EDITORIAL PAGE — Cracking down

A few years back, some hot assay results were reported by a junior company exploring a gold project in California. The geologist working on site noted the presence of visible gold in core from the drill program, which was aimed at outlining an underground gold deposit. When the results were released, the market went wild.

But when local mining analysts starting checking into this discovery, it soon became obvious something was amiss. It was not clear, at first, if the program was being operated by the exploration company or the property vendor.

And to make matters worse, the geological data were sketchy at best.

Meanwhile, street-wise officials from the Vancouver Stock Exchange, where the stock was listed, counted more red flags flying than at a May Day parade in Red Square, and took action by sending out an independent geologist to check the facts.

As it turned out, the California gold was not from California at all. It was Yukon placer gold that somehow worked its way down the North American coast to end up in the assay rejects. Remobilization is one thing; this was clearly another.

The salting culprits tried to cover their tracks by burning down the Nevada assay laboratory that processed some of their core. But they need not have bothered since nothing much happened to them anyway . . . and not because the VSE did not try.

Because the case clearly involved allegations of a criminal nature, it was turned over to the police, including the leading law enforcement agency in the U.S., which, after all, was the scene of the alleged crime. No one was charged, though the geologist who had reported the gold in the drill core eventually was censured by a Canadian professional organization.

This is only one example of a securities-related investigation that ran out of steam because of a lack of co-ordination between agencies working in separate jurisdictions. There are certainly others. And that is why we welcome news that police and securities regulators in Ontario have reached an agreement to pool their resources to investigate and prosecute securities-related crimes. Not only does this help protect investors; it makes economic sense.

British Columbia has already established an office where security commission investigators work together with Royal Canadian Mounted Police investigators on cases — rather than separately, as in the past.

This concept of co-operative investigations could be taken another step further. All too often, a bad apple would spoil the barrel on one Canadian exchange, get chased out of town, and then start fresh on another. Some of these problems could be avoided by improving the level of co-operation between inter-provincial regulators, and by more sharing of information.

Another important step would be to forge co-operative alliances with regulators and law-enforcement agencies in the U.S. VSE officials know full well that some of the high-profile scams that had caused them grief over the years involved either people or projects from south of the border. The idea of VSE-listed companies working on projects outside the country is fine when things are on the up-and-up (which is most of the time), but it can make investigations and prosecutions all the more frustrating and complex for regulators when things go sour.