Mining firm claims its stock is being manipulated by bond holders

A California company that owns a Nevada gold mine is involved in two stock-manipulation lawsuits against investors who hold company bonds.

Nevada Manhattan Mining Inc., of Calabasas, Calif., owns the Manhattan Consolidated Mine, a gold mine north of Tonopah that the company estimates will produce 600,000 tons of gold.

Nevada Manhattan said last week it was suing a group of investors who own bonds that are convertible into company stock. The company alleged the investors had purchased the bonds as part of an "illegal scheme and conspiracy which also involved significant manipulative short-selling of the company's common stock."

The company's suit names 16 investors, most in Liechtenstein, the British Virgin Islands and Canada.

The alleged scheme began in the spring of 1997, and reduced Nevada Manhattan's market capitalization by $150 million, the company said.

A day after Nevada Manhattan's announcement, two Liechtenstein-based investment firms that own Nevada Manhattan convertible bonds filed suit against the company, alleging Nevada Manhattan was refusing to convert their bonds into stock.

The investment firms, Austost Anstalt Schaan, and UFH Endowment Ltd., are also listed as defendants in the suit filed by Nevada Manhattan.

Kenneth Zitter, an attorney for the investment firms, said the Nevada Manhattan suit was filed to preempt the investment firm suit.

"We believe they were trying to preempt our suit in order to detract attention from their clear breach of contract," Zitter said.

But Mark Krum, a Nevada Manhattan attorney, said the company's suit was prompted by "massive" short-selling of the company's stock in recent days. Krum called the investor's suit a "litigation ploy."

Over the past year, Nevada Manhattan stock has generally traded at a volume well below 100,000 per day. But since the middle of June, the stock's daily volume has spiked above 1 million shares several times, nearly reaching 1.8 million shares at times.

The stock has fallen fairly steadily over the past year, from $7 last August, to 15 cents June 29. But it has rebounded slightly this month to the 50-cent range.

Krum said the investor's strategy was simple. Because their bonds are convertible into stock at market prices, the lower the stock's price, the more shares they would get when converting the bonds.

By pushing the stock to artificially low levels, the investors would be able to buy millions of shares at fire-sale prices, and then make a killing when the stock rebounded, Krum said.

The investors initiated their alleged scheme by accumulating shares, then selling them in large blocks to drive the stock's price down, Krum alleged. When Nevada Manhattan realized what was taking place, the company sued.

"Those events reasonably could be understood to have precipitated our lawsuit," Krum said.

But Zitter denies the investment firms were involved in such a scheme.

"My clients did not manipulate the market," Zitter said. "They were simply acting in accordance with their contract rights under the (debt bonds)."

For their part, the investment firms want 2.3 million shares they feel they are entitled to, and the payment of "hundreds of thousands of dollars" in penalties, Zitter said.

But because Nevada Manhattan feels the investment firms' conversion demands are a part of the alleged market manipulation scheme, the company does not plan to issue the shares, Krum said.

Nevada Manhattan is seeking compensation for its $150 million loss of market capitalization and unspecified punitive damages.

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