Friday, April 10, 1998
Lawyers squabble over best Bre-X target and venue
By MICHAEL MACDONALD -- Canadian Press
TORONTO -- Investors who lost billions in the Bre-X gold scam took a step closer to getting a
piece of their investment back this week.
But the Ontario court ruling that supports their class-action claim marks only the beginning of a very
long, costly journey.
"It opens the door just a little bit," said lawyer David Klein, who represents 300 former Bre-X
shareholders in British Columbia.
"But it doesn't open it completely because all that's been said is there's a possibility such an action
could succeed."
Klein's claim alleges Bre-X executives, investment dealers and analysts fraudulently made millions at
the expense of misinformed Bre-X investors.
"The primary targets in this case are the brokers, the analysts and the companies that did the mining
analysis for Bre-X," said Klein.
Calgary-based Bre-X and Bresea Resources, its holding company, are thought to have about $35
million in assets. But that wouldn't go far among investors who lost billions of dollars in stock value
after claims of a huge gold deposit in Indonesia turned out to be the biggest hoax in mining history.
On Wednesday, judge Warren Winkler refused to grant defence motions to dismiss parts of the
Ontario suit, saying key allegations of misrepresentation and conspiracy will stand.
One of the investment dealers named in the suit, Toronto-based Nesbitt Burns, issued a release
noting the judge dismissed an allegation that brokers breached their fiduciary duty by recommending
the stock.
"You should never make a pleading and lose a portion of it," said Nesbitt lawyer John Campion.
"That's whistling by the graveyard."
Harvey Strosberg, the lawyer leading the Ontario lawsuit, said the Nesbitt team was just nit-picking.
"They're trying to put the best possible spin on a bad result from their perspective," Strosberg said.
Attempts at certifying similar class-action suits are also underway in Quebec and Texas.
But Klein's case in B.C. is on hold until a Texas judge decides whether Canadian investors can join
the U.S. litigation. Klein said he wants his clients' case heard in a U.S. court because they would be
more likely to regain a larger share of their losses under U.S. law.
But Strosberg says that's nonsense.
"Mr. Klein is a hopeless optimist. This is a Canadian problem."
Canadian law provides the best opportunity to win because the onus is on the Bre-X directors and
brokerage houses to prove they weren't negligent, Strosberg said.
"That's a huge difference in the law ... There's no equivalent in the States."
Among those named in the Ontario suit: Bre-X exploration chief John Felderhof, chief executive
David Walsh, TD Securities, ScotiaMcLeod, Levesque Beaubien Geoffrion, Midland Walwyn
Capital, CIBC Wood Gundy Securities, First Marathon Securities and Nesbitt Burns.
Many of the brokerages named are owned by Canada's big banks.
"That's where all the money is," said Greg Chorny, an outspoken former Bre-X shareholder who
also wants the Canadian cases shifted to the United States.
"I predict that the Ontario case will not go ahead because people will sober up to the reality that the
action is very speculative and risky one."
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