Cayman court freezes Felderhof assets — Bre-X bankruptcy trustee will also seek release of FIA report

The assets of John Felderhof, Bre-X Minerals’ former vice-chairman, may not be as secure as some had thought.

The Grand Court of the Cayman Islands has granted an injunction preventing Felderhof, his wife Ingrid, and Spartacus Corp., a company controlled by the Felderhofs, from dealing with assets they own in the Cayman Islands.

The court acted in response to an application by Bre-X’s court-appointed bankruptcy trustee, accounting firm Deloitte Touche, which is claiming damages from Felderhof.

The injunction, granted Dec. 19, arises from a claim lodged in the Grand Court alleging “damages caused by [Felderhof’s] breach of fiduciary duty and negligence in his capacity as a director, general manager and chief administrative officer of Bre-X Minerals Ltd. during the period 1993 to 1997.” The implied damages are the loss of value suffered by Bre-X shareholders when grade estimates from the company’s Busang property in Indonesia were revealed to be based on results from fraudulently altered samples.

The substance of the Statement of Claim has not been released; only the Writ of Summons is a public document in Cayman civil procedure. But the wording of the writ plainly indicates Deloitte and Touche is not alleging that Felderhof was a conspirator in the Busang salting scheme.

Ross Nelson, the Deloitte and Touche partner managing the Bre-X trusteeship, says the $3-billion amount quoted in the claim “arises more out of the lawsuits that have been filed against Bre-X than any belief that Mr.

Felderhof has $3 billion worth of assets.”

The trustee seeks to have any judgment in the case enforced against Spartacus Corp. and its assets, and also against the Felderhofs’ estate in West Bay, Grand Cayman. The estate is in Ingrid Felderhof’s name but the claim asks for the Court to determine whether the estate, or the money to buy it, was transferred to her with the intent to protect it from possible judgments against her husband.

The injunction gave the defendants two weeks to file notice that the action would be contested. At presstime, Deloitte and Touche had not received confirmation that the writ had been acknowledged, but Felderhof’s Toronto lawyer, Joseph Groia of Heenan Blaikie, left no doubt the suit would be fought. “If the question is ‘are we going to be contesting the litigation,’ that’s an easy one, and the answer is unequivocally yes,” said Groia.

A second court order has given the defendants access to cash for living expenses over the next two months. “The order was made and we were back in court within a few days to get some money freed up,” said Groia. “What we’ve done is reached an agreement for the next two months; everyone’s rights are being preserved in the meantime.”

Two other motions before the Alberta Court of Queen’s Bench, both lodged by Deloitte and Touche, were to be heard Jan. 8. The first asks the court to release a US$5-million trust fund to pay legal bills for Bre-X officers named in the lawsuits that followed the detection of the salting fraud. The second asks the court to order the release of a report by Forensic Investigative Associates (FIA), the firm hired by Bre-X last May to investigate the salting fraud.

The FIA report’s summary was released in early October, concluding that Bre-X’s exploration manager, Michael de Guzman, instructed project geologist Cesar Puspos to salt Busang samples. It also cited site manager Jerome Alo, site engineer Manny Puspos (Cesar’s brother), and geologist Robert Ramirez as co-conspirators.

The report could not conclude whether there was evidence that John Felderhof knew of the conspiracy, and asserted that Bre-X’s Canadian-based staff had no knowledge or involvement.

Deloitte and Touche is asking the court to decide whether Bre-X’s former officers can claim that the report falls within solicitor-client privilege.

If the court determines that the report is not privileged, then the trustee is asking for it to be released on the grounds that Bre-X, and not the company’s officers, paid for the report.

Two Wall Street Journal reporters, Peter Waldman and Jay Solomon, were able to interview Cesar Puspos recently. He continues to deny any involvement with the fraud. Alo declined to be interviewed for their story, and Manny Puspos now works for Philippine copper and gold producer Benguet Corp., where de Guzman, Alo, and Cesar Puspos got their start.

The Journal’s story included interviews with local staff, who insisted that Cesar Puspos had charge of the samples during a critical period when the sample bags were being opened, ostensibly to check for damage. The article also accepts several witnesses’ accounts that Felderhof had little contact with the field operations and may have been duped by de Guzman.

Other witnesses, who were also on site, tell a different story; and Felderhof’s own statements about his involvement with Busang are not consistent with the ‘dupe’ theory. Felderhof was the contact at Bre-X for the company’s principal consultants, Kilborn Pakar Rekayasa, and also dealt with prospective developers with an interest in the project.