Molycorp 1Q13 misstatements targeted by shareholder litigation

At least two law firms plan to add new litigation to eight investor lawsuits already pending in three jurisdictions aimed at Molycorp and its growing litany of financial troubles.

The smell of the fiscal hemorrhaging of the western hemisphere’s sole rare earth producer has again attracted lawyers as announcements of pending and filed class action lawsuits have been made in the past week.

The New York law firm of Pomerantz Grossman Hufford Dahlstrom & Gross said it has filed a class action lawsuit against Molycorp Inc. and its officers reportedly for “false and/or misleading statements and/or failure to disclose material adverse facts about the company’s business, operations, and prospects.

“Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (1) the company’s report inventory was materially understated; 2() the company overstated its income tax benefit in the first quarter of 2013 by approximately $6.5 million; (3) the company lacked adequate internal and financial controls; and (4) as a result of the foregoing, the company’s statements were materially false and misleading at all relevant times.”

During a conference call earlier this month to discuss second-quarter financial results, Molycorp CFO Michael Doolan told analysts the company discovered “a material weakness in our internal control at Mountain Pass in the first quarter which we have subsequently remediated and currently testing.”

“The Form 10-Q as filed for the first quarter understated inventory related to our resources segment by approximately $16 million. This concurrently over-state cost of sales by approximately $16 million and overstated our tax benefit by approximately $6.5 million. It also overstated our consolidated writedown of inventory by $18 million and then understated our disclosure of consolidated assessment of abnormal production by $17.4 million,” he noted.

“Also during the first quarter our SG&A expenses were understated by approximately $2.1 million with respect to the approval of certain severance charges, this error cause the income tax benefit in the first quarter to be understand by $800,000. Again there is no cash impact related to this misstatement,” said Doolan.

As a result, 1Q13 earnings per share were restated at a net loss of $38.152 million or 27-cents per share, compared to the originally stated first quarter net loss of $46.405 million or 33-cents per share.

“On this news, shares fell $0.71, approximately 9.72%, to close at $6.69 per share on August 9, 2013,” the class action lawsuit filed in the U.S. District Court for the Southern District of New York observed.

Meanwhile, on August 16th, another New York law firm, Faruqi & Faruqi, announced that it is encouraging investors who suffered losses in excess of $100,000 investing in Molycorp to contact the law firm. The firm’s investigation focuses on whether: (i) the company’s income tax benefit was overstated for the first quarter of 2013; and (ii) Molycorp’s reported inventory was materially understated.”

“On August 8, 2013, the company announced that certain financial statements should no longer be relied upon. Following this news, the stock dropped over 9%,” said the Faruqi & Faruqi news release.

Eight shareholder derivative lawsuits have been filed against Molycorp in three different jurisdictions, according to the company’s financial reports.

In August 2012, the staff of the SEC notified Molycorp that a formal order of investigation had been issued regarding, among other things, the accuracy of the company’s public disclosures. On June 27, 2013, the staff of the SEC notified Molycorp that the investigation has been completed and that the staff does not intend to recommend any enforcement action by the SEC against Molycorp.

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