The Bre-X Saga:
Fortune or Folly?
Bre-X hearing bogs down
Tuesday 20 October 1998
Bertrand Marotte, Calgary Herald
Lawyers for shareholders who were burned in the
Bre-X Minerals gold fraud were in court on
Monday trying to win class action status for a suit
claiming billions of dollars in damages.
About two-dozen lawyers for the plaintiffs and the
defendants crowded into a courtroom in Ontario
Court's general division before Justice Warren
Winkler.
But the hearing quickly bogged down as the lawyers
argued over the latest wrinkle in the drawn-out
case.
Scheduled to last four days, the hearing is now
expected to continue on into next week, with an
undetermined period after that during which
Winkler will mull over whether to grant
class-action certification to the Bre-X investors
and, if so, under what terms and conditions.
About $4 billion worth of Bre-X stock was
rendered worthless last year when it was
discovered that the Calgary-based company's gold
find in Indonesia was a hoax.
Bankrupt Bre-X, the estate of now-deceased
founder David Walsh, chief geologist John
Felderhof, seven top Bay Street investment dealers
who sold Bre-X stock, and a subsidiary of
Montreal engineering firm SNC-Lavalin that
checked assay results, have been named as
defendants.
All of the defendants claim they did not knowingly
mislead or defraud stockholders or clients and that
they -- along with just about everyone else --
believed the Busang gold find in Borneo was
genuine.
Harvey Strosberg, the lead lawyer acting for Bre-X
shareholders, told the court Monday that he wants
to argue not only that investors were defrauded as
individual buyers of Bre-X stock, but also
generically as buyers of a stock whose market price
was the direct result of fraud.
Known as "fraud on the market theory," the
argument has never been permitted in a Canadian
court of law, but has been accepted at least twice in
the U.S.
Some of the defence lawyers saw the surprise move
as an 11th-hour attempt by Strosberg to bolster his
case.
"It's like the classic Hail Mary pass in football,"
one lawyer said outside the courthouse.
Essentially, if the court allows use of the theory, it
will could strengthen Strosberg's case that Bre-X
investors were defrauded, if not directly through the
investment dealers who recommended they buy the
stock, then indirectly by the fact that the stock's
market price was fraudulently boosted from the
outset.
"This lessens the reliance argument," said John
Campion, who represents Toronto investment firm
Nesbitt Burns Inc.
Reliance means that it must be conclusively shown
that a plaintiff relied directly upon advice given to
him or her and that such advice was negligently or
fraudulently misleading.
Nesbitt Burns and the other investment dealers
argue that they, too, were victims of the fraud and
that they did not knowingly pass on fraudulent
information to their clients.
About 80 per cent of the losses were sustained by
Canadian investors, and Ontario investors account
for more than half the total losses.
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