Possible Ottawa role in stock sell-off probed
Canadian securities investigators are probing a recent run on a B.C. gold mining stock and a possibility the sell-off was triggered by a leak of confidential information from inside the federal government, CBC News has learned.
Shares in Taseko Mines Ltd. mysteriously dropped almost 40 per cent in frantic trading on Oct. 14, more than two weeks before Ottawa announced it was blocking the firm's planned development of a controversial B.C. mine.
More on the issue: Tories pressed on Taseko stock drop
Federal officials interviewed by CBC News on condition of anonymity said the unexplained crash of Taseko stock caused instant panic in the ministerial offices that were involved in reviewing the proposed mine.
Everyone, they said, had the same fear — a government leak.
"We had an immediate concern when we saw it had happened," said one senior federal official. "It didn't appear right to us."
The political concern was understandable: An RCMP investigation of insider trading just before the former Liberal government's 2005 decision on income trusts sparked a political scandal that helped topple Paul Martin's administration. After a publicized review, the Liberals had decided to allow income trusts to continue.
The proposed Taseko mine project, located in a wilderness area about 125 kilometres southwest of Williams Lake, has been touted as one of the world's 10 largest undeveloped copper and gold reserves.
The federal government formally nixed the so-called Prosperity Mine on Nov. 2, citing environmental concerns about plans to turn a large, pristine lake into a toxic mine dump.
Several federal officials involved in the deliberations said everything was done with the utmost secrecy, precisely to prevent a leak that might affect stock markets.
But 19 days before the government made its decision public — and for no apparent reason — all hell broke loose in the trading of Taseko shares.
In a matter of hours, Bloomberg reported over 30 million shares changed hands on Canadian and American stock exchanges on Oct. 14, almost 10 times the average daily volume of trading in the preceding weeks.
At one point in the afternoon, investors dumped 2.7 million shares in 40 seconds, driving down the stock price 32 per cent.
The stock rallied somewhat after Taseko issued a press release saying it was "unaware of any information that would cause the price of the company's stock to change materially, as occurred on October 14."
When the government finally announced on Nov. 2 that it was blocking the mine development, Taseko shares tanked again, to almost exactly the same price as the low on Oct. 14.
That time, it didn't rebound.
Meanwhile, the unexplained mini-crash of Taseko stock on Oct. 14 and the possibility of a government leak have become the targets of at least two investigations.
The national stock market watchdog agency and provincial regulators all operate under a strict cloak of confidentiality, refusing to admit even whether an investigation is being conducted.
But CBC News has learned that at least one irate Taseko shareholder filed a formal request for an investigation by the investment industry's national watchdog agency.
In response, the Investment Industry Regulatory Organization of Canada (IIROC) assured the investor that it was reviewing the "unusual trading" in Taseko stock on Oct. 14.
As it happened, the watchdog agency was already on the case long before it received the investor's complaint.
Within minutes of the run on Taseko shares, the agency was on the phone to the company to determine if there was a reason to halt trading.
As a result of that phone call, Taseko issued the press release saying the company had no explanation for the runaway trading.
IIROC will forward its findings to the B.C. Securities Commission, which is being equally tight-lipped about any investigation it may already be conducting.
Meanwhile, Taseko apparently launched its own probe within hours of the run on its stock.
Taseko's chief financial officer, Peter Mitchell, said in an interview: "Obviously that kind of thing concerns us a great deal. At the time of the event, we were very focused on it."
Mitchell confirmed that the company is conducting a "follow-up investigation," but would not give any specifics.
"How we are handling this is a confidential matter."
A full investigation of irregular trading in Taseko stock would have to involve the B.C. Securities Commission since the company does not have access to records of who exactly sold the stock on Oct. 14, much less why.
Mitchell said the company can only identify the brokerages that executed trades, not their clients.
Finally, if any of the securities probes point to a possible leak inside the federal government, it would ultimately fall to the RCMP to conduct those investigations.
So far, there is no indication that the Mounties have been called in.
'Scathing' environmental report
The mysterious Taseko stock crash is only the latest twist in the long saga of the Prosperity Mine.
In January this year, after 17 years of planning and almost $100 million of investment, the Prosperity Mine was finally given the green light by a B.C. government eager to create jobs in an area that had been hard hit by the downturn in forestry.
However, the euphoria at Taseko over this was short-lived.
In July, a federal environmental assessment panel concluded that the company's plan to drain several lakes for a mine dump "would result in significant adverse environmental effects" on fish and fish habitats, navigation, grizzly bears, and traditional First Nations' use of the territory.
That put the fate of the Prosperity Mine in the hands of the federal cabinet, and, more precisely, in the lap of Fisheries Minister Gail Shea.
The federal environment minister at the time, Jim Prentice, would later describe the environmental assessment as "scathing."
Investors apparently shared that opinion as they abandoned Taseko in droves the day the environmental assessment was made public, taking the stock to a new low of $3.34 for the year.
But by October, the company was behaving as though federal cabinet approval of the Prosperity Mine was all but a done deal. It was raising money to launch the project and even processing provincial permits to begin mining.
Investors were evidently persuaded that this was a go as they ran the stock back up to an all-time high of $7.27.
That peak was hit on the morning of Oct. 14.
Hours later, shares of Taseko were being dumped by the truckload and the price was in free fall.
A senior official involved in Ottawa's Taseko mine review earlier this fall recalled the initial panic that rippled through the government over the sell-off and everyone being baffled by the possibility of a leak.
The official said that for weeks the government had been treating the Taseko project with the tight security and confidentiality of a federal budget.
"There was no paper floating around, and we had stopped even meeting with people."
Even so, the circle of government officials involved in the file was substantial, involving the departments of Natural Resources, Fisheries and Environment, plus the Prime Minister's Office.
In response to a media call on Oct. 14 about the stock surge that morning, an aide to Fisheries Minister Shea said no decision had been made on the Prosperity Mine.
No one, apparently, was moved to call in the RCMP to investigate a possible leak.
- Taseko's proposed mine project is located about 125 kilometres southwest of Williams Lake, not Prince George, as originally reported.Nov 25, 2010 6:00 AM ET