Crystallex accused of fraud in class action suit over Las Cristinas gold project

Mineweb (Dorothy Kosich): After several years of fits and starts regarding the permitting of the Las Cristinas gold project in Venezuela, a class action suit has now been filed against Canadian junior miner Crystallex.

New York City-based law firm Sarraf Gentile Monday filed a securities fraud class action lawsuit in the U.S. District Court for the Southern District of New York on behalf of Crystallex investors.

Plaintiff Daniel T. Russo filed suit against former Crystallex Presidents and CEOs Todd Bruce and Gordon Thompson, as well as the company, on behalf of all purchasers of Crystallex common stock between July 28, 2005 and April 30, 2008.

In the lawsuit, attorney Joseph Gentile claimed the defendants "deceived the investing public regarding Crystallex's business, its finances and the intrinsic value of Crystallex's common stocks; and caused plaintiff and other members of the class to purchase Crystallex common stock at artificially inflated prices."

"Since approximately 2005, the company has led investors and the general public to believe through numerous press releases and news release commentaries that ‘the permit' for the Las Cristinas project was guaranteed to be issued to the company," Gentile asserted.

He accused Crystallex of knowingly obscuring "the full extent of the problems the company was experiencing with the Venezuelan government regarding the permit for the Las Cristinas project." As Mineweb has previously reported, the administration of President Hugo Chavez has repeatedly given mixed signals over the years regarding approval of the 17 million ounce gold project.

In May of this year, the Venezuelan Ministry of the Environment (MinAmb) used the protection of Imacata Forest Reserve as an excuse to rescind or refuse to issue exploration and mining permits including those of the Las Cristinas gold project. Venezuela's mining minister subsequently suggested that Las Cristinas could go instead to a split partnership between a subsidiary of the government and Rusoro Mining.

The suit says Crystallex issued several press releases beginning in May 2004, which first claimed that the required permits to start construction of the Las Cristinas gold project would be granted in 2004. By July 2005 Crystallex would issued another press release stating the company was actively engaged in negotiations with government officials to move the project to a conclusion. In that same statement, Crystallex said it was "unaware of any technical impediment to the granting of the permit."

By March 2006 the company said it was closer to "the issuance of the permit to impact natural resources for the Las Cristinas project itself."

A year later Thompson would tell an interviewer, "We're at the final step in the Venezuela process, getting the environmental permit."

Almost two years later in February 2008, Crystallex issued another statement that correspondence from MinAmb and "numerous meetings with senior government officials continue to confirm our expectation that the permit will be issued, which will allow us to launch the long anticipated construction phase for the benefit of the local communities."

The plaintiffs assert that the defendants "did not have, during the Class period, a reasonable expectation that the company would receive the required permit."

In a response Tuesday, Crystallex said it is currently reviewing the Notice of Application concerning the commencement of the lawsuit against the company "and will provide all shareholders and stakeholders with future details once a review has been completed."