Tuesday, October 14, 1997
Bre-X's defence
Embattled junior and advisers in Busang project plan joint defence against class action suits, president David Walsh says
By PAUL BAGNELL
Mining Reporter The Financial Post
Bre-X Minerals Ltd. and several of its advisers in the infamous Busang gold project are planning a joint defence against lawsuits that have arisen since the hoax was
revealed, the transcript of last week's cross-examination of Bre-X president David Walsh shows.
Paul Yetter, a U.S. lawyer leading a huge class action suit for Bre-X investors, condemned the "joint defence agreement" among the company and other
defendants. He said it is an attempt to prevent former shareholders from getting compensation from consultants who worked with Bre-X at Busang.
"They've locked arms to oppose investor efforts to get a recovery," Yetter said from his Houston law office.
The agreement contradicts claims by Bre-X it sought protection under the Companies' Creditors Arrangement Act partly so it could find out where responsibility
lay for the massive fraud at Busang, he added.
Bre-X had told investors its Indonesian discovery contained at least 70 million ounces of gold and perhaps as much as 200 million ounces.
At its peak, Bre-X had a market capitalization of $6 billion. But the shares became worthless in May, when the value of the deposit was shown to be based on
salted ore samples.
Aside from Bre-X and its officials and directors, other defendants in the legal action headed by Yetter include engineering consultants SNC-Lavalin Group Inc. of
Montreal, whose Indonesian subsidiary calculated estimates of gold resources at Busang, and two big brokerage firms.
The brokerage houses, Nesbitt Burns Inc. of Toronto and Lehman Brothers Inc. of New York, both participated in Bre-X financings and employed mining analysts
who wrote glowing reports on the company and its Busang project.
New York banker J.P. Morgan & Co. Inc., a Bre-X financial adviser, is also named.
"The whole [creditor protection] filing was to conduct an investigation in order to determine who was responsible to the victimized shareholders," Yetter said.
"For the company now to be locking arms with the consultants we contend are directly responsible for shareholder losses is outrageous. It's exactly opposite to
what Walsh said this whole filing was for."
The Bre-X president was cross-examined last Wednesday about an affidavit he swore as part of the filing for creditor protection.
The joint defence agreement came to light when Walsh was instructed by his lawyer, Howard Gorman, not to answer questions on whether Bre-X had discussed
legal strategy with other defendants.
Douglas McGillivray, one of the Canadian lawyers working with Yetter, protested that discussions between lawyers for different defendants are not considered
privileged information.
"It is when there is a joint defence," Gorman replied.
Further details of the joint defence agreement were not revealed, and lawyers for Bre-X could not be reached yesterday.
Also, Walsh disclosed he and other insiders plan to use company funds to pay their legal bills, at least temporarily. That's because the trustee of a special legal
defence fund set up by Bre-X is refusing to release money for legal costs.
The $5-million fund was established in December 1996, three months before suggestions surfaced that Busang might be a fake. Walsh said the fund was set up
because Bre-X lacked proper liability insurance.
The trustee of the fund, however, has so far refused to release money for the insiders' legal expenses.
Walsh said the trustee is "confused" and the company's lawyers are trying to resolve the dispute.
But Yetter said the trustee's position is significant because the trustee can only release funds if he believes Bre-X insiders have acted in good faith and in the best
interests of the company.
"It's obvious the trustee does not believe those two requirements have been met," Yetter said. |
