Sun ready to set on outstanding Bre-x claims
The final chapter of the Bre-X Minerals story could play out in a Calgary courtroom today when the bankruptcy trustee for the disgraced company asks for a dismissal of claims by onetime investors because there isn’t money to pay them.
Lawyers for Deloitte & Touche have filed an affidavit with the Court of Queen’s Bench that asks for a discontinuance of class-action suits on behalf of Bre-X’s credi- tors in Ontario, Alberta and elsewhere almost 15 years after they were filed.
“Sufficient funds are not available in the Bre-X Estate,” contends the affidavit filed by Deloitte & Touche on Tuesday. “The trustee has reluctantly reached the conclusion that it is appropriate to discontinue the Ontario derivative action and the other related litigation.”
For Calgary lawyer Clint Docken, who has been closely involved in the class-action suits, the move from the bankruptcy trustee marks a shameful end to what is billed as the biggest mining fraud ever and the largest stock market scandal in Canadian history.
“It’s pretty appalling,” Docken said Wednesday.
In the long-running Bre-X saga, the latest action is essentially an epilogue.
The key elements of the welldocumented story occurred years ago. All of the leading figures in the scandal — Bre-X CEO David Walsh as well as geologists Michael de Guzman and John Felderhof — have either died or faded into relative obscurity.
Felderhof, the only key person still alive, was found not guilty of insider trading by an Ontario court in 2007.
No one has gone to jail in what investigators say was a $3-billion fraud that stretched from the jungles of Indonesia to stock markets in Alberta, Toronto and New York.
At one point, approximately 6,000 people had registered with the trustee as potential creditors of the junior Calgary-based mining company that for a period in the mid-1990s claimed to have discovered the world’s biggest gold deposit.
In 1993, four years after Bre-X was founded on the Alberta Stock Exchange, the company said it had found a large gold deposit in Indonesia.
By 1995, the company claimed it contained 30 million ounces of gold. Eventually, it climbed to 200 million ounces. As the hype grew, the one-time penny stock soared to the equivalent more than $268 a share.
The scam unravelled in March 1997 when Bre-X’s partner, U.S. miner Freeport-McMoRan, found the test samples had been “salted” with gold from jewelry and nearby rivers.
De Guzman plunged to his death from a helicopter flying over the Indonesian jungle as the fraud came to light.
When the company failed, shareholders went to court to recoup their investments.
As the years have passed, most had given up hope of recovering their money.
When the Herald ran a retrospective on the scandal a decade later, investors scoffed that only the lawyers would get paid in the end.
The affidavit said the Bre-X Estate has roughly $130,000 today.
“The monies received by David Walsh, John Felderhof and Ingrid Felderhof from the sale of Bre-X shares was either spent on living expenses, legal defence costs, failed investments, residential real estate or taxes,” it states.
The affidavit acknowledges Walsh and the Felderhofs sold Bre-X shares worth more than $25 million and $75 million respectively.
The Bre-X meltdown hit many investors — there were estimates of 40,000 Bre-X shareholders when the fraud emerged in March 1997 — and triggered a 191-point loss on the Toronto Stock Exchange on the day it was revealed, spurring the biggest one-day loss on the TSX in a decade.
By 2002, Bre-X filed for bankruptcy. The company that once had a stock market value of $6.1 billion had just $5 million in cash. Deloitte & Touche was able to recover more funds from sister companies but by 2005 it had already paid out $6 million in legal fees.
Walsh, who died in 1998 in the Bahamas from an apparent brain aneurysm, and Felderhof always maintained they had been duped. Investors have suggested that even if that was true, they should have seen the numerous red flags.
In 1999, the Ontario Securities Commission accused Felderhof of insider trading and misleading investors for selling tens of millions worth of Bre-X stock and not disclosing correct information about the gold deposit to investors. The case concluded with a not-guilty verdict in 2007.
One change that occurred as a result of the Bre-X case was new federal government rules for reporting by companies to protect investors from unsubstantiated mineral project disclosures.