The Bre-X Saga:
Fortune or Folly?
Bre-X shareholders sue
investment houses
Tuesday 29 July 1997
Vicki Barnett and Paul Brent, Calgary Herald;
Bloomberg
Bre-X Minerals Ltd. shareholders in Alberta and B.C.
are participating in a lawsuit against three investment
houses, including Nesbitt Burns Inc., over their
connection to Bre-X's Busang deposit in Indonesia.
The deposit was revealed in March as the world's
biggest gold mining fraud.
The lawsuit, filed last week in U.S. District Court in
Texarkana, Texas, consolidates nine existing U.S.
class action lawsuits and a Canadian lawsuit and also
names investment bankers Lehman Brothers Inc., J.P.
Morgan & Co, Bre-X Minerals Ltd. management and
their mining consultant, SNC-Lavalin Group Inc.'s
Kilborn subsidiary.
Vancouver lawyer David Klein, who is working with
Calgary lawyer Clint Docken on a western Canadian
class action, said Monday that the lawsuit has been
filed, but a judge hasn't made a decision on whether
the lawsuit can proceed, or whether Canadians can
participate.
"We haven't abandoned the Canadian lawsuit," Klein
said.
Docken said the best option is for Canadians to
become part of the U.S. class action "because we have
an easier time proving our case there, and damages are
higher."
If Canadians aren't allowed to participate in the U.S.
lawsuit, the second-best option is a Canadian class
action filed in B.C. or Ontario, with the final choice
being an Alberta group action because there's no
class-action legislation here, he said.
"We'll be seeking leave to file here (in Calgary Court of
Queen's Bench) Sept. 16," Docken said.
Klein said he anticipates an Ontario class action will
also join the U.S. lawsuit. A proposed Quebec lawsuit
hasn't yet been filed.
The investment banks were added to the lawsuit
because their bullish recommendations helped Bre-X, a
Calgary-based exploration company, attain a stock
market capitalization of $6 billion Cdn, a lawyer
associated with the suit said Monday.
"Those companies are reputable and they gave a
tremendous amount of credibility (to Bre-X).
Representatives of those companies stated that they
had done research and analysis into Busang," said
Thomas Ajamie, a lawyer in Houston.
The lawsuit could also be broadened to include other
brokerage houses from the 15 or 20 analysts who
toured the Indonesian site.
"We are considering that, we are looking at those and
deciding what to do," said Ajamie. "We have to review
their conduct first."
J.P. Morgan officials consulted Bre-X regarding a
joint-venture agreement with Freeport-McMoRan
Copper & Gold Inc. to develop a mine at Busang in
Indonesia.
Lehman released a 50-page report about Busang on
Dec. 3, 1996, describing Busang as "the gold
discovery of the century" and rating Bre-X shares a
"buy."
Nesbitt Burns, one of Canada's largest brokerage
firms, was one of the first to research and recommend
Bre-X.
Toronto-based Nesbitt also faces a lawsuit brought
forward by a Windsor, Ont., lawyer claiming it misled
investors about Bre-X's viability. Nesbitt, owned by
the Bank of Montreal, has said the lawsuit is
unfounded.
Officials at J.P. Morgan, Lehman and Nesbitt refused
to comment Monday.
Canada's brokerage industry has come under intense
criticism for recommending Bre-X right up until March
26, when Freeport-McMoRan said the world's
supposed-biggest gold find in Indonesia contained
virtually no gold.
Shares of the company, which were once valued at
$280 apiece before a 10-for-1 stock split, are now
delisted and worthless.
- The issue: Bre-X Minerals Ltd.
- What's new: Bre-X shareholders in Alberta and B.C.
are participating in a lawsuit against three investment
houses.
- What's next: Judge's decision on whether suit can
proceed or whether Canadians can participate.
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