Bre-X details may be revealed

Unknown details of the notorious Bre-X Minerals Ltd. gold-mining scandal may be finally revealed over the next couple of months as part of an ex-official's trial on insider trading charges.

John Felderhof, former vice-chairman and Bre-X's chief geologist, was not present the first day of his trial Monday as his lawyer argued that the charges should be dismissed on constitutional grounds.

Felderhof became a multimillionaire by buying and selling shares in the Calgary-based company before it turned out to be one of the world's biggest gold mining frauds.

Now believed to be living at his estate on the Cayman Islands - which doesn't have an extradition treaty with Canada - Felderhof is charged with eight counts of violating the provincial Securities Act, including the sale of $55 million worth of his Bre-X shares while privy to insider information.

The charges against Felderhof are the first that Canadian regulators have brought against Bre-X or any of its former executives. There are several civil suits outstanding, including a Canadian class-action suit and another in Texas.

Calling Felderhof ``a most convenient victim,'' lawyer Joseph Groia told the Ontario Court that the charges are ``ironic'' and unfair and will ``not withstand Charter (of Rights) scrutiny.''

The insider information allegations have nothing to do with a knowledge that the company's Busang gold deposit in Indonesia was a hoax, resulting in the biggest mining fraud in Canadian history, Groia argued.

The Ontario Securities Commission is accusing Felderhof of selling his shares between April and September 1996 while he was aware of ownership issues and questions of title to the Busang property that had not yet been revealed to the public.

The regulatory body has also accused him of allowing false news releases to be issued that claimed the company's Indonesian gold site had huge quantities of gold.

Bre-X was a stock market favorite from 1995 until 1997 as investors rushed to buy what was being billed as the world's biggest gold deposit. At its peak, shares were worth $4 billion.

The roof caved in, however, when it was revealed in the spring of 1997 that new tests on the site found no evidence of gold.

Groia told the court that Felderhof is ``charged for essentially being an extended party to Bre-X's offense'' while the company has never been charged.

The onus is unfairly on his client, he said, to prove Bre-X exercised reasonable caution before issuing releases to the public announcing estimates of gold on the Busang properties.

Groia asked Judge Peter Hryn to throw out the charges or consider reversing that onus and making the OSC's legal team responsible for first proving the company failed to meet its obligations of ``due diligence'' required by the law.

More than 300 black binders of material were brought into the courtroom and stacked on special shelves to accommodate the evidence. If Groia is successful in having the charges thrown out, the volumes of evidence expected to shed new light on the scandal that cost some Canadian investors their life savings - could remain closed forever.

The deaths of two key officials have hampered the investigation.

Canadian investigators had uncovered evidence showing stellar drilling results were fabricated by Bre-X's chief geologist Michael de Guzman and his associates in Indonesia.

De Guzman later died - authorities concluded he committed suicide - after falling from a company helicopter over the Indonesian jungle. Bre-X chairman David Walsh, a Calgary mining promoter, died almost a year ago of an aneurysm at his Bahamian estate.

If found guilty, Felderhof could face two years in jail for every count and a fine of three times the $84 million he is said to have gained by selling Bre-X shares in 1996 before it was publicly revealed the company was a fraud.

The trial is expected to last two months. Groia's arguments are expected to take up most of the first week. (*)