From Raging Bull By: Oldminer
Reply To: None Wednesday, 23 Feb 2000 at 2:59 PM EST
Post # of 3177
Honorable Zita L. Weinshienk bench ruling:
Reporter's Transcript
PROCEEDINGS
(In open court at 2 p.m.)
THE COURT: Good afternoon.
MR. FUSFELD: Good afternoon.
THE COURT: And the record should show that all attorneys are present, and Mr. Turner is present and the expert for SEC, as well as Ms. Pinkston -- is it Ms. Pinkston?
MS. PINKSON: Yes.
THE COURT: Ms. Pinkston, Ms. Achuff are also present.
Let me start out by saying that this has been an extremely interesting case. I think it has been to the attorneys. It is a very difficult case to decide, extremely difficult to decide. And this is not because of any problems with the attorneys, because the attorneys have been strong advocates for their clients. They have been extremely well
prepared. They are knowledgeable -- in fact, amazingly knowledgeable about geological facts and issues. The witnesses have been excellent. The geologists who have testified have been very not only well prepared but credible and knowledgeable about their areas. And I'm including Mr. Paravicini, Mr. Mullin, and Dr. Atwood, and Ms. Achuff, who just gave some short testimony.
So the reason this is very difficult is this is not the typical case that the Court hears on a question of an SEC violation. This would be a very easy case if was all a scam, if there were no gold and no mineralization in the area. But that is not the issue here.
You know, in looking at these cases, we always think in terms of hindsight, which is perhaps clarifying. You know,
if Mr. Turner had indeed waited and conferred with his expert advisory committee, this case probably wouldn't be here.
If he had met face to face with his security lawyer and worked on the language of the press release before releasing it, the case probably wouldn't be here.
But in deciding this case, the three claims of the SEC, we cannot consider the "could haves" or "should haves" or "what if he had done something." We must consider what he did.
And the question is not whether what defendant did was the perfect thing to do. The question is was it reasonable.
So the issues for the Court are did defendant have a reasonable basis for putting out the press release he did; did he misrepresent facts or omit facts in that press release pursuant to the statutory requirements that it be accurate and with no misrepresentation and no fraud, and for Claims 1 and 2 was there scienter, actual knowledge, or recklessness in putting out the press release he did. And then there is the question is there a likelihood of future violations of securities law that the Court needs to be concerned with.
Let me initially say that I agree with the SEC's argument that statements of public companies must be accurate, and the SEC is the watchdog and enforces the strong public policy that's contained in the securities statutes.
This is a case in which the issue is whether a statement concerning 6.4 million troy ounces of gold as a proven reserve is a misrepresentation. And let's be very specific. The Court would find that the press release said the following:
"The results of Mr. Paravicini's report confirm the company's belief that the concessions within the Cangalli -- Cangalli region of Bolivia contain world class gold reserves."
It goes on to say that in Paravicini's report -- this is actually earlier -- he calculates a proven reserve of 6,430,000 troy ounces of gold.
On the next page of the press release, the company, although saying that it cannot assure the findings of his -- the findings of his reports are accurate in view of the fact that the report was produced by an independent consulting firm which is responsible for its accuracy, goes on to say, "However, the company's management has concluded that it will rely on the report as accurate for purposes of future planning and development of the site."
So it's clear that in the press release the company is standing behind the estimate of 6.4 million troy ounces of
gold, proven reserve.
The Court, in considering the issues that I have to consider, would make the following findings in addition to what the press release said.
First of all, I would find that Mr. Turner did due diligence on Mr. Guido Paravicini, and he did consider him the most qualified geologist in Bolivia.
I would also find that indeed Mr. Paravicini is a highly reputed geologist in Bolivia.
I would also find that Mr. Paravicini in his May, 1998 report did estimate a proven reserve of 6,400,746 troy ounces of gold.
The Court would further find based on credible evidence that Mr. Turner was in Bolivia in early May and did read the report in Spanish in early May. We have the testimony of Mr. Turner, Mr. Paravicini, and indeed the testimony of Mac -- let me get his name -- Mr. Delozier -- to that effect.
The Court will find that Mr. Turner is indeed fluent in Spanish and can read Spanish.
The Court will further find that Mr. Turner was aware of the Trites report and other earlier studies which identified substantial gold deposits in the Cangalli area. And I should just perhaps note also that the Behre Dolbear report which was done later confirms that alluvial gold is present in -- in the Cangalli conglomerate. They say that gold occurrence is erratic but it extends over a sizeable vertical and horizontal area.
The Court would find and recognizes that there are problems with the figures in Paravicini's report and more specifically in Appendix 6, in that the '97 recalculated results are substantially higher than the '98 results which
were supposed to be using the new calculations.
Also, the Court would find there are problems with Mr. Paravicini's use of fire assays.
However, the Court is not able to say that Mr. Turner should have been aware of these problems in May of 1998, before the press release came out.
The acknowledgement of these potential problems in Paravicini's report in the 8-K filing dated 9-25-98 and the 10-K filing dated 12-31-98 was notice to the world of problems with the reserve estimate, although the better action would have been to take down the press release from the company's web site and/or issue a new press release.
However, the Court would find -- and conclude, because I think this is a mixed issue -- that the 8-K and 10-K filings satisfied Turner's duty to correct.
At this time, the Court does recommend that the press release be taken down from the web site; and whatever the result of this case, which you will hear in just a moment, is, that should happen.
I am not able to say -- and I know there is some press present and I want this to be very clear -- I am not able to say after hearing the testimony from three experts, perhaps four, but three primary experts and reviewing all the reports, including the Behre Dolbear report -- I'm not able to say that I can find that the Paravicini report is accurate as to its conclusion, as to the proven reserve; however, what I can say and what I do find is that Mr. Turner was reasonable in believing Paravicini's conclusion to be accurate and in view of the due diligence that he did, in view of Mr. Paravicini's highly reputed status in Bolivia, in view of what he heard from Mr. Atwood -- Dr. Atwood -- his belief was reasonable that the conclusions are accurate.
As an aside, I was a little surprised in going through the Behre Dolbear report to see their finding that there has been little systematic exploration in the entire district, because we have heard testimony that this area has been mined and there has been much done in this area since the days of the Incas and perhaps before; but on page 7 of the Behre Dolbear report, one of their findings is that little systematic exploration has been conducted in the entire district.
I also note and I was interested in one of their conclusions which supported what Dr. Atwood said and Dr. -- and Mr. Paravicini that the gold deposits in the Cangalli -- Cangalli conglomerate are unique in several respects, and then they set forth the different ways that these deposits are unique. They are not the normal placer deposits.
The Court is persuaded at this time that there will not be problems in the future and that Mr. Turner, who appears to be a very intelligent person, is an attorney. He has good attorneys. I'm sure he'll consult his attorneys in the future before there is any more information to the public, press releases or otherwise. I'm satisfied that the likelihood of future violations of securities laws here is minimal and that an injunction is not needed.
I do need to say that defendant's testimony that he hurried the press release because of comments on chat rooms and on the internet make no sense to the Court and would simply state that the president of a public company has no duty to respond to postings in chat rooms. And that, in the Court's view, is not a justification for putting out a press release quickly and without proper checking and research.
I recommend that he not be so concerned with chat room comments in the future.
In conclusion, I would state that again -- that this has been a very close case, but the Court must conclude that the SEC has not met its large burden on these three claims; and therefore, judgment be will be entered at this time in favor of the defendant.
I again want to thank the attorneys. I want to include in my favorable comments on the attorneys my pleasure at having Ms. Corporon visit us in Colorado.
And you are certainly welcome to appear again and litigate in my court any time, Ms. Corporon.
MS. CORPORON: Thank you very much, your Honor.
THE COURT: Any questions? I did not intend to publish this, unless the attorneys feel strongly that there is some reason we should publish it. I think I've made my findings and conclusions pretty clear on the record, and you can get a copy of the record.
MR. FUSFELD: No questions, your Honor.
THE COURT: In conclusion, I think, Mr. Fusfeld, that you've probably satisfied some of your goals, even though the decision is for the defendant.
Time will tell.
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