Skip to main content

The Ontario Securities Commission says it will not appeal the acquittal of Former Bre-X Minerals Ltd. vice-chairman John Felderhof three weeks ago on charges of illegal insider trading 10 years earlier before the gold mining company was revealed as a spectacular fraud.

In a one-sentence statement issued early afternoon Thursday, the OSC said that having considered the reasons for the July 31 decision made by Mr. Justice Peter Hryn of the Ontario Court of Justice, "it has decided not to pursue an appeal" in the case.

The commission did not explain why it will not appeal the case, and spokeswoman Wendy Dey said she had nothing to add to the statement.

"It's not appropriate or traditional for the OSC to discuss reasons for its decisions on a matter like this," she said.

Billed by OSC prosecutor Emily Cole last month as "probably the largest securities prosecution in Canadian history," the Felderhof verdict is also the securities watchdog's largest defeat.

Joe Groia, Mr. Felderhof's Toronto lawyer, welcomed the OSC's decision, arguing that Judge Hryn's acquittal would have been extremely difficult to appeal.

"It's a case that ultimately turned on a careful review of the evidence," Mr. Groia said when reached by telephone in his car.

"I mean, Justice Hryn did a masterful job sifting through 160 days of testimony, hundreds of thousands of pages of exhibits, complicated evidence from experts, and essentially he made findings of fact and credibility that appeal courts just don't touch."

The purpose of an appeal, the lawyer added, is not to retry a case but to have a higher court "look at any legal error that may have been made."

The case, revolved around the sale by Mr. Felderhof, a veteran geologist, of $84-million in Bre-X stock while he allegedly had information on the company's prospects that had not been publicly disclosed.

However, Judge Hryn said he was not convinced that the undisclosed information was material. It related to problems associated with Bre-X's ownership stake in the now infamous Busang site in Indonesia, which the Calgary company once claimed to contain the world's largest gold deposit worth up to $95-billion at then current prices for the metal.

Mr. Groia said he has e-mailed news of the OSC's decision to his client and plans to speak with him by telephone Thursday evening. Mr. Felderhof is overseas, Mr. Groia said, but at his client's request would not disclose where.

He expressed relief the OSC prosecution has ended in the 10-year-old case.

"It's time for it to come to an end, for both the regulators and Mr. Felderhof," he said.

Mr. Groia noted, however, that Mr. Felderhof is still being pursued in civil courts, with lawsuits filed against him in Canada, Texas and the Cayman Islands.

Bre-X, founded in 1989, collapsed in 1997 after it was discovered there was no significant gold at Busang and test results from the project were declared fraudulent.

However, no one at Bre-X has ever been charged in connection with conducting the fraud.

The eight counts faced by Mr. Felderhof involved only insider trading and issuing false press releases.

Securities lawyer Phil Anisman said he believes the OSC had made the right decision not to appeal because he doesn't believe it would win.

"I think it would have been a very difficult appeal, and I think a foolish one," he said.

Mr. Anisman said the lengthy decision from Judge Hryn was "heavily fact-based" and commented extensively on all the issues and evidence raised in the case. He said the decisions on each of the allegations levelled against Mr. Felderhof "were quite compelling."

The OSC alleged Mr. Felderhof should have spotted red flags that would have alerted him to tampering with samples at the site, and therefore was negligent in allowing false press releases to be issued. The defence, however, argued numerous experts viewed the same test data and did not spot red flags.

Mr. Anisman said the summary of the evidence provided in the ruling suggested the OSC's expert witness was not as compelling as the numerous defence witnesses who testified on Mr. Felderhof's behalf.

"The trial judge's findings on that issue were very carefully substantiated and had a strong ring of accuracy," Mr. Anisman said. "I didn't think they'd be reversed."

University of Toronto law professor Anita Anand said she believes the OSC's appeal decision speaks to the ongoing difficulty of winning insider trading cases. If cases are hard to win at trial, they are even more difficult to overturn on appeal, she said.

"It's difficult because of the very, very high standard of care that exists in the case law for the prosecution to emerge victorious," she said. "And I think this decision of the OSC not to proceed may be a comment on its recognition of this fact, as opposed to the merits of the case per se."

She said the decision doesn't suggest the OSC agrees with the judge's legal interpretation.

"I wouldn't say simply because the OSC is not appealing that it is in agreement with the points of law at issue," she said. "To me, some of these points are an open question, like the concepts of materiality and standard of care."

With files from reporter Janet McFarland

Interact with The Globe