Saturday, March 21, 1998
Toronto court set to hear Bre-X case on Monday
By SANDRA RUBIN
The Financial Post
Midland Walwyn Inc. and its gold mining analyst breached the federal Competition Act by making false and misleading statements about Bre-XMinerals Ltd., says a new lawsuit filed in British Columbia.
If found in violation, the brokerage firm could be hit with damage claims from any investor who relied on a Midland research report or "buy" recommendation - even if they were not clients.
The suit echoes similar class action allegations filed in Ontario by Windsor lawyer Harvey Strosberg. Midland is named along with Nesbitt Burns Inc., First Marathon Securities Ltd., ScotiaMcLeod Inc., L‚vesque Beaubien Geoffrion Inc., TDSecurities Inc. and CIBCWood Gundy Securities Inc.
"The brokerages are really worried about this Competition Act twist," a source close to the case said Friday. "It potentially opens up a whole new level of liability."
The newest suit comes as lawyers in Ontario prepare to do battle Monday in the start of a week of arguments in the high-profile case.
Several defendants, from Bre-X exploration chief John Felderhof to SNC-Lavalin Inc., have filed motions saying the plaintiffs failed to prove a proper cause of action.
They will argue Strosberg didn't show that investors in his suit relied on any one specific research report to buy Bre-X stock, or which statements Felderhof made while supposedly knowing they were untrue.
"They're covering all the bases," Strosberg said. "I suspect there's so much at stake that they're covering every base, and that's understandable. The judge has to decide whether we've pleaded a cause of action. In case law, that's not a high bar to get over."
John Campion, representing Nesbitt Burns and its star mining analyst, Egizio Bianchini, said he'll also argue the Competition Act is not applicable.
"It isn't as if I'm General Motors saying:'Look, my car is the best in the world' when it isn't, and you get charged under Section 52.1 of the Competition Act for misleading advertising," Campion said. "This isn't advertising. This is a service. What the research department does is give an opinion.
"And other brokers aren't complaining we were unfair. It's the shareholders, who are not part of our industry, and that is not anti-competitive behavior. So the notion of using the Competition Act in this case, I believe, is wrong."
Lawyer James Poyner, who launched the class action suit filed Wednesday in British Columbia Supreme Court, wants the court to force Midland and analyst Mike Jalonen to provide a full accounting of money made trading shares of Bre-Xor sister company Bresea Resources Ltd. - for their personal accounts as well as for their clients.
"There's a concern that while it was being recommended to clients that shares be purchased, principals of the brokerage houses and the brokers themselves were selling theirs," Poyner said.
"If so, there's a conflict of interest and they should be accounting for that money and should be paying it over for the benefit of shareholders who lost their money."
The suit is seeking $1.1 billion in damages and costs, as well as unspecified punitive damages for investors who lost money in the Indonesian gold scam.
Midland said it is too soon to comment. "We've only just learned of the litigation," said Brad Doney, the firm's general counsel. "But we'll be hiring B.C. counsel to defend our interests."
Poyner said he is dovetailing his filings to the Ontario suit in a bid to lay the groundwork for a Canadawide class action. He expects to file suit against SNC Lavalin and its Kilborn engineering subsidiaries next week.
Another Bre-X suit has been started in B.C. by lawyer David Klein, who is allied with lawyers on a North American class action filed in Texarkana, Tex.
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