Investor sues Gammon Gold for $80 million

Gammon Gold (GAM-T) shares fell 10% today as the company dealt with allegations that it provided inaccurate statements about production and manipulated stock options.

Gammon shares were down $1.03 to $9.14 each on a trading volume of nearly 1.2 million.

The company denied the claims of a Toronto-based shareholder, Ed McKenna, who is suing the company for $80 million.

McKenna’s statement of claim alleges that the prospectus for an April 2007 share offering of 10 million shares at $20 each, was misleading.

McKenna claims that the company falsely misrepresented that Gammon was then producing at a rate of 400,000 gold-equivalent oz. per year based on the combined production of its Ocampo and El Cubo mines in Mexico.

Gammon CEO, Rene Marion, said the claims were without merit.

“The claim relating to production run rates is a copycat claim, on a class action basis, of a claim filed in New York courts last year,” Marion said in a statement.

McKenna also claims that Gammon violated the stock option plan by manipulating the grant dates.

The statement of claim shows “a striking pattern that could not plausibly be the result of chance” where grant dates of options were followed by sharp increases in stock price or coincided with a date where Gammon’s stock price was at or near a monthly low.

A Nova Scotia-based law firm, McInnes Cooper, was asked to do an independent investigation relating to options granted between April 2001 and September 2007, and found that there were no violations to the plan.