Disclose Nesbitt's Bre-X settlement
Diane Francis
Financial Post
Rumours are that two Ottawa investors have received a sizeable sum from BMO Nesbitt Burns Inc. and one of its former brokers,
involving the Bre-X Minerals Ltd. gold swindle.
The terms of settlement require confidentiality, so no one really knows what happened. However, that should not be the case in
light of new rules imposed recently by the Investment Dealers Association.
"It was settled, but I can't go any further," said BMO Nesbitt's defence lawyer, John Campion, in a telephone interview this week.
"The trial was started and it was settled during the trial. All parties are bound to non-disclosure."
I asked if both sides were happy to settle?
"Both were happy, which is why we settled," he said.
The BMO Nesbitt trial dragged on, becoming a huge expense for the plaintiffs, no doubt.
"They were examined and cross-examined extensively in the spring for a couple of weeks and started again in September. As we
began again it became obvious that settlement was best for all sides," said Mr. Campion.
This represents the first case that has gotten to court involving the $9-billion swindle. BMO Nesbitt had many clients who
invested in the stock and its related companies, which disappeared in 1997 after it was determined that the Bre-X gold find was a
fraud.
What's interesting is that this non-disclosure deal involving brokers and client disputes is now seemingly disallowed. On May 22,
the Investment Dealers Association issued Notice MR-076, which states that member firms are not to enter into agreements that
require that the client keep the terms confidential if that would restrict the client from disclosing details of the complaint or the
settlement to securities regulators or enforcement authorities.
Disclosure requirements should be retroactively imposed on this case because of its importance, in my opinion. After all, Bre-X
took down the entire Street, blackened the country's reputation and cost individuals and institutions billions of dollars. There were
many suicides and business failures, too.
IDA president and CEO Joe Oliver said in an interview this week that his organization monitors such court cases and settlements
involving brokers, but cannot comment on any specific case.
"We may decided to investigate and if we feel there should be a hearing, then the matter will become public," he said.
He would not say publicly whether the BMO Nesbitt settlement with Mr. Watson or Mr. Bougie had been disclosed to the IDA.
If the broker has accepted any responsibility for the Bre-X stock disaster everyone should know.
The case against BMO Nesbitt Burns Inc. and former broker Donald Carter was started in May, 2000, before the Ontario Superior
Court of Justice in Ottawa by plaintiffs Richard Watson and David Bougie. They claimed damages of $20-million plus legal costs
and said in court documents that Mr. Carter failed to execute their orders to sell their Bre-X stock before its collapse in May,
1997. They also claimed that Mr. Carter and Nesbitt failed to adhere to know-your-client rules by allowing them to remain in a
highly speculative stock such as Bre-X.
"The plaintiffs state that throughout the latter part of 1996, early 1997, the plaintiffs attempted to meet with the defendant
Carter and/or attempted to contact him by telephone," reads the statement of claim. "The plaintiffs state that when they did have
contact with Carter he failed to provide adequate advice or recommendations."
Nesbitt and Mr. Carter both denied negligence in their statement of defence.
"At all times, Watson and Bougie understood that any information provided to them by Carter, Nesbitt or its employees with
respect to Bre-X, or any other investment, was not a warranty or representation regarding the future performance or value of a
particular stock," said their statement filed in court.
Messrs. Watson and Bougie were not novice investors and had taken a position in Bre-X years before its demise, added the
brokerage firm.
Mr. Watson said he gave an order to sell his entire portfolio of Bre-X and related stocks on or about March 7, 1997, and on
March 21, 1997. "The defendant Carter advised that he could not or would not sell the stock," read the statement of claim. "On
the 25th of March, 1997, the plaintiff Watson contacted the defendant Carter by telephone again wanting to divest his interest.
Watson was told to wait, a takeover of the company was coming at $27 to $29 a share. The same assessment was also given to
plaintiff Bougie on or about the 25th of March, 1997."
The investors claimed they would not have lost this money if their portfolios had been prudently and reasonably managed by Mr.
Carter and Nesbitt. They claimed Mr. Carter was getting out of the stock when they wanted to and did not tell them. "The
defendants failed to disclose, in a timely manner, the defendant Carter's actions of liquidating Bre-X and related company shares in
his personal trading accounts and in the trading accounts of his spouse," they alleged.
Nesbitt and Mr. Carter responded that Mr. Watson and Mr. Bougie relied on their own judgment and acumen developed over
several years of investing. "The defendants deny that their conduct has caused any damages to the plaintiffs."
The allegations are serious and apply to many other members of the public, which is why the settlement should be disclosed.
dfrancis@nationalpost.com
nationalpost.com |
