FYI from the Globe:
Bre-X investors pressured not to sell stock, court told
Tales of brokerage clients losing life savings added to lawsuit
Thursday, May 28, 1998
By Paul Waldie
The Globe and Mail
Clients of seven brokerage firms were pressured not to sell their shares in Bre-X Minerals Ltd.
when doubts surfaced about the company's supposed huge gold find, court documents allege.
One investor lost her life savings after her broker advised her to put it all in Bre-X because it was a
"safe, secure investment," the documents allege.
Another investor alleges he wanted to sell his stock the day Bre-X geologist Michael de Guzman
died, but was told by his broker to buy more shares.
The allegations are in an amended statement of claim filed yesterday in the Ontario Court's General
Division. It was filed by lawyers representing investors who lost a total of $3-billion when
Calgary-based Bre-X collapsed after its Busang gold property in Indonesia was declared a fraud in
May, 1997.
That was two months after doubts about the property were first raised.
The lawyers are suing several company insiders and the brokerage firms for intentionally misleading
investors. The insiders and the firms have denied any wrongdoing and none of the allegations has
been proven in court.
The amended suit contains stories from more than a dozen investors.
One account involves Kanta Mehta of Toronto, who lost her job as a transit worker in December,
1996, and went to TD Securities Inc. for advice on how to invest $12,000 she received in
severance.
Ms. Mehta repeatedly told her broker, Lou Tantalo, that she wanted the money invested
conservatively "and she was not interested in purchasing any speculative securities," according to
the statement of claim.
Mr. Tantalo allegedly recommended she use her severance to buy Bre-X shares. He added that he
had bought Bre-X shares for his own account, the claim alleges.
"In response to Mehta's concerns that she did not want to invest her entire severance package in
securities that might drop in price, Tantalo assured Mehta that even if her Bre-X shares were to drop
in price, it would only be a slight, temporary fluctuation, and the shares would quickly recover their
value and thereafter, continue to appreciate," the claim alleges.
Mr. Tantalo did not advise her to sell her shares until after the company announced in late March,
1997, that Busang contained insignificant gold. That announcement dropped Bre-X's share price to
$2.50 from $13 on the Toronto Stock Exchange.
"At no time did Tantalo ever advise Mehta that he had sold his own Bre-X shares," the claim
alleges.
Ivo Battistella, an engineer in Ontario, alleges that his broker, Stephen Varga of Nesbitt Burns Inc. ,
told him to disregard rumours in March, 1997, that Busang contained no gold and to buy more shares.
On March 26, 1997, after reports surfaced that Busang was a bust, "Varga also advised Battistella on
or about this date that Nesbitt Burns was planning to lead a $170-million financing for Bre-X once it
was ready to begin production at its Indonesian properties," the claim alleges. There had been no
public announcement about the financing at the time.
Fred Hines, a police officer in Essex, Ont., alleges that he was misled about Bre-X by Rick
McFarlane, a long-time friend and a broker at L‚vesque Beaubien Geoffrion Inc.
Mr. Hines alleges that in February, 1997, he asked Mr. McFarlane about Bre-X. Mr. McFarlane said
it was a "safe, secure investment and that Bre-X's share price would appreciate significantly," the
claim alleges. Mr. Hines alleges he bought 1,000 shares on Feb. 18, 1997, and spent about $23,000,
almost his entire life savings.
"McFarlane never advised Hines that L‚vesque Beaubien had on Feb. 18, 1997, lowered its
recommendation on Bre-X to a 'sell,' " the claim alleges.
"From and after Feb. 18, 1997, on an almost daily basis, McFarlane orally advised Hines to hold
and not sell the 1,000 Bre-X shares."
Garfield D'Eathe, a factory worker who lives in Kleinburg, Ont., alleges that his broker, Dennis
Krok of Midland Walwyn Capital Inc. , told him to buy more Bre-X stock the day Mr. de Guzman
died.
Mr. D'Eathe allegedly called Mr. Krok on March 19, 1997, after hearing reports that Mr. de Guzman
had jumped out of a helicopter over Busang. Mr. D'Eathe wanted to sell his Bre-X stock "on the
assumption that Bre-X had a major problem," the claim alleges.
Mr. Krok allegedly told him to hold his shares and said Mr. de Guzman's death "was related only to
certain health problems." Mr. Krok also advised "that he should actually purchase more Bre-X
shares," the documents allege. Mr. D'Eathe purchased an additional 300 shares on March 24, 1997,
for $4,623.64.
"Krok repeatedly advised D'Eathe not to sell his Bre-X shares," the claim alleges.
William Connors, a Toronto engineer who heads an investment company, alleges that his brokers,
Steve Gallant and Jim Williams of CIBC Wood Gundy Securities Inc. , suggested they had inside
information on Bre-X.
In February, 1997, Mr. Connors alleges he asked the brokers several times whether he should sell
his Bre-X stock.
"They said David Walsh, the chairman, president and chief executive officer of Bre-X was simply a
sloppy administrator, but Bre-X was still the best piece of gold property that anyone ever dreamed
about. Gallant told Connors that he knew someone who knew Walsh and that he, Gallant, had an
inside track."
The day Mr. de Guzman died, Mr. Connors also asked whether he should sell his shares. Mr. Gallant
said he should not and "never at any time advised Connors that [he] should sell its Bre-X shares," the
claim alleges.
It also alleges that Kerry Smith, an analyst at First Marathon Securities Ltd. , "recommended
purchasing Bre-X shares to [clients] despite the fact that other analysts and representatives of First
Marathon disagreed with the recommendation and advised against the purchase and holding of Bre-X
shares."
ScotiaMcLeod Inc. is also named in the statement of claim. |
