Southwestern's former president Paterson arrested
2010-12-20 22:39 AT - Street Wire
by Mike Caswell
The RCMP's Integrated Market Enforcement Team has arrested John Paterson, the former president of Southwestern Resources Corp. He faces criminal charges for falsely inflating assay results from drilling on the company's Boka project in China over a four-year period. Police took him into custody on Saturday morning at his home on Saltspring Island, and transported him to Vancouver by seaplane.
The arrest came the day after prosecutors filed a nine-count criminal information sheet in the Provincial Court of British Columbia against Mr. Paterson, 60. The charges are five counts of fraud over $5,000, two counts of fraud on the stock market, one count of publishing false statements to induce persons to become shareholders of a company and one count of publishing false statements to deceive shareholders of a company. In a news release issued Monday, the RCMP says it has been investigating Mr. Paterson since July, 2007, and received assistance from law enforcement agencies in China and Hong Kong.
The charges stem from 25 news releases that Southwestern issued between May 8, 2003, and Feb. 21, 2007, with assay results from the Boka property. The results were generally positive, and helped the company reach a $21.50 high on the Toronto Stock Exchange in 2004.
The stock drifted lower over the following three years, as investors awaited a much-delayed prefeasibility study on the property. Eventually, Mr. Paterson resigned as president as the board looked into the delays. Then, on July 19, 2007, the company issued a news release in which it withdrew the assay results, saying they contained errors and that some drill core was compromised. The resulting sell-off wiped out $150-million in market capitalization, with the stock falling from $6.34 to $2.90 that day.
Mr. Paterson made his first appearance in Vancouver Provincial Court on Monday. Details of the hearing cannot be made public, as Mr. Paterson's lawyer, Rod Anderson, requested and received a publication ban at the outset. He did not state his reasons for seeking the ban, and the Crown did not oppose it.
Paterson's BCSC case
While little information from the criminal case is publicly available, Mr. Paterson has been subject to past litigation over his role as president of Southwestern Resources, including an administrative action from the B.C. Securities Commission that he settled on June 25, 2009. In settling, Mr. Paterson signed an agreed statement of facts, in which he admitted that he was responsible for erroneous gold grades that Southwestern reported.
According to the statement, there were 433 such errors in Southwestern's news releases between 2003 and 2007. While some of the discrepancies were minor, there were 60 instances in which the company reported a significant finding when the actual result was less than 0.1 gram per tonne. Mr. Paterson, who was the sole recipient of Southwestern Resources' assay certificates, admitted that he entered erroneous figures into the company's database. "By altering the assay results and causing press releases to be issued which contained the Discrepancies, Paterson participated in a series of transactions that he knew ... perpetrated a fraud on persons in British Columbia," the settlement reads.
Mr. Paterson also admitted that he sold 50,000 shares on July 16, 2007, just three days before the company issued a news release withdrawing all previous assays for Boka. He sold his stock at $5.96, generating proceeds of $298,239, and avoiding $153,000 in losses.
The statement of facts attributed Mr. Paterson's poor judgment to severe clinical depression. Since July, 1997, he had been under the care of a psychiatrist.
Terms of the settlement included a permanent ban from serving as an officer or director of any public company and from performing investor relations work. Mr. Paterson also agreed that he would have been liable for a $3.45-million fine, which the BCSC waived based on his financial condition. In mitigation, the BCSC noted that Mr. Paterson voluntarily contributed substantially all of his assets, of about $3.5-million, to settle class-action lawsuits filed by shareholders.
Southwestern delisted from the Toronto Stock Exchange on May 26, 2009, the company having been taken over by Hochschild Mining PLC for 50 cents per share.
A date has not yet been set for Mr. Paterson's trial. It is not clear if the publication ban will extend to the trial or remain limited to his bail hearing. |
