Canada needs better securities watchdogs

Letter to the Editor

If you wanted to hide as a Second World War criminal or perpetrate a large gold-salting scam, there is no safer base of operations than Canada.

How strange is it that a country that is a world leader in mining exploration has Third World securities regulators?

Skimming through the lengthy judgment written by Justice Peter Hryn of the Ontario Court of Justice is a distressing and irritating task.

As so ably summarized in his commentary “R. vs. Felderhof: an industry post-mortem” (T.N.M., Aug. 13-19, 2007), James Whyte has shown how a hearing to determine if the most senior manager shared any blame could stretch to 10 years and end without the obvious answer. He also showed that the judge may have been out of his depth when forced to decide an issue presented by a skilled and ferocious defence and a timid and inexperienced prosecution.

When the Ontario Securities Commission began to deal with the biggest mining fraud case in Canadian or modern history, the issue seemed to be fairly simple. The report prepared for the Ontario Securities Commission by Graham Farquharson, an eminent and respected member of the mining profession, showed clearly that the Busang deposit in Indonesia contained little if any gold and that the drill core samples had been salted. Farquharson’s report pointed to a number of “red flags” that should have been of serious concern to any professional examining the data, of which the most serious were, arguably, those dealing with the handling of the samples and assays between the drill-hole collar and published news releases. Few, if any, questioned his conclusion that the property had been salted.

Common sense would suggest to a legal layman like me that the starting point in assigning blame would be to start at the bottom and question each and every professional involved — geologists, mining engineers, assayers, metallurgists, lawyers, securities analysts (who sometimes wear more than one hat), as well as company directors — about why they failed to fulfill their professional responsibilities. Sending them on to hearings by their professional bodies would have removed a key element of John Felderhof’s defence: “We were all innocent because the scale of the crime was so broad and complex.” It wasn’t.

The most upsetting part of the transcript to me is the way in which the OSC allowed the defence to pick away at small discrepancies in wording and intent in Farquharson’s report and testimony and create the impression that he wasn’t competent. Much of the hearing dealt with whether or not a particular flag was red, or pink, or grey, or green!

Farquharson is an honourable man who was treated appallingly by the OSC, which doesn’t deserve to have a person of this calibre ever represent it again. Is there some rule or budget restriction that prevented the OSC from calling another 10, or 100, or as many more experts as were needed to support Farquharson’s conclusions and convince the judge and the defence team that this was a black and white issue? There is no doubt that the property was salted, very little remaining doubt of how it was done, still some doubt about how many people were involved, and no doubt (in my mind) that all the professionals who were involved were incompetent, dishonest, or lazy.

In the interests of full disclosure, I should reveal that I made a bit of money on Bre-X stock, not because I was astute, but because I was lucky to abandon the ship before it sank. I bought the stock and believed the deposit was real because my broker at Nesbitt Burns was reassured when his firm’s mining analyst (and others) visited the property frequently and didn’t “raise any red flags.”

Moreover, one of the company directors was a distinguished senior member of the Toronto mineral exploration community, and a gold expert.

It’s lucky for those professionals and company insiders that the money was raised for this caper in Toronto and they have all been able to get on with their lives anonymously. If the money had been raised in the U.S., they would be hanging by their thumbs, awaiting extradition to an Indonesian prison.

R.J. (Bob) Cathro

Chemainus, B.C.