Thursday, April 9, 1998
Judge hands big victory to Bre-X investors
By SANDRA RUBIN
The Financial Post
An Ontario Court handed investors in Bre-X Minerals Ltd. an early victory
yesterday, refusing to throw out huge parts of a class action lawsuit against
insiders, brokerages and analysts for their role in the multibillion-dollar stock
fraud.
Defendants including Nesbitt Burns Inc., Bre-X exploration chief John Felderhof and chief
executive David Walsh had been trying to have the suit whittled down in advance of any trial.
Their lawyers argued in pre-trial hearings late in March the case against them was not properly
pleaded.
But in a decision last night, Judge Warren Winkler refused to grant their motions to dismiss key
chunks of the suit, saying allegations of misrepresentation and conspiracy will stand. But he added
some portions passed the test by a "mere whisper."
"This is a superb result for us," lawyer Harvey Strosberg, who is leading the suit on behalf of
investors, said from Scottsdale, Ariz. "All the defendants attacked everything and tried to get rid of
everything. What the judge did is say, generally, the actions stand. The only element he struck out is
breach of fiduciary duty."
In his 39-page ruling, Winkler said Bay Street brokerages will have to answer to claims of negligent
misrepresentation made by investors who say they relied on the brokerages' advice in buying Bre-X
shares.
TD Securities Inc., ScotiaMcLeod Inc., L‚vesque Beaubien Geoffrion Inc., Midland Walwyn
Capital Inc., CIBC Wood Gundy Securities Inc., First Marathon Securities Ltd. and Nesbitt -- and
their gold mining analysts -- have all been named in the suit.
But Winkler made it clear the case against all of them is not equal.
"The main action does contain a sufficient pleading to sustain the allegation of fraudulent
misrepresentation as against Nesbitt Burns and [analyst Egizio] Bianchini, and against First Marathon
and [analyst Kerry] Smith," he wrote.
"In respect to the claim against ScotiaMcLeod, I have serious reservations. Taking into account the
minimal threshold ... this claim is so scant as to only pass that test by a mere whisper."
In a move sure to be welcomed by the brokerage community, Winkler threw out allegations
investment advisers were in breach of fiduciary duty in recommending the stock.
"None of the plaintiffs has pleaded any specific facts ... which could serve to elevate the brokers
relationships above the status of information provider or order taker.
"Nor are there any material facts which, if true, could support a finding of vulnerability on the part of
the plaintiffs, or discretion in decision making on the part of the brokers."
He also refused to uphold arguments by Walsh, Felderhof and Bre-X vice-president Stephen
McAnulty that they cannot be sued in their personal capacity because they were acting as officers
and directors of the corporation in issuing press releases suggesting the Indonesian strike was among
the biggest finds ever.
Winkler said the allegations, if proved, "are sufficient to attach personal liability to these defendants."
But he did stay portions of the suit against Ingrid Felderhof and Nancy McAnulty, until the case
against their husbands is resolved.
Montreal-based SNC-Lavalin Group Inc. had part of the case against it dismissed last month, but
will stand trial for breach of the federal Competition Act.
SNC's Kilborn engineering subsidiary provided an independent resource estimate that supported
claims of a massive find.
Such calculations, which were widely disseminated by Bre-X, were materially false and misleading
and therefore in breach of the act, the plaintiffs say.
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