Friday, February 25, 2000
Lawyers look to bring Barrick into amended Bre-X suit
Texas class action: Barrick has yet to file a response to latest allegations
Sandra Rubin
Financial Post
Lawyers representing shareholders caught in the Bre-X Minerals Ltd. gold swindle are asking a Texas judge to consider new evidence that Barrick Gold Corp. was alerted to the possibility of fraud months before the scandal rocked North American markets.
Toronto-based Barrick not only failed to disclose the disturbing findings by one of its own experts, but company officials made "misleading" public statements about Bre-X that did not reflect doubts about the find's voracity, according to the filing in Texarkana, Tx.
The class-action lawyers are asking a U.S. federal court judge for permission to amend their complaint to add the new allegations. The filing comes as both sides await a key ruling on whether Barrick, which was among those dismissed from the Bre-X suit last year, will be reinstated as a defendant.
The fresh evidence is based on the findings of Jan Merks, a sampling expert employed by Barrick on Dec. 16, 1996, to analyze troubling Bre-X test results. Barrick had sent 135 samples from what was supposedly the richest gold find in the world and 133 had come back showing no gold.
Mr. Merks was given the results on Dec. 17 -- and within hours had warned Barrick in a memo that "extreme caution is in order," as reported in the Financial Post in January. He also mentioned a previous gold fraud and suggested they test for the same telltale signs.
"Barrick knew this crucial information for almost five months while tens of thousands of shares of Bre-X ... continued to trade on the Nasdaq and elsewhere," according to the filing. "Despite this knowledge, Barrick made unqualified public statements about gold and future mines at Busang, statements which were false, or at best misleading to investors.
"Not once did Barrick even hint at the troubling evidence of fraud that it and its consultants had discovered," the filing said.
Bre-X was trading at the pre-split equivalent of about $200 a share around that time.
Barrick was doing due diligence on Bre-X as a prelude to a proposed partnership with the Calgary exploration firm, which claimed to have discovered the largest gold find ever, deep in the Indonesian jungle.
No one at Barrick was available for comment yesterday, but the company has insisted in the past that Mr. Merks -- who is often called in by firm experiencing sampling problems -- never raised the possibility of fraud until February 1997, less than a week before Barrick was knocked out of the running.
Yet according to the court filing, in the nine weeks he worked for Barrick, Mr. Merks, a mathematician and engineer with a background in analytical chemistry, wrote a series of memos speaking of "ominous" conclusions, "grave concern" and the "extraordinary" characteristics of the supposed gold find.
"Although Merks remained diplomatic in the opinions he expressed to Barrick in writing, the earmarks of fraud were unmistakable," lawyers said in the filing. "He urged Barrick to take precautionary steps to safeguard Bre-X's unprocessed [and thus unadulterated] library cores. Likewise, Merks counselled heightened scrutiny of the sampling procedures at Busang.
"In short, by Dec. 20, 1996, three days after being hired, this expert was urging Barrick in writing to take steps to investigate what was a potential billion-dollar case of fraudulent gold assays."
The 25-page application also said Mr. Merks came to Barrick's head office on Jan. 20, 1997, to meet directly with Alan Hill, the firm's vice-president of corporate development, and Rene Marion, a staff mining engineer. For over an hour they discussed the "serious discrepancies" in the data and possible explanations.
"Merks made it plain that the only plausible explanation was salting," according to the filing. "This was not news to Barrick. Merks was not telling Hill and Marion anything they did not already suspect, and they acknowledged as much.
"The Barrick representatives did a lot of listening, and they never once challenged Merks' conclusion that the Bre-X samples probably were salted."
According to the new filing. the most damning evidence that Barrick acted improperly is its efforts to prevent Mr. Merks, who was bound by a confidentiality agreement until Dec. 16, 1999, from publicly discussing his findings after the hoax was exposed in May 1997.
"Barrick refused to allow Mr. Merks to speak, out of fear of being held responsible to investors," the court filing says, citing a Sept. 22, 1997, letter from Barrick's corporate general counsel who said: "There are multibillion dollar lawsuits pending with respect to the Bre-X matter, as well as half a dozen civil and criminal investigations."
Barrick said it told Mr. Merks it was willing to allow him to talk privately with authorities but that he did not take them up on the offer. He was cautioned again this past January about discussing his work with a third party and warned "Barrick intends to hold you accountable" for any consequences.
Barrick has not yet had a chance to file its response.
"These efforts to avoid disclosure of the facts Barrick first learned in late 1996, and the grave concerns that these facts raised, are perhaps the strongest possible evidence of its culpability," according to the filing. |
