IDA fines broker of Bre-X's "Mike and his mighty ducks"
2003-06-16 20:25 ET - Street Wire
Also Street Wire (C-BXM) Bre-X Minerals Ltd
by Brent Mudry
A small Montreal brokerage which helped Bre-X Minerals fall guy Michael de Guzman and four of his Indonesian "prospector" associates, mostly undeclared insiders, make millions of dollars through options exercises has been fined a total of $144,000 by the Investment Dealers Association of Canada.
The IDA fined Resolution and former senior broker Gaston English $50,000 each, plus $22,000 each in investigative costs, on Monday for handling scores of dubious transactions in September, 1996. The case is the only resolved prosecution stemming from the multibillion-dollar Bre-X debacle, one of the world's biggest frauds in the last century.
The regulator found Mr. English guilty of 43 violations, largely for letting late Bre-X promoter David Walsh open the Indonesian accounts, and other third party accounts for Bre-X, affiliate Bresea Resources, a Walsh family foundation and Mr. Walsh's two sons, Brett Walsh and Sean Walsh. (Almost 330,000 Bre-X shares, worth $4.47-million, were sold in the Walsh sons' accounts in a one-week period in November, 1996.)
Resolution was found guilty of 13 violations. A number of the dubious stock trades were not even registered in Resolution's books and records. At the time, Mr. English was the president, chief executive officer and "ultimate designated person" of brokerage Obligations Montreal Inc., now Resolution Capital.
The IDA case, with the Indonesian clients' identities largely shrouded in secrecy, offers the only known public insight into any Bre-X stock trading done by the late Mr. de Guzman and his Indonesian associates, the Filipino nationals dubbed "Mike and the mighty ducks" by John Felderhof, Bre-X's exploration vice president.
The Bre-X gold promotion collapsed within weeks of Mr. de Guzman falling out of a helicopter in March, 1997, and was later commonly accepted as a massive salting job. Despite extensive police, regulatory and media investigation and speculation, no evidence has ever been proven in court that Mr. de Guzman, any of his associates, Mr. Walsh, Mr. Felderhof or anyone else had any idea that Bre-X's Busang deposit in Indonesia, once touted as the world's biggest gold find, was actually an alleged hoax. A month before Mr. de Guzman's fall to earth, Mr. Felderhof told analysts, fund managers and the media that he was confident the deposit contained a potential 200 million ounces of gold.
Virtually all of the case documents on the IDA's Web site, including the notice of hearing issued last August, refer only to five mystery Indonesian clients with the initials M.G., presumably Mr. de Guzman, C.P., presumably key associate Ceasar Puspos, J.A., presumably Bre-X metallurgist Jerry Alo, J.N. and R.R. The IDA publicly identified only Mr. de Guzman by name in a brief press release in April, after finding Resolution and Mr. English guilty after a 12-day hearing.
Broker Mr. English opened the Indonesian client accounts for Mr. Walsh, without having any contact with Mr. de Guzman and the other clients, on Sept. 16, 1996. Once opened, the accounts were quickly used to exercise Bre-X options and whisk the profits offshore. Three of the accounts, including Mr. de Guzman's, sold Bre-X shares the same day they were opened, while the J.N. account sold shares worth $645,000 three days before the account was even opened.
The de Guzman account, based on Mr. Walsh's instructions, made a $1.26-million profit, after options exercise charges of $25,000, while the C.P. and J.N. accounts each made profits of $632,000. The proceeds of the de Guzman and C.P. accounts were sent to Bank Universal Jakarta, while the J.N. proceeds were went to Bank Dagang Negara.
The other two accounts waited until Oct. 29 or 30, 1996, to cash in on options exercises, with the $754,000 proceeds of the J.A. account and the $377,000 proceeds of the R.R. account both sent by Resolution to accounts at Hongkong and Shanghai Bank.
Resolution broker Mr. English forgot to answer scores of questions on account opening forms, including how long he knew his Indonesian clients, how he met them, whether anyone else had trading authorization, and key "know your client" details.
bmudry@stockwatch.com
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