Bre-X execs pocket profits — Felderhofs and Walshes earn $77 million

The principals of Bre-X Minerals (BXM-T) lost many millions on paper when the stock crashed on March 27. But not before they made millions exercising lucrative options and selling high.

Insider trading information provided by the Ontario Securites Commission (OSC) shows that last year Bre-X President David Walsh, his wife Jeanette Walsh, and Vice-Chairman John Felderhof sold a total of $113.8 million shares of Bre-X and parent company Bresea Resources (BSR-M). Felderhof’s wife, Ingrid, also traded Bre-X stock, but to a much lesser degree.

By exercising options acquired when the share price was still very low, the two couples paid just $36.6 million for their shares, for a combined net profit of $77.2 million.

Vice-president Stephen McAnulty and his wife, Nancy, also exercised options and sold shares, making a profit of $22.2 million, while Treasurer John Thorpe and Executive Vice-president Rolando Francisco pocketed profits of $6.1 million and $1.3 million, respectively.

According to recent press reports, Bre-X’s chief geologist, Michael de Guzman, who reportedly jumped to his death from a helicopter over Kalimantan, Indonesia, in late March, held Bre-X options that could have netted him several million dollars had he cashed them when the share price was highest.

At Bre-X’s annual meeting in March 1996, Felderhof told shareholders that the Busang deposit, in Kalimantan, held “30 million oz. of gold, plus, plus, plus.” After that, and several subsequent resource-boosting announcements, the company’s share price took off, reaching more than $28.65 (post-split value) in May, dropping slightly and then peaking again in August. The bulk of the insider trades took place between April and September.

In August, the Indonesian government revoked one of Bre-X’s exploration permits amidst a growing domestic controversy over how much of the various pieces of Busang rightfully belonged to Bre-X’s Indonesian partners. Bre-X declined to release this news at the time.

When news of the permit cancellation and ownership dispute finally came to light in October, the value of Bre-X stock dropped by $500 million. However, during the period when only Bre-X knew of the permit cancellation, the company’s top executives made several million dollars by selling stock.

The OSC, together with the Toronto Stock Exchange and the Alberta Securities Commission (ASC), has confirmed that an investigation of Bre-X was initiated late last year to determine if there was sufficient evidence of a breach of continuous disclosure requirements or insider trading provisions on the part of Bre-X. The OSC states further that it is not yet in a position to determine if there is evidence on which to base formal proceedings.

Bre-X has only been a reporting issuer in Ontario since April 1996 (when it was listed on the Toronto Stock Exchange) and has not yet been subjected to the OSC’s formal process of continuous disclosure review. “The OSC, the ASC and the TSE are very concerned about, and do take very seriously, the issue of confidence in the integrity of the capital markets in Canada,” the OSC release states.