Tuesday, May 6, 1997 Bre-X probes focus on tampering, fraud
Police, regulators -- and investors -- begin their
quest for the truth as Strathcona audit confirms
Busang gold play is a colossal scam
By SANDRA RUBIN
The Financial Post
RCMP investigators were poring over documents relating to
Bre-X Minerals Ltd. yesterday as furious investors came to grips
with the swindle of the century.
Bre-X's partners didn't waste any time bailing out of the Busang
project after reading an independent audit carried out by
Toronto-based Strathcona Mineral Services Ltd.
The report blew the lid off a massive gold exploration fraud and
suggested Bre-X was in possession of several studies that should
have flagged the company to tampering.
Police were tight-lipped about possible criminal charges.
"There's no investigation at this time," said Deleen Schoff, a
spokeswoman for the RCMP in Calgary. "They're merely
reviewing the report to decide which direction to take."
But the Indonesian government and Freeport-McMoRan
Copper & Gold Inc. had no trouble deciding on their direction:
away from Bre-X. Both ripped up their deals with the Calgary
exploration company as they moved to distance themselves from
the scam.
Trading in Bre-X shares (bxm/tse) remained halted all day as
regulators and exchange officials grappled with what to do next.
The Toronto Stock Exchange decided trading will resume today,
but warned Bre-X could have its listing yanked. Officials from the
exchange will meet with Bre-X officials within the week.
"Pending completion of this review, the TSE believes that
investors in Bre-X Minerals Ltd. should be provided with a
market in order to exercise their own judgment," the TSE said.
Bre-X president David Walsh was terse as he stopped his black
Lincoln briefly to get through the throng of reporters outside the
company's Calgary head office.
"Everything I'm going to say is in the news release," a
pallid-looking Walsh said through the lowered window.
"Investigators will get to the bottom of it."
He then yelled at reporters to "get away from the car," and
drove into the basement parking lot.
Later in the day a bomb threat sent Walsh and other Bre-X staff
into the street in front of Bre-X's office building. Calgary police
said an out-of-town call was placed to a Bre-X employee just
after 4 p.m.
"It's certainly not going to be the last of the problems," said Duty
Insp. Barry Clark.
Bre-X exploration chief John Felderhof insisted in a statement he
was not party to any scam and said he still believes there's gold
beneath the Borneo jungle.
"I know that I was not involved in a fraud," Felderhof said in a
fax from his Cayman Islands home. "I also find it very hard to
believe that anyone in my staff was involved in a fraud."
Lawyer Harvey Strosberg, heading a Canadian class-action suit,
said Felderhof and Walsh are liable for billions of dollars in
damages -- whether they knew about the tampering scheme or
not.
If they were genuinely in the dark, they are still answerable to
shareholders for negligence.
"[The claim of negligence] says: 'If you didn't know, you ought to
have known. You're the people in charge. You had an obligation
to inform yourselves,' '' Strosberg said from his office in Windsor,
Ont.
His suit is seeking $3 billion in compensatory damages, even
though it's widely speculated that Walsh, his wife Jeannette and
Felderhof all have their assets safely stashed offshore.
"We'll chase them," Strosberg said. "I think there'll be a lot of
people looking for them. This isn't somebody who's disappeared
with $500. This is a massive fraud, and I don't think these people
will find shelter very many places."
There are at least nine class-action suits filed in Canada and the
U.S. as investors line up to try to recoup their losses.
Regulators have been left scrambling to explain how Bre-X grew
its market capitalization to more than US$5 billion based on an
outright fraud.
"It's amazing how these people have run for cover -- the
Investment Dealers Association, the Toronto Stock Exchange --
I'm just astounded," said Stephen Williams, a Waterloo, Ont.,
investor who lost $65,000 on Bre-X shares.
"To say I feel sick is an understatement. I'm also embarrassed."
He was planning to contact a Montreal-based shareholders
group that has nine Bay Street brokerages in its legal sights along
with Bre-X and its directors. The group contends several
investors were misled by their brokers about Bre-X's prospects.
"I bought into this thing in August and knew within two weeks I
should have been out of it," Williams said. "My broker convinced
me otherwise -- right through to the bitter end when the thing
collapsed."
The sheer size of the damage claims against Bre-X ranks Busang
among the biggest financial frauds in history, larger than the
collapse of Baring Securities, the Bank of Credit and Commerce
International and the Sumitomo copper trading scam.
But Jack Geller, chairman of the Ontario Securities Commission,
rejected suggestions the scandal has given Canada a black eye as
the pre-eminent market for junior miners.
"There isn't a marketplace where there hasn't been scams,"
Geller said. "But very quickly people recognize a bad apple
doesn't make a bad market, and I really don't think there will be
a long-term effect on the Canadian marketplace as a result of
this."
He said the OSC and TSE are already studying whether changes
to the mining industry are needed.
"There's always a temptation to do something just to be seen to
do it," he said. "It's not the way regulations should be done.
"So far, there's nothing that I've seen or read that indicates
additional regulation would have made a big difference in this
particular situation."
But shareholders milling around Bre-X's head office in Calgary
made it clear someone should have to pay.
"I've lost $4,000," said Heinz Rothmann, a Calgary construction
worker. "If it's found out that they concocted all this, well, I'd
probably go to jail if I bilked somebody out of a couple of
thousand dollars."
-- with files from Sydney Sharpe/FP in Calgary and Reuter |
