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The Bre-X Saga:
Fortune or Folly?
Court freezes Felderhof assets
Wednesday 31 December 1997
Stephen Ewart, Calgary Herald
Millions in assets of
Bre-X Minerals
director John
Felderhof have been
frozen by a Cayman
Islands court.
The move by
bankruptcy trustee
Deloitte & Touche
came so quickly that
Felderhof's lawyers
had to "move heaven
and earth" in the
Caribbean tax haven
on Christmas Eve to
even get spending
money for the chief
geologist of
Calgary-based
Bre-X.
Deloitte & Touche
had filed a civil suit
against Felderhof and
his wife, Ingrid, on
Dec. 18 and
convinced the Grand
Court to put a freeze
on their bank
accounts and three
posh homes.
The total value of
those assets was not
released.
"They were frozen
without any notice to
us," said Joe Groia, a
Toronto-based
lawyer for Felderhof.
Groia, who described
the move by Deloitte
& Touche as
unnecessary and
inappropriate given
the proximity to the
holidays, worked with
Caymanian lawyers to
get a judge to hear
their concerns at the
last moment before
Christmas.
"We were able to free
up some living money for basically the next two months," Groia said
Tuesday.
Ross Nelson, a senior vice-president with Deloitte & Touche in
Calgary, cited confidentiality rules imposed by the court in refusing
to divulge details.
"It all arises from Mr. Felderhof's dealings with Bre-X and his role
as an officer and director of Bre-X," Nelson said.
Court documents contend he was negligent and breached his
fiduciary duty to the company.
Nelson refused to speculate if the trustee would pursue similar
actions against Bre-X chief executive David Walsh.
"I can't comment on that at this time," Nelson said Tuesday.
David Walsh, reached at his seaside home in the Bahamas, had no
fear that Deloitte & Touche would target him next.
"There's no reason," Walsh said in an interview. "I've been a part of
the ongoing investigation, I'm no risk of flight and I've been assisting
in trying to uncover what has happened here."
Felderhof was Bre-X's top geologist and its senior official in
Indonesia, where the tiny Calgary-based mining exploration
company said it had discovered a deposit with 71 million ounces of
gold in the Busang area.
It was exposed as the biggest gold mining fraud in history last spring
and Bre-X, once worth $6 billion on the stock market, eventually
was forced into bankruptcy.
Bre-X began as a penny stock company. In 1996, speculation of
the massive gold find sent the stock soaring to a peak equal to $280
before plunging earlier this year when the massive "salting" scam was
uncovered.
Thousands of investors worldwide lost billions in the venture.
Walsh reportedly earned some $35 million trading Bre-X shares.
Felderhof has reportedly earned more than $40 million.
No criminal charges have been laid, but a report commissioned by
Bre-X blamed the fraud on Michael de Guzman, a geologist who
worked with Felderhof. De Guzman died in March after plunging
from a helicopter near the Busang site.
Dermod Travis, who heads a Montreal-based shareholders' rights
group which is part of a series of lawsuits launched by people who
held stock in the company, said he is interested to see if Deloitte will
now go after Walsh and others.
"The issue of breach of fiduciary duty regarding the officers and
directors of Bre-X may encompass more than John Felderhof,"
Travis said. "If they're limiting it to just Felderhof, I'd like to know
how they determined that.
Unlike Felderhof, who hasn't left the Caymans since the scandal
erupted last spring, Walsh has spent much of the year working in
Calgary. He returned to the Bahamas just before Christmas.
Groia said the civil suit was based on "innuendo and conjecture."
Felderhof will contend the suit.
Groia also complained the suit needlessly duplicated similar court
actions against Felderhof already under way in Alberta and Ontario.
"How many lawsuits do you need?" he asked.
In the documents filed in the court in Georgetown, the Cayman
capital, the assets listed include money the Felderhofs have in
Barclay's Bank, along with homes on Grand Cayman.
The homes include the palatial $3-million-US seaside villa at Vista
Del Mar which is the couple's primary residence, a $400,000
bungalow at Snug Harbor and a $1.2-million condominium on the
famous Seven Mile beach.
The suit also names the Cayman Islands company Spartacus Corp.
The trustee has requested all records of transfers between the
Felderhofs and Spartacus between 1993 and 1997. Ingrid
Felderhof was named in the suit because ownership of all the homes
is under her name.
Felderhof, who has said little publicly since the fraud was exposed
last spring, did submit to a lie-detector test administered by lawyers
last fall. It suggested he did not know about the tampering of
samples at Bre-X's Busang site.
The Cayman Islands, a British protectorate, is well known for
banking confidentiality and numbered bank accounts, but in an
interview with the Herald last spring, the president of the Cayman
Islands Bankers Association said the money in banks there is not
untouchable.
"If it (the court) finds there is something criminal, then there is no
protection," Jurg Kaufmann said.
Travis said he was pleased Deloitte & Touche was leading the
action in the Caymans because it had far more resources to go after
Felderhof's assets than did any shareholders.
Quick Facts
- Action: Deloitte & Touche, the bankruptcy trustee for Bre-X
Minerals, filed a civil suit against John Felderhof, Ingrid Felderhof
and Spartacus Ltd.
- Location: Georgetown, Cayman Islands.
- Court order: Felderhof's Cayman assets have been frozen by the
Grand Court.
- Assets Listed: Funds in Barclay's Bank (value not disclosed);
Vista Del Mar home (value, $3 million US); Snug Harbor home
(value, $400,000 US); Great House condominium (value, $1.2
million US).
- Elsewhere: Similar court actions are under way in Alberta and
Ontario.
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Contents copyright 1997.
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