Bre-X Minerals Ltd -
BCSC hears of Wayne Deans' Bre-X fumbles
Bre-X Minerals Ltd BXM
Shares issued 219,103,330 1899-12-30 close $0
Friday Jan 14 2000
See B.C. Securities Commission (BCSEC) Street Wire
by Brent Mudry
Aggressive fund managers love to be known for their great calls, stressing their savvy timing in buying low and selling high, and dumping disastrous stocks just before they collapse. Former fund diva Veronika Hirsch even managed to break even by dumping YBM Magnex International before authorities shut down the reputed Russian mobster's magnet maker. "We were in it but we got out in time ... we lost one dollar, just one dollar," a senior executive of Hirsch Asset Management told a small Vancouver crowd in mid-1998, as his boss Ms. Hirsch grinned.
Vancouver fund manager Wayne Deans likes to be known for dodging the Bre-X bullet, dumping his clients holdings months before the stock collapsed. In testimony on Dec. 15 at the British Columbia Securities Commission hearing into frontrunning allegations against his former protege John Pyper, Mr. Deans portrayed one of his best calls as selling Deans Knight Capital Management's Bre-X holdings in late 1996, well before the fraud was even hinted at.
"We actually made money on Bre-X," Mr. Deans told BCSC staff lawyer Patrick Robitaille in direct examination. Mr. Deans told the BCSC panel that he spotted the overhyped junior resource market well before it collapsed in the spring of 1997 following the Bre-X, Cartaway, Timbuktu and Delgratia scandals. The Deans Knight partner testified his junior gold resource stock selloff began in mid-1996.
In cross-examination by Mr. Pyper in December, Mr. Deans further explained his selloff strategy. "You try to sell those stocks you feel are most grossly overvalued first ... it is a judgment call ... I remember clearly in the case of Bre-X ... when we sold it, we had no idea of that (the salt-job fraud) .... we sold it for the simple reason that the market capitalization of Bre-X was greater than the market capitalization of all the world's other mining companies combined," Mr. Deans told the hearing.
Mr. Pyper, however, asserts that Mr. Deans' timely selloff was much less impressive in reality. The former protege subpoenaed Deans Knight's net position records and presented a much less flattering view. In a detailed report he prepared and presented this week to the BCSC panel, Mr. Pyper asserts that after Mr. Deans' much-publicized Bre-X selloff in late 1996, he quickly flip-flopped and embarked on a buying spree that ended in March of 1997, the same month the stock collapsed.
The report shows that Deans Knight modestly trimmed its Bre-X holdings from 2.22 million shares at March 31, 1996, to 2.1 million shares by June 30 and 1.92 million shares by Sept. 30. In the final quarter, Mr. Deans dumped 710,000 shares, dropping his firm's year-end holdings to 1.22 million shares, about half the spring 1996 position. Bre-X shares ended the year at $21.70, down from $28.50 in June of that year.
Mr. Pyper's report, however, shows that Deans Knight embarked on a massive Bre-X buying spree in the first quarter of 1997, boosting its total holdings to as much as 2.27 million shares by March 31. Two of Mr. Pyper's spreadsheets offer slightly different tallies, with a summary table showing Deans Knight held 1.94 million shares at March 31, 1997, and 997,500 shares at April 30. The other table, a compilation of 13 client accounts, shows Deans Knight held 2.27 million shares at March 31 and 710,600 shares at April 30.
Depending on the table, Deans Knight bought between 730,000 and 1.06 million shares of Bre-X in the first quarter of 1997, a period in which the stock peaked at $23.50, before collapsing from $19.35 to $2.50 in March. The biggest buying was concentrated in one account, the O'Donnell Canadian Emerging Fund. This fund ended 1996 with 409,800 Bre-X shares, before Mr. Deans boosted its holding to 844,500 shares by the end of March, the month the stock collapsed.
This single fund, the largest Bre-X holder amongst Deans Knight's clients, had an unpleasant Bre-X history. It held 23,700 Bre-X shares at March 31, 1996, 449,300 shares at June 30 and 551,100 shares at Sept. 30. Mr. Deans' selloff trimmed the fund's stake modestly to 409,800 shares by Dec. 31. By the end of March, 1997, the fund's Bre-X stake more than doubled to 844,500 shares.
(c) Copyright 2000 Canjex Publishing Ltd. canada-stockwatch.com
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