Bre-X class action settlement approved; investors get fraction of losses
Hugh McKenna, Canadian Press From Financial Post
TORONTO — The lengthy battle by Bre-X investors to recover billions in Canada’s largest mining fraud appears to be over in what one of the original plaintiff lawyers in the case called a “sad day” for accountability in Canada.
Under a settlement approved at the end of May this year by the Alberta Court of Queens Bench, the remaining class-action suits were dismissed against the main defendants in the case, the estate of Bre-X’s late founder and CEO, David Walsh, and chief geologist John Felderhof.
The Calgary court made the ruling at the request of bankruptcy trustee Deloitte and Touche, which said there was no realistic prospect of realizing any significant recovery through the litigation and that the costs of proceeding were prohibitive.
As a result, all parties agreed to a payment of $5.2-million to be divided among investors who apply for a settlement.
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Courts in Ontario and the Texas had earlier agreed to the settlement. The money will be divided between plaintiffs in the Ontario and Texas class actions on the basis of 67% to the Ontario class and 33 per cent to the Texas class, Deloitte said in an emailed statement.
Bre-X became known as the largest mining fraud in Canadian history back in 1997 when its claim of a major gold discovery in Indonesia proved to be a fake.
Investors around the world lost an estimated $3-billion in the resulting collapse of the company’s share price.
Lawyer Clint Docken of Docken Klym, a law firm that represented a number of individual investors and originally led the case in Alberta, wasn’t happy with the outcome but agreed little more could be done.
“Unfortunately, things have languished and languished to the extent that recovery possibilities aren’t promising,” said Docken, who was in the Calgary court Thursday.
“It’s a sad day. . . . We have arguably Canada’s largest (ever) fraud and no accountability. There’s no criminal accountability, there’s no regulatory accountability and (now) there doesn’t appear to be any civil accountability.”
Docken said there remain a few plaintiffs in Ontario who were not part of the settlement, but said he didn’t know the status of those cases.
Deloitte and Touche was appointed as trustee in bankruptcy of Bre-X Minerals Ltd. by the Alberta court in November 1997 after the company was hit with several multibillion-dollar shareholder lawsuits.
The trustee sought to recover insider trading profits from several of Bre-X’s former executives in Ontario and an action was pursued in Alberta against Bre-X’s sister company, Bresea Resources Inc.
Cases were also pursued in the Cayman Islands, the Bahamas and Philippines and efforts were undertaken to recoup money that had been deposited in a Channel Island Trust.
But in the end, the action from 1998 through to 2011 recovered only $5-million from the Channel Island Trust and a further $2-million in the settlement of the action against Bresea.
With court approval, the funds were added to the cash on hand and used to fund ongoing recovery efforts. However, Deloitte said that by 2011 it had become apparent no further recoveries were possible.
Part of the reason was that funds frozen under various injunctions had been spent under the terms of those orders that permitted payment of the defendants’ living expenses and legal costs, Deloitte said at the time.
As well, one of the principal targets of the litigation, Bre-X’s geologist, John Felderhof, was acquitted after a lengthy Ontario Securities Commission trial.
The Canadian Press
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