Tuesday, July 29, 1997
Blockbuster lawsuit draws Barrick into Bre
-X furore
By SANDRA RUBIN
The Financial Post
Barrick Gold Corp. was drawn in to the Bre-X Minerals Ltd. furore yesterday after a blockbuster
lawsuit filed in Texas claimed it tested Busang core samples for gold and came up empty handed.
Although Barrick has not been named as a defendant in the suit, it alleges that a high profile New
York analyst, who once worked for Barrick, knew that the gold miner had come up empty well
before it was finally revealed that Busang was actually a fraud.
Toronto-based Barrick -- one of the most widely respected gold producers in the world -- carried
out due diligence on Busang as part of a plan to get its hands on a majority stake in the massive
strike.
The market value of the tiny Calgary exploration company rocketed to $6 billion last year as eager
investors believed they were buying into the gold find of the century.
Barrick has maintained a resolute silence about what it found in those tests since Bre-X was
exposed as a hoax in May.
The allegation came in a section of a class-action suit detailing alleged wrongdoing by Wall Street
heavy hitter Lehman Brothers Inc.
Lehman released a 50-page report on Busang on December 3 describing it as "the gold discovery
of the century" and rating the shares a buy.
The lawsuit alleges Lehman analyst Daniel McConvey, Barrick's comptroller for six years before
joining the brokerage, knew about Barrick's negative tests.
"He communicated with his former employer, Barrick Gold, which had conducted sample testing of
Busang in the fall of 1996, and learned of its negative test results of the samples," the lawsuit says.
Barrick spokesman Vince Borg acknowledged the company did come up empty after testing some
Busang core samples.
But he said Barrick was prevented by confidentiality agreements from making that information
public.
"And it's not that simple," Borg said. "Yes, we tested some core samples that showed negative, but
it was not from our own drill holes.
"And tests that we did subsequently showed some gold values. So that led us to the determination
that we needed to do our own drilling."
Lehman declined all comment on the suit yesterday, saying it had not yet seen the documentation.
At least 24 North American law firms have teamed up for the huge class-action suit in a bid to get
the fraud before a damage-savvy U.S. jury as quickly as possible.
The consolidation should save months of legal wrangling about where the case will be heard.
The action, which is being led by Houston class-action specialist Paul Yetter, encompasses
Canadian investors who bought the shares on Canadian stock exchanges.
At least four Canadian law firms who've started proceedings here at home have joined the
high-powered bi-national team.
"We're all going after the same money," Vancouver lawyer David Klein said yesterday. "It simply
makes more sense for us to work together.
"It's to everyone's benefit. There are no losers. Our clients benefit from the strategic alliances. And I
don't care where the lawsuit is, as long as it's successful."
Montreal lawyer Yves Lauzon has also signed on to the U.S. mega-suit.
Canadian firms that have joined the Texa-based class action can still plow ahead with plans to
pursue Bre-X through the Canadian courts.
Calgary lawyer Clint Docken, who's on the huge legal team, said he'll keep up with the paperwork
for his suit in Alberta but put the Canadian case on the back burner.
"We'll try the U.S. route initially because if that works, there's potential for complete settlement
there," he said.
"If things don't work out in the States, we'll pursue it in Canada."
He said U.S. juries are more accustomed to big damage awards than Canadian courts, and there's
a better chance of winning a securities case under the American legal system.
Like most of the other suits filed on both sides of the border, the U.S. suit -- filed about a month
ago -- names Bre-X and its directors, Bresea Resources Ltd., SNC-Lavalin Inc. and its Kilborn
Engineering subsidiaries.
But it added Lehman and J.P. Morgan & Co. to the list in an amendment late last week.
J.P, Morgan also declined comment yesterday.
"Those companies are reputable and they gave a tremendous amount of credibility [to Bre-X]," said
Thomas Ajamie, a lawyer with Zummo, Schirrmeister and Ajamie of Houston, Texas.
"Representatives of those companies stated that they had done research and analysis into Busang."
The lawsuit also names Toronto-based Nesbitt Burns Inc. It could 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."
-- with files from Bloomberg
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