John Felderhof — the only person to face legal charges in the Bre-X Minerals gold scandal of a decade ago — has been acquitted of all of the insider trading and other securities chargeshe faced.
The verdicts were released inOntario court of justice Tuesday morning. Felderhof was not in court for the verdict.
Judge Peter Hrynruled that Felderhof reasonably believedthere was a big gold find at Bre-X and the so-called "red flags" that might have led him to questionthe reliability of the gold estimates weren't as obvious as the Ontario Securities Commission had alleged.
The judge also said the tampering of thousands of Bre-X core samples had been so sophisticated it would have been difficult to uncover.
Felderhof is the company's former vice-chairman and chief geologist. The OSC accused him of eight Securities Act violations—four counts of illegal insider trading and four counts of authorizing misleading news releases.
Felderhofsold $84 million worth of Bre-X stock in 1996, just before the company's supposedly rich gold project in Busang, Indonesia, was exposed as a fraud.
The OSC alleged that Felderhof illegally acted on insider information when he sold the shares. The OSCalso accused him of putting his name to news releases the regulator said he should have known were misleading. Hedenied all the allegations, saying he was taken in like everyone else.
"Obviously, Mr. Felderhof is going to be relieved and pleased," Felderhof's lawyer, Joe Groia, told reporters outside the courthouse.
"He was not involved in the salting [of the core samples]and now Justice Hyrn has said he was not negligent," Groia said.
Felderhof could have received a two-year jail sentence and been ordered to repay millions of dollars if he had been convicted.
Bre-X scandal cost investors billions
The not guilty verdict is a major blow for the OSC, which launched the case against Felderhof almost seven years ago. The case faced lengthy delays —mainly because the OSC tried to have the judge replaced.
The regulator said it hasn't decided whether to appeal. "These were serious charges and it was appropriate to bring them before the court," said OSC chair David Wilson in a statement.
"We will review the decision and consider our next steps," he said.
The Bre-X Minerals fiasco is the most notorious saga in Canadian mining history. Bre-X claimed it had discovered huge amounts of gold in the Busang region of Indonesia.The company's shares soared from penny stockstatus to more than $200 a share.
But by the spring of 1997, everything began to unravel. New tests carried out by another company showed there was virtually no gold in the Bre-X deposit. The original positive assay results had been "salted" — the samples had been sprinkled with gold from other sources.
Bre-X stock tanked, costing thousands of investors in the once high-flying company as much as $6 billion.
Investors shocked by verdict
Jack Kindermann, 74, of St. Paul, Alta., was one of those investors. He lost $500,000 in the Bre-X collapse.
"I was shocked [by the verdict]," Kindermann told CBC News Tuesday. "I'm disappointed. It's outrageous."
Stan Buell, another investor who lost his Bre-X investment, founded the Small Investor Protection Association in the aftermath of the Bre-X scandal.
He calls the Bre-X fiasco "the scam of the century" and told CBC News he can't believe no one will be forced to pay for it.
"This guy is the chief geologist and who should know better whether there's gold in those core samples or not," he said.
But Hryn ruled that Felderhof "reasonably believed Busang was a legitimate gold find."
Canada's mining industry suffered a devastating blow to its credibility in the wake of the Bre-X scandal. Despite demands for someone to be brought to justice for the fraud, no oneever faced criminal charges.
One day after the OSC brought its Securities Act charges against Felderhof, the RCMP said it would be impossible to gather enough evidence to lay criminal charges against anyone.
Bre-X geologist Michael de Guzman died mysteriously in March 1997, after apparently committing suicide by jumping from a helicopter into the Indonesian jungle.
Bre-X president David Walsh died in 1998 after suffering a brain aneurysm at his home in the Bahamas.
As for Felderhof himself, his lawyer said he thinks his client is travelling. Family members say they always knew he was innocent and has paid a big price for his involvement in Bre-X.
"He's not the multimillionaire that people believe," said brother Herman Felderhof in New Glasgow, N.S.
"He's back to penniless and that's where it's at."