IKN

Trifles light as air

Liberty Silver (LBSV) (LSL.to), from IKN179


This is the report written on Liberty Silver (LSL.to) (LBSV.ob) that appeared in last Sunday’s edition of The IKN Weekly, issue 179. The only thing to have changed are the two price charts, because I didn’t save the ones from last week and have used the ones available on yahoo today which show the same thing, just a couple of extra days down the line. The rest is verbatim.

Liberty
Silver (LBSV.ob) (LSL.to): A scam and a screaming short (if it ever trades over
a buck again)
A number of weeks ago (to be quite honest, I can’t remember exactly
when
) I did a quick pass check of a TSX listed company called Liberty
Silver (LSL.to) (LBSV) (LBSV.ob) on the suggestion of an IKN reader, but at
that time had made it an easy pass because of the low-grade marginal property
it was optioning into. I didn’t look much at the people or structure behind LSL
at the time as it was one of those companies I tend to filter out quickly as
“not reaching first base”, place in the mental discard pile, simply avoid from
that point and move on to other potentials. It’s a pity I didn’t look more
closely at LSL at the time because if I’d done so I would have seen a screaming
short candidate.
Cut to last week, and on Wednesday
I was pointed in the direction of LSL by a contact, someone who knows both the
property and had checked behind the company curtain, and told me in no
uncertain terms that the company was a scam. I saw the recent share price
run-up…

…downloaded the SEDAR files,
checked through them and suddenly LSL was past first base and onto second, but
this time as a potential short. And when I saw the name of the person who was
running the show from backstage, a certain infamous Bobby Genovese, it went
straight to home run. With the price running above $1.50 on Thursday on strong
volume and no real news and listing in the USA on the OTCBB (that does most of the volume) and on the
TSX as LSL.to (note, not a Venture
exchange listing
) this had the makings of a great shortable story to put
before you today and one that many of you (I
admit not all, because shorting Canadian stocks isn’t child’s play and much
easier if you’re an accredited investor or inside an insto
) would be able
to play to the downside.

Then on Friday morning, my big idea
was shattered by this (22), an SEC news release halting trading in the stock.
This halt was well reported in the press, for example this (23) the link to a
Stockwatch report on LSL last Friday evening written by the always good Mike
Caswell, which also adds background to this scam and is well worth reading. So
anyway, pre-bell Friday the SEC put a ten day trading halt on the otcbb listing
which was emulated very quickly by IIROC in Canada (not before 138k shares had traded through at a big drop price of 97c,
but to be honest IIROC did pretty well under the circumstances to block trading
in LSL.to as quickly as it did and should be commended
). We can see the
effect the halt had on the stock via the few trades that got through before the
Canadian listing was halted, in this five day chart:

As the LSL NR later that day (24) (after
the bell in fact) confirmed the halt and added some flavour to the reasons
behind it

According to the Order, the
SEC states that, “It appears to the SEC that there is a lack of current
and accurate information concerning the securities of Liberty Silver because of
questions concerning publicly available information about Liberty Silver, the
control of its stock, its market price, and trading in the stock”
We can translate that for you. It
means that the SEC believes there is at least one large holder of LSL stock
(and probably more than one) that has not done the right thing and filed their
total holding in the stock to the authorities. These are known as “undisclosed
free trading shares” and the problem is that the person who owns them can
suddenly decide to dump some or all of that large holding on the market without
anyone knowing who the seller might be. And if, as is almost certainly the case
in this story, the large holder is an insider at the company, the sales can
easily be made at the most advantageous 
moment for the seller. Or put in simple terms, the cloak of anonymity
makes the “dump” part of “pump and dump” a whole lot easier and probably much
more profitable. It’s also illegal, which is why the SEC has halted the stock
to give time for investigations.
About the
people behind Liberty Silver
Before we jump in to this section,
I’d like to make clear that some of the information that follows comes from an
as-yet unpublished report that was sent out by persons who wish to remain
anonymous (for obvious reasons) to myself and to a mailing list that includes
industry professionals and journalists who have shown interest in this scam, in
LSL the company, in the history and track record of Bobby Genovese and in
market scams in general. They are concerned investment professionals who want
real reform and better regulatory oversight of micro and small cap issuers and
have assured me that they are not short (or long for that matter, no position
at all) Liberty Silver. I also know the ID of at least one of the people who
authored the report (again, will remain anonymous) and will personally vouch
for that person’s trustworthiness, absolute integrity and track record of
hunting down market scumbags. The report is excellent and goes deeply into the
background of the unwholesome people behind this scam, highlighting the many
other examples of otcbb pump and dump scams they’ve been associated with over
the years, going into detail as to how LSL has been set up and also marking
your cards on two other companies currently being set up as pump and dumps
scams by Genovese and his crew.
What follows is a quick rundown of
datapoints on the corporate structure and people behind LSL, unearthed by your
author in the period Wednesday to Friday as well as a few of the many datapoints
revealed by the report. It’s not as long as it was going to be if the SEC
hadn’t halted the stock and scuppered the potential short play, but it should
give you more than enough idea.
The company has around 81m shares
outstanding. Around 65m of those shares were issued at a fraction of a penny
and are now held in offshore accounts (that’s
reliable off-record
).

Most of those 65m very cheap shares
are held by Robert Donald Bruce Genovese, known to friends and foes alike as
Bobby Genovese or sometimes simply “Bobby G”. We’ll call him ‘Genovese’ from
here on because I have no desire ever to be on first name terms with this
scumbag. Genovese also bought a fair whack of LSL shares over the OTC market in
the period December 2011 to January 2012 at prices at or around one dollar (25)
at the same time as a placement that raised $4.6m (the qualifying placement for the company’s TSX listing) was running
on the stock, units priced at 50c. From these transactions, we know that he
controls at least 10% of the company but that’s almost certainly the tip of the
iceberg and he holds a lot more of these shares. Based on information from
reliable sources, Genovese holds at least 48m shares of LSL that come from the original
transactions and forward splits that set up the company structure we see today.
However, it’s necessary to state that this 48m holding is not officially known
and in fact the lack of disclosure on Genovese’s part is likely one of the main
reasons the SEC halted the stock pre-bell Friday morning, so in the course of
the next few days I’d expect clarification on this matter.
 
Genovese is a penny stock pump and
dump scam runner and has made millions of dollars for his own back pocket by
unscrupulously ripping off the general public over the years. That’s not an
opinion that’s a fact, as anyone who watched the action and events around
“Clearly Canadian”, a mineral water company that shot higher and dived lower in
the period 2005 to 2008 will testify. According to SEDI insider transaction
records Genovese had access to millions upon millions of very cheap shares and
proceeded to dump those millions of shares on the general public while in
charge of the company at the time. His aggressive selling continued up to the
point when the share price, that tended to fluctuate between $2 and $4.50 (the average between $2.50 and $3), collapsed
back into the pennies region. He used highly aggressive pumping techniques,
including paying pumpers to do his dirty work and sucker in as many retail
shareholders as possible, then when the stock was high enough he cashed in
relentlessly.

‘Clearly Canadian’ is not his only pump and
dump scam either, not by a long chalk. The last 20 years is littered with the
remains of companies he has promoted, pumped, dumped and cashed in with, all to
the retail shareholders’ chagrin. The table above is from the mentioned report
(I asked for and was denied permission
from the authors to pass on the whole PDF, but was granted permission to sample
from it, including the sampling of this table
). For further reading I also
point you towards to this report (26) by Carol Remond of Dow Jones Newswires
dated November 2009 that goes into the world of Genovese and some of the scams
that he has successfully led. Genovese is now by all accounts a very wealthy
man, but he’s made his money the parasite’s way.

Moving back to LSL, in August and
September 2012 Genovese cajoled or hired for cash a bevy of newsletter writers
into promo’ing his stock. Top of the list comes James West of The Midas Letter,
one of the most two-faced and unscrupulous of all mining newsletter writers (and my stars, there’s competition for that
mantle
) to pump the company to his subscribers. Along with the others
brought on board for the same purposes West was paid handsomely to write up LSL
in glowing terms and got a lot of people on board, pushing the share price
higher on no apparent news. Interestingly, since the SEC halted LSL James West
has decided that he doesn’t want to be associated with the name any more and as
all good cockroaches do, has crawled under a rock and pulled his glowing (and
extremely stupid) note on LSL from his website. However it can still be found
at this address (27) and we also recommend that you check out Iwnattos’s review
of the James West piece here (28) as that blogger does an entertaining job of
pulling James West’s infantile promotion arguments into little pieces. And
before we leave this paragraph, it’s worth noting that the two-faced West may
get his own comeuppance on this play because the only disclosure he makes on
payment from LSL is “I am a shareholder”. This is a direct violation of SEC
rule 10b5, because he needs to state exactly, precisely how many shares and how
he came to own them. If, as is almost certainly the case, he was given the
shares in exchange for his sordid pumping of the stock and also received a cash
payment, the man could be in trouble with the U.S authorities. Maybe that’s why
he was so keen on pulling his note from his own website, but as noted above
other copies already exist.
The
property
A pump and dump has to be centred
on something of value (or at least something that can be claimed as having
value) and in this case, LSL’s fortunes have been tied to the Trinity Silver
property in Nevada, USA. Here’s another brief rundown of the basic points of
Trinity.
  • The Trinity property has been optioned from
    Renaissance Gold (REN.to). The deal cost LSL $25,000 up front, has a few
    cash payments along the way and the company now has four years in which to
    spend $5m on its development in order to earn 70% rights.
  • The heart of the Trinity property isn’t much more than
    a mined out deposit. It was mined by the Borax Company of USA in the
    period 1987 to 1989, when that operation mined out the best rock in the
    centre of the deposit grading around 6oz/t silver (around 185 g/t) in
    oxide host. When the best was mined, Borax decided that the silver price
    at the time for what was left was too low and they closed down the
    operation.
  • That’s still true today. Borax and others put in a lot
    of drill holes in and around the Trinity property, trying to find more of
    the good grading stuff, but nothing doing. What’s left there today is a
    non-43101 compliant historical resource that’s understood by the 2011
    technical report to grade at an average of 0.7 ounces Ag per tonne.
    There’s plenty of rock there that grades to that average, but the whole
    resource is based on the halo of lower grading material that was left
    behind when Borax had finished the good material.
  • According to optioners REN.to (a serious exploration
    company), the interest that Trinity may hold is at depth, with the
    potential to drill under the low grading oxide halo and into the
    underlying sulphide to potentially discover a copper style porphyry system
    that wasn’t on the agenda of Borax in the 80s or others later. However,
    Genovese and LSL have stated that the company can put together a PEA based
    on the drilling done to date alone and that it’s not necessary to drill
    any more. This clearly implies that the very limited drilling program done
    by LSL earlier this year, which included just two twinning holes to check
    previous assay results from the historical drilling program instead of the
    12 holes that third party technical report compilers Mine Development
    Associates (MDA) recommended, is all that LSL thinks it needs to get a PEA
    and then move to “fast track production” when added to the historical
    drilling that shows a lot of meterage but was done for another purpose,
    namely to find better, higher grade oxide with which it could extend mine
    life.
  • Now for an idea of project economics on this low
    grading oxide halo material. At the moment, both LSL and the third party
    technical report compilers MDA are using a conceptual recovery level of
    75% for the silver held at Trinity. This means that processing a tonne of
    rock will earn you perhaps $18, at best in payable metal (based on 22g Ag
    grade, 16g recovered, $35/oz Ag price). From this you pay mining,
    processing, smelting, G&A, tax and interest on any loan. Look, on
    paper it might be possible to process that rock and make a marginal
    profit, but off the top of my head I can think of a dozen, nay two dozen
    other development stage silver projects that offer far, far better
    ballpark economics than that and none of them have a market cap anywhere
    near $70m, let alone $126m.
  • As for the valuation consider one thing, simply for
    perspective: According to the price at which LSL closed Thursday ($1.58),
    it’s $1.4m in cash and 70% of Trinity (assuming it makes the optioning-in
    commitment) is worth $126.4m by company market cap. Meanwhile, its 30%
    partner REN.to has a market cap of around $30m, but it also has another 30
    exploration targets on its books (26 of those in Nevada/Utah), working
    capital of $6.3m (IKN estimated,
    with June 30 filings showing working cap of $7.36m and a company with  modest underlying burn rate
    ) and top
    class geols running its show (it was
    spun out of AuEx Ventures and is headed by Ron Parratt, known in the trade
    as world class especially on Nevada
    ).
People, this is nuts and it’s what
put me off the company in the first place, back when I quickly filtered it,
decided it didn’t get to first base and then discarded it without looking
“behind the curtain”. Even if it weren’t being controlled by a proven pump and
dump scam artist in Bobby Genovese, the most cursory glance at its only asset
(barring an IKN estimated $1.4m in working capital that may have already
depleted further) makes the company very, but very easy to discard.
The Sennen
Affair
Another moment along the way in LSL
version 2012 was its unsuccessful offer to buy out Sennen Resources (SN.v), a
tiny exploreco that’s been quiet for a long time but does have one significant
thing in its favour; a cash treasury of $13.5m that it’s been protecting
through this rough period for juniors (Sidebar:
SN.v currently has a market cap of $8.25m, so on paper at least there’s value
in this stock’s share price at the moment
). The offer was an all-paper deal
in which LSL offered 0.28 of its shares for every share of SN.v. According to
LSL this placed a 47.3% premium on SN.v’s share price and was equivalent to
them running a private placement at 71c.
It goes without saying that SN and
its board and management strongly disagreed. The merger was clearly a move to
get its hands on the SN.v treasury by paying with dubious paper and after
running its own DD, Sennen management were scornful of that paper and the
assets that backed it up. In a series of some of the most entertaining defence
NRs to a hostile takeover I’ve seen in years, SN released NR such as (29) on
August 20th that included a mountain of pearls like this one…
Sennen’s management and directors are totally
focused on the resource sector, unlike the CEO of Liberty, who is a managing
partner of a fund management company and sits on nine company boards, some of
which are in the media and entertainment sector and responsible for such
resource and energy related blockbusters as “Bingo Night in Canada”,
“Hooking up with Mariko” and “Ladies Night Out”.
…along with plenty of technical
and financial reasons to laugh the offer out the room and then concluded its
argument in these terms.
Stated Ian Rozier, President and CEO of Sennen, “Liberty’s Offer is an
insult to the intelligence of Sennen Shareholders who understand that this is a
clear case of the management and promoters of an OTC shell company with very
little money and questionable assets trying to back their ludicrously
overvalued paper into an established company with tangible assets-in this case
Sennen and its treasury.
Wonderful stuff. In early September
the hostile bid collapsed, with apparently very few or even none of the
shareholders having decided to accept the LSL bid.
Conclusion
We could continue on this case for
pages upon pages, but it’s time to draw a line under things. Liberty Silver (US
OTC: LBSV) (TSX:LSL) is a scam stock run by a long-time scam runner who has
made multi-millions of dollars over the years by taking the money of the
innocent retail investor and putting it straight into his own back pocket. The
plan today was to have pointed your way to an easy shorting opportunity on the
TSX (and to be quite honest, even after
dedicating plenty of time to this case this week and looking into the
qualifying transaction back in late December, I’m still not sure how Liberty
Silver managed to get a ticker straight on the TSX without having to go through
the Venture exchange first; that’s one that raises serious questions about the Canadian
regulators, I’m afraid
), but the SEC slammed the gate shut on Friday
morning and now things look very grim indeed for the company and anyone left
holding a bag after having bought on the promo pump led by the scoundrel James
West and aided and abetted by others who made buy calls on this stock.
In the end, I’m glad, very glad,
that the SEC has acted quickly because a quick cauterizing of this cancerous
company will do more good than an easy buck on a short trade. We applaud the
SEC for its prompt action and therefore offer up LSL to you as a prime example
of what happens when you do not do your own DD and rely on the word of others
when investing in the junior mining world.
UPDATE: You need to read this, the report referenced above is now available for download. Go get your copy

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