those

statements were false or misleading.

118. As a result of the dissemination of the materially false and misleading informationand failure to disclose material facts, as set forth above, the market price for Silvercorps

securities was artificially inflated during the Class Period.

119. In ignorance of the fact that market prices of Silvercorps publicly-tradedsecurities were artificially inflated or distorted, and relying directly or indirectly on the false and

misleading statements made by defendants, or upon the integrity of the market in which the

Companys securities trade, and/or on the absence of material adverse information that was



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known to or recklessly disregarded by Defendants but not disclosed in public statements by

Defendants during the Class Period, Co-Lead Plaintiffs and the other Class members acquired

Silvercorps securities during the Class Period at artificially high prices and were damaged

thereby.

120. At the time of said misrepresentations and omissions by Defendants, Co-LeadPlaintiffs and other Class members were ignorant of their falsity, and believed them to be true.

Had Co-Lead Plaintiffs and the other Class members and the marketplace known the truth

regarding Silvercorps business and operations, financial results, and condition, which were not

disclosed by Defendants, Co-Lead Plaintiffs and other Class members would not have purchased

or otherwise acquired Silvercorp securities, or, if they had acquired such securities during the

Class Period, they would not have done so at the artificially inflated prices or distorted prices at

which they did.

121. By virtue of the foregoing, the defendants have violated Section 10(b) of theExchange Act and Rule 10b-5 promulgated thereunder.

122. As a direct and proximate result of the Defendants wrongful conduct, Co-LeadPlaintiffs and the other Class members suffered damages in connection with their respective

purchases and sales of the Companys securities during the Class Period.

123. This action was filed within two years of discovery of the fraud and within fiveyears of each Co-Lead Plaintiffs purchases of securities giving rise to the cause of action.

SECOND CAUSE OF ACTION

Violation of Section 20(a) of The Exchange Act

Against the Individual Defendants

124. Co-Lead Plaintiffs incorporate all paragraphs above as if fully set forth herein.



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125. The Individual Defendants acted as controlling persons of Silvercorp within themeaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level

positions, agency, and their ownership and contractual rights, participation in and/or awareness

of the Companys operations and/or intimate knowledge of aspects of the Companys revenues

and earnings and dissemination of information to the investing public, the Individual Defendants

had the power to influence and control, and did influence and control, directly or indirectly, the

decision-making of the Company, including the content and dissemination of the various

statements that Co-Lead Plaintiffs contend are false and misleading. The Individual Defendants

were provided with or had unlimited access to copies of the Companys reports, press releases,

public filings and other statements alleged by Co-Lead Plaintiffs to be misleading prior to and/or

shortly after these statements were issued, and had the ability to prevent the issuance of the

statements or to cause the statements to be corrected.

126. In particular, each of these Defendants had direct and supervisory involvement inthe day-to-day operations of the Company and, therefore, is presumed to have had the power to

control or influence the particular transactions giving rise to the securities violations as alleged

herein, and exercised the same.

127. Moreover, each of these Defendants made the material misrepresentations in theCompanys 2010 40-F and 2011 40-F, as described above.

128. As set forth above, Silvercorp violated Section 10(b) and Rule 10b-5 as alleged inthis Complaint.

129. By virtue of their positions as controlling persons, the Individual Defendants areliable pursuant to Section 20(a) of the Exchange Act as they culpably participated in the fraud

alleged herein. As a direct and proximate result of Defendants wrongful conduct, Co-Lead

Case 1:12-cv-09456-JSR Document

svm shareholder class-action - amended complaint - june 11, 2013

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