WONDERFUL NEWS: canoe5.canoe.ca
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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