The last lawsuits against Bre-X Minerals Ltd., which shook Bay Street in the 1990s when its claims about an Indonesian gold find turned out to be fake, have been dismissed by an Ontario judge after lawyers for the burned investors finally threw in the towel.
The ruling, issued on Wednesday, marks the anti-climactic end of the Bre-X saga, 17 years after proposed class-action lawsuits were filed as a massive fraud surfaced that cost investors hundreds of millions. Despite investigations by police and regulators in Canada and the U.S., those behind the swindle were never caught.
“This was one of the great frauds perpetrated in North America,” said Paul Pape, a Toronto lawyer for investors in the case, in an interview. “And nobody was convicted of it, and nobody paid any money.”
In his decision, Ontario Superior Court Justice Paul Perrell agreed with a motion from Mr. Pape to discontinue two lawsuits that alleged Calgary-based Bre-X and some of the company’s key personnel had engaged in a “stock fraud” that cost investors at least a $1-billion.
The lawsuits named key players in the drama that captivated the country in the late 1990s, including the now-bankrupt estate of the late David Walsh, the company’s former president who died in the Bahamas in 1998, and former Bre-X geologist John Felderhof and his ex-wife Ingrid. All denied any wrongdoing.
Earlier this year, Mr. Pape and lawyer Harvey Strosberg, who first launched the litigation on behalf of investors, declared that their case was hopeless. Freeze orders secured by Bre-X’s trustee, Deloitte & Touche Inc., on Cayman Islands assets held by the defendants had expired, they said, and the trustee had run out of money to continue its own legal fight.
The plaintiffs’ lawyers said any remaining money in the Cayman Islands had been spent on massive legal fees and on living expenses. They argued that even if the case was successful, there was no longer any reasonable expectation investors would ever be repaid.
This despite allegations in court documents that the Felderhofs had made $75-million selling Bre-X shares between 1994 and 1996. Court filings last year said Mr. Felderhof, who now lives in the Philippines, has just $250,000 to his name.
The civil lawsuits, filed in 1997, were put on hold during Mr. Felderhof’s lengthy trial on quasi-criminal charges of insider trading and spreading false information, which began in 2000 and only ended in 2007, when he was acquitted of all charges.
Before they could drop the lawsuits, Mr. Pape and Mr. Strosberg needed Justice Perell to release them from an earlier commitment they made to the court to continue the case.
Also at issue was the question of what to do with money held in trust and left over from a settlement with a company related to Bre-X.
Justice Perell granted Mr. Pape’s request that the two law firms, Pape Barristers and Sutts Strosberg LLP, receive $431,493, less 13 per cent HST, for their outstanding fees. That means the lawyers have taken in a total of about $850,000 in fees dating back to the litigation’s start. At their normal rates, they would be owed $2.6-million, the judge said.
Justice Perell also ruled that it would be impractical to distribute the remaining $3.5-million in funds to investors in Bre-X, most of whom would recover just a fraction of a penny on the dollar. So he agreed that the leftover money should instead be distributed to charity, ordering that 80 per cent be given to the Law Foundation of Ontario’s access to justice fund, and that 20 per cent be given to the Telfer School of Business at the University of Ottawa.
Other cases related to Bre-X were discontinued last year, and similar lawsuits in the U.S. have also died out.