Bre-X’s Felderhof found not guilty
Acquitted on all 12 counts
Tuesday, July 31, 2007
TORONTO — The Ontario Securities Commission said it is considering whether to appeal Tuesday’s verdict in which John Felderhof was found not guilty of insider trading and misleading investors in the multibillion-dollar Bre-X gold fraud.
“We’ll take a look at the decision and see what are options are,” said OSC lawyer Emily Cole, who has worked on the case since it resumed in 2004. “It’s a very important case, a very unique case and a complex set of facts.”
The former Bre-X geologist has been found not guilty of insider trading and issuing false press releases, a decade after the company was exposed as a massive fraud.
Mr. Justice Peter Hryn cleared Mr. Felderhof of all eight charges laid by the OSC in May, 1999.
Regulators allege Mr. Felderhof sold $84-million worth of Bre-X stock based on information not disclosed to the public. He was also charged with four counts of issuing false press releases, which reported growing gold reserve estimates.
Outside the courtroom, Ms. Cole said the OSC may appeal Judge Hryn’s ruling. “We worked very hard,” she told reporters. “We put the evidence before the court. It was the judge’s decision to render.”
“I find Felderhof has proven he took reasonable care,” Judge Hryn told a Toronto courtroom.
Bre-X, a one-time market darling, collapsed in the spring of 1997 after its Busang property was revealed as a fraud, erasing more than $6-billion in shareholder value. At its height, shares in the Calgary company climbed above $280 as investors latched on to reports the company’s mine contained a startling 50 million ounces of gold.
Mr. Felderhof, who lives in Indonesia and did not attended the trial regularly, faced jail time and millions of dollars in fines if convicted.
Joe Groia, Mr. Felderhof’s lawyer, argued that Ontario’s securities regulator could not prove Mr. Felderhof knew the mine was a fake, considering some of the world’s top geological consultants initially signed off on the property.
The OSC answered that argument by saying it didn’t have to prove Mr. Felderhof is guilty beyond a reasonable doubt — as in most criminal trials. Instead, the OSC set out to prove Mr. Felderhof fell short in his duties as an officer and director of the now defunct company.
The Bre-X geologist is the only person who has ever been taken to trial over his alleged role in the fraud: Company founder David Walsh died in 1998 and geologist Michael de Guzman, who was suspected of masterminding the gold fraud, allegedly threw himself out of a helicopter over the Indonesian jungle in 1997. Last year, reports surfaced that Mr. de Guzman may be hiding out in Brazil.
Mr. Felderhof was also the one who gave final approval to various press releases touting the amount of gold at the mine, the OSC said.
Ontario’s market regulator said it is “not an unreasonable burden” to make company officers and directors responsible for material information that is released to investors.
© Financial Post 2007