Khan prepares for courtroom battles

Legal uncertainty continues to hang over Khan Resources (KRI-T) and it’s beginning to take a toll on its shares.

Since issuing a Sept. 19 press release regarding the latest legal salvo fired by one of its former officers, and initial holder of the rights to Khan’s three Mongolian assets, the Toronto-based company’s shares have fallen roughly 25%.

In Toronto on Sept. 21 Khan shares were trading at $1.30 on roughly 120,000 shares traded they closed on Sept. 18 at $1.63.

The thorn in the side of Khan comes in the form of one Wallace Mays. Mays was the onetime promoter, director, and officer of Khan, as well as being the former (and Mays would argue, current) mineral rights holder for the Mongolian assets.

After being removed from Khan’s board in October of 2004 — a move made at the insistence of one of Khan’s financial advisors Mays, unbeknownst to Khan management, signed over the Mongolian mineral rights to his own company, W.M. Mining.

The legal merit of such a maneuver is suspect, but Khan has found that fighting against it is tricky.

The company’s first move — back in the summer of this year — was to bring a suit against Mays for his actions in Ontario. However, the Ontario court ruled that because the assets were based in Mongolia, the issue of the legal holding of them was a Mongolian legal issue, and that Ontario didn’t have jurisdiction.

After that decision Khan’s task was to find another avenue to thwart Wallace’s claim. It succeeded when the Ontario court agreed to hear a shareholder oppression case filed by one of Khan’s shareholders, Anthony Weldon. While Weldon’s case is officially against Mays, W.M. Mining, and Khan Resources, the suit has the support of Khan Resources management, and the naming of Khan in the case is a mere legal formality.

The case will be heard on Oct. 12 and Khan says a decision should come that day or shortly after. If Weldon wins his claim, Mays would be prevented from trying to act on his assignment of the mineral rights to W.B. Mining.

However, even if the shareholder oppression case is wrapped up quickly and in Khan’s favour, the company likely won’t be free of the courtroom for some time. That’s because Mays has filed his own suit against some 20 former and presentday Khan officers and directors as well as Dominick and Dominick Securities the investment bankers for Khan.

Mays claims he was misled into selling away shares of Khan Bermuda to Khan Ontario (which is now Khan Resources). Khan Bermuda was wholly owned by Mays and was the former holder of the Mongolian Assets.

Mays initially signed over the majority of the shares to Khan Resources to secure financing for the assets, and while the deal left Mays with a significant percentage of the total shares at the time, that percentage was significantly diluted as Khan went about raising money by issuing more shares.

Khan’s position is that Mays’ suit against it is directly tied to both his reduced position as a shareholder and the defensive position that the Weldon case has put him in.

James Doris, Khan’s lawyer, says Mays has not put forward any real defense to Weldon’s oppression claim, and that Mays “appears to be adopting the strategy of the best defense is a good offence.”

“Khan does not believe that Mays’ offence is any good either,” Doris wrote in an email. “But that will ultimately have to be determined by the courts.”

Mays’ legal representative, David Hausman, countered: “It’s not an offensive thing at all. Mays’ claims are serious and they’re made seriously,” he said.