Wednesday, July 30, 1997
Big class-action suit slams Bre -X brokers
Action has particularly harsh words for Nesbitt Burns Inc. and its star
mining analyst Egizio Bianchini
By SANDRA RUBIN
The Financial Post
Stock brokerages played a key role in promoting the fraud at Bre-X Minerals Ltd. by turning a
blind eye to warning signs so that they could make money off the venture, says a massive
class-action lawsuit filed in Texas.
The suit alleges that SNC-Lavalin Inc. also cleared the way for the scam by failing to disclose that
tests by its Kilborn Engineering subsidiary weren't carried out "in accordance with minimum
acceptable industry practices."
The 95-page suit attempts to paint a picture of a "massive deception," with particularly harsh
words for Toronto-based Nesbitt Burns Inc. and its star mining analyst, Egizio Bianchini.
Both are named in the blockbuster action, being brought by a team of 24 law firms in the U.S. and
Canada on behalf of thousands of shareholders.
The suit claims Nesbitt, owned by Bank of Montreal, was pivotal in fuelling investors' belief that
they were buying into a stock-market Cinderella story.
"Nesbitt Burns willingly provided Bre-X ... with a necessary component of a successful fraud they
could not provide themselves: a stamp of credibility and legitimacy," says the court document,
which was filed late last week.
The lawsuit alleges that Bianchini, Canada's top-ranked gold analyst at the time, was given
"unparalleled access to Bre-X management and the remote Busang site."
"As a result, Nesbitt Burns knew that verified core samples from the Busang site had never been
independently collected and independently tested."
The suit claims Nesbitt was therefore aware that statements by Bre-X and Kilborn concerning the
size of the gold find "lacked any legitimate basis."
Yet Bianchini wrote reports about Busang "that were so glowing Bre-X began to refer to one
portion of the Busang site ... as 'the Bianchini zone.' "
"Bianchini, in particular, [was] attempting to increase his prestige, power and client base by taking
credit as the person who essentially 'discovered' Bre-X."
The multibillion-dollar suit claims Nesbitt had an interest in promoting Bre-X because it was
profiting coming and going from the tiny Calgary-based exploration company.
"It acted as an agent for Bre-X during 1996 by assisting Bre-X in raising $30 million of capital
through a private placement of Bre-X stock.
"It also directly profited from its relationship with Bre-X as a market-maker in Bre-X common
stock."
Nesbitt spokesman Joe Barbera declined to comment on the suit yesterday, saying it would be
premature because the firm has not yet received a copy of the action.
Bianchini has not spoken to reporters in several months.
The suit, filed in Texarkana, Tex., also takes aim at Wall Street powerhouse J.P. Morgan & Co.
Inc. for promoting the stock while "engaged in a 'beauty contest' for an opportunity to become
Bre-X's financial adviser."
And it trains its sights on New York brokerage Lehman Brothers Inc., claiming Lehman issued
"false and misleading research" while making a market in Bre-X shares.
The suit maintains Lehman's analyst "had access to information revealing the true conditions at the
'gold' mine at Busang."
As reported in Tuesday's Financial Post, the action alleges analyst Daniel McConvey promoted
the stock even after learning that Barrick Gold Corp. had tested some Busang samples and come
up empty. McConvey was Barrick's comptroller in Toronto for six years before joining the
brokerage.
The lawsuit, which covers Canadian investors, also targets Kilborn Engineering -- which carried
out a check assay program to back up estimates of the size of the Busang strike.
The suit claims Kilborn failed to disclose that it was aware of tests showing the presence of outside
gold, which investigators now know was brought in to salt the Busang core samples.
"The Kilborn defendant intentionally withheld critical information from their reports: most
importantly, that independent testing performed by other laboratories ... indicated that the gold
appearing in Bre-X's samples was completely different, in shape, size and degree of weathering,
from gold that would have been found in volcanic hard-rock formations like Busang."
The suit also alleges that Kilborn intentionally withheld the knowledge that Busang core samples
had been crushed on-site, rather than sent whole to test labs, and had languished for weeks in open
bags "leaving the samples susceptible to tampering."
Allegations in a suit are not considered fact until proven in court.Suzanne Lalande, a
spokeswoman for parent company SNC-Lavalin, said the company stands by its work.
"Our work was conducted with the highest professional standards and based on the mandate from
our client," she said from Montreal. "We are very comfortable with that.
"But we think it's unacceptable for a society to allow a criminal act to disturb the life and business
of honest people doing a professional job the way this is doing."
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