Shareholders Sue to Dissolve Silberman’s Mining Firm

Accusing former chairman Richard Silberman and others of racketeering, mismanagement and misuse of corporate assets, three Yuba Natural Resources shareholders have filed suit in federal court to have the company placed under the control of a court-appointed receiver and dissolved.

The lawsuit, filed in U. S. District Court in San Diego Wednesday, also alleges that the Yuba board members’ decision to pay Silberman his salary after his April 7 arrest on money-laundering charges was designed to “buy his silence so he will not further implicate them in wrongdoing.”

Took Control of Yuba in 1983

Silberman, a top adviser to then-Gov. Edmund G. Brown Jr. and a well-known San Diego entrepreneur who took control of Yuba in 1983, was arrested in a San Diego hotel room April 7 in a government sting. He has been indicted on charges of attempting to launder funds he was told were illicit Colombian drug profits but which actually came from a federal undercover agent.

Arrested with Silberman was Chris Petti, a San Diego businessman, who purportedly has mob ties and who helped set up the deal between Silberman and the undercover agent, according to an FBI affidavit filed in support of Silberman’s arrest.

Part of Silberman’s money laundering was to have been accomplished by exchanging the illicit cash for stock in Yuba American Gold, a Canadian subsidiary of Yuba Natural Resources, federal authorities said. Silberman resigned as Yuba’s chairman and chief executive April 11.

The suit also accuses Silberman, Yuba board directors and a variety of other defendants of violating securities laws and of misrepresenting to shareholders the “true adverse facts” about Yuba’s financial condition. Based in San Diego, Yuba owns a 9,900-acre alluvial mine field 45 miles north of Sacramento near Marysville and is engaged in gold, gravel and silica mining.

After losing more than $6 million since Silberman took over, Yuba is in severe financial straits. The company is in default on several loans and missed a $130,000 payment April 1 to the U. S. Bureau of Land Management to settle a mineral trespass complaint lodged last year by the bureau.

“It’s a sad misuse of a publicly owned company to engage in this kind of activity,” said San Diego attorney William Lerach, whose firm is representing the shareholders.

Lerach said he would move “expeditiously” to seek a hearing in federal court to obtain a preliminary injunction ousting Yuba’s current board of directors from office. Lerach will also petition the court to appoint a receiver to take over management.

RICO Statutes Invoked

Lerach said Silberman’s alleged use of Yuba American Gold stock in the scheme amounted to “self-dealing” because he used Yuba assets “without putting the proceeds in the corporate till.” The suit invokes Racketeer Influenced and Corrupt Organization (RICO) statutes, which would entitle shareholders to treble damages because of Silberman’s involvement with what he thought were proceeds from narcotics sales.

With the acquiescence of the board, Silberman has “grossly mismanaged (Yuba’s) affairs such that at the present time the company’s working capital is virtually exhausted, the company is unable to pay its bank debt and other debts . . . and is, in fact, insolvent,” the suit reads.

Saying he had not seen a copy of the lawsuit, Yuba Natural Resources attorney Marshall Mintz declined to comment in detail on the allegations but said “Yuba has never paid hush money to Silberman.”

$150,000 Annual Salary

Mintz said Silberman has an employment contract with Yuba calling for a $150,000 annual salary and that Yuba delivered one paycheck to Silberman after his arrest and resignation. “One or more subsequent paychecks” due to Silberman, however, have not been delivered and a special Yuba committee is studying whether Yuba should continue to honor Silberman’s contract, he said.

Reached at his La Jolla home Wednesday, Silberman said: “I have heard about (the suit), but I haven’t read it and so have no comment on it.”

Filed on behalf of Yuba shareholders Paul E. Nenner, Carol Schaefer and Norman Diamond as trustee for a family trust, all of San Diego, the suit seeks unspecified money damages and purports to be a class action on behalf of all 5,700 Yuba shareholders.

Among the many defendants named in the lawsuit are Yuba’s law firm, Mulvaney & Kahan, and two accountancy firms, McGladrey & Pullen and Grant Thornton, which audited Yuba’s financial statements. The suit accuses the firms of negligent misrepresentation and professional malpractice.

Also named as defendants are Yuba President Peter Jensen, Vice Presidents Marilyn Buseman Dreyer and Philip Sutherling and board members Alan Aiello, Llewellyn Werner and Rebecca Wood. Jack Myers and Darryl Nakatsuka, who were indicted along with Silberman and Petti in the money-laundering case, were also named defendants.