Does crime pay?
Wall Street Crime and Punishment is a weekly series through Benzinga’s Phil Hall that chronicles bankers, brokers, and money scoundrels whose ambition and greed lead them in that direction.
On March 23, 1997, the decomposed body of geologist Michael de Guzman was discovered in the middle of a jungle near the Busang River on the Indonesian island of Borneo. Four days earlier, de Guzman fell from a helicopter while flying over the tropical region and later, local police decided that his death was a suicide.
Three years before his macabre demise, de Guzman was in the center of world attention when he emerged from the same jungle with ordinary news: the discovery of samples of gold cores in an asset that had been purchased a year earlier through Bre-X Minerals, a difficult situation. to understand the Canadian mining company.
Initial estimates of Guzman’s discovery indicated more than 136,000 pounds of gold buried under the jungle and a year later Guzman raised this estimate with a forecast of more than 2 million pounds of gold awaiting excavation.
Bre-X’s Indonesian assets have the most sought-after gold mining site since the California Gold Rush in the 1850s. The company’s consistent percentages rose from 30 cents according to the constant percentage to $250 consistent with the constant percentage, and expanded beyond toronto shares. Switch to nasdaq.
But there was a problem: De Guzman’s claims were a total and absolute lie. Shortly after his death, the fact about the Indonesian gold manna of Bre-X became known and the investors who invested their cash in the company learned that they were victims of the largest mining fraud in history.
Bungle In The Jungle: Bre-X, based in Calgary, founded in 1989 through David Walsh, a Canadian energy industry executive. Walsh indexed the company on the Alberta Stock Exchange to fund its initial purpose of mineral extraction in Canada’s Northwest Territories.
For its first 4 years, Bre-X was not profitable. In 1993, Walsh followed the recommendation of Dutch-born Canadian geologist John Felderhof to acquire a piece of jungle on Borneo, Indonesia’s largest island.
Borneo is rich in herbal resources, adding oil, gas, timber and coal, but gold has never been discovered in remote and insignificant quantities. The domain advised through Felderhof had already been explored through 12 other mining corporations and all rejected the territory as being absent from any primary gold resources.
Felderhof, who in the past was tasked with locating Papua New Guinea’s largest gold mine, hired Guzman’s The Filipino as assignment manager for the Borneo operation.
Although the two men had worked together before, it is not certain that Felderhof was aware of De Guzman’s personal life: he had 4 wives and families, neither of whom knew each other, and at the time of his death, he reportedly tried to do so. discharged the fifth marriage but was rejected through his wife in the long run.
Four years earlier, de Guzman was fired from a job at a mining company when it was discovered that he was the company’s budget to entertain one of his lovers.
Despite a life that seemed more suited to sitcoms, de Guzman was a renowned professional in his field, but once he arrived in Borneo, he found out he was on a project and feared wasting his Bre-X task after his first two attempts to locate Gold turned out to be empty. De Guzman later stated that Walsh had thought about promoting the assets to contain his losses due to the unproductive search for gold.
Midas’ sideline man: De Guzman controlled to trick his employer into salting his samples of carrot with gold dust he created with the splinters of his wedding ring. Encouraged by this deception, Walsh ordered de Guzman to continue his work. two and a half years ago, De Guzman produced thousands of samples of salted carrots of local gold that he purchased for $61,000.
While de Guzman soiled his carrot samples, Walsh accelerated by introducing Bre-X to institutional investors and retailers across Canada, and manipulated Canadian media into reporting incredibly positive stories about how a Calgary company ended up owning a fortune in gold. His trading acuity was unheard of: he attracted 40,000 investors and transferred Bre-X to the Toronto Stock Exchange.
Walsh also had his eye on U. S. cash. U. S. And in August 1996 it earned a spot on nasdaq. It wasn’t a simple task: unlike the unregulated Toronto Stock Exchange, Bre-X had to spend an eight-month investigation through the U. S. Stock Exchange. U. S. Exchange Commission (SEC) that its gold discovery in Borneo was legitimate.
An anonymous SEC official later told the Wall Street Journal that the regulator “was quite vigilant” in contemplating Bre-X’s candidacy because “junior mining corporations are very speculative; this is all we’re monitoring. “
Unfortunately, the SEC’s oversight did not bear fruit, as the company entered a U. S. public board of directors. U. S. With only a few minor tweaks to your app; for example, one on “proven” gold reserves was rewritten to describe the assumed assets as “mineralized deposits”. . “
See also: Penny Lane meets Wall Street
Three’s A Crowd: In 1996, Bre-X continued to inflate the length of its potential treasure, and Walsh told a reporter, “We all believe we are guilty of probably the greatest gold discovery in the history of the world. . . “
But what Walsh didn’t foresee anyone looking for by percentage of his luck – Suharto, the Indonesian president whose concept of capitalism and democracy is very different from what Walsh experienced in his local Canada.
Suharto was not convinced that Bre-X could simply take over the excavation of such a massive gold reserve and asked the company to marry a larger company that could take on this wonderful task. He also sought out Indonesia to take advantage of the unforeseen treasure discovered beneath its soil.
Bre-X subsidized the programs and Suharto withdrew the company’s excavation permits and, unsurprisingly, Bre-X replaced his mind.
Therefore, Bre-X was strongly armed in a new deal in which he ended up owning 45% of the company, with the Indonesian government pocketing 40% and Freeport-McMoRan, a New Orleans company brought in to dig up the gold, taking the remaining 15. %.
While Suharto created a monetary constraint on Bre-X’s plans, Freeport-McMoRan created an existential angst for de Guzman.
In January 1997, some time before the new company started work, a fire lamp site occurred at the bre-X workplace in Borneo. Guzman was never charged with arson, the moment the chimney lighter was placed and the destroyed items looked more than suspicious.
In February 1997, Freeport-McMoRan conducted due diligence near the location where de Guzman reported his findings, but it turned out to be empty. Confused by the drilling results, Freeport-McMoRan summoned de Guzman to Borneo to discuss his findings.
De Guzman arrived in Borneo in March while facing a recent diagnosis of hepatitis B. On March 19, 1997, he boarded a helicopter chartered through Bre-X to take him to the mine site, but in flight he opened one of the doors and jumped when In the notes he left, he explained his suicide as an escape from the pain created by hepatitis, writing: “God bless you all. No more tummy pains!! No more back pains!!”
Freeport-McMoRan made public its discoveries of a non-existent gold reserve in May 1997.
Bre-X attempted to restrict the damage by hiring a third-party mining company, Strathcona Mineral Services, to audit Borneo’s ownership. Strathcona only showed what Freeport-McMoRan found, but added that Guzman’s carrot samples were obviously salty.
Suharto responded to the news by cancelling Bre-X’s licenses and expelling the company’s workers from Indonesia, but that is the least of Bre-X’s problems.
Race Among The Ruins: Bre-X’s downfall was immediate and the company dragged its investors into an immediate slump. Institutional investors who lost really large amounts included the Ontario Teachers’ Pension Plan ($100 million), the Quebec Public Sector Pension Fund ($70 million) and the Ontario Municipal Employees Retirement Commission ($45 million).
When Freeport-McMoRan announced that there was no gold on the Borneo property, Bre-X’s inventories on the Toronto Stock Exchange plummeted 97%, and the higher volume caused the inventory exchange’s PC formula to fail. , which raises “concerns about the legitimacy of the company’s claims. “The company would then be cancelled through any of the exchanges.
Bre-X filed for bankruptcy in November 1997. La company was haggled over until it closed in 2003. The Royal Canadian Mounted Police (RCMP) opened an investigation into the fiasco and discovered that Walsh and Felderhof sold $25 million to Bre-X before Guzman’s death. the two men insisted they did not know that De Guzman had produced fake samples of carrots.
While the RCMP investigation was ongoing, Walsh moved to the Bahamas. In May 1998, two armed and masked men broke into his home, tied him up and threatened to kill him if he did not give them his money, although Walsh was not injured in the attack and the gunmen were arrested, this additional strain on Walsh’s physical condition was too wonderful and he died 3 weeks after the attack of a brain aneurysm.
The RCMP investigation ended in 1999 without criminal fees being imposed on anyone within the Bre-X organization. Later that year, the Ontario Securities Commission (OSC) accused Felderhof of insider trading, and stated that there was no evidence that he knew de Guzman’s findings were fraudulent.
The trial began in 2001, interrupted in 2003 when the CSO requested his removal from office, and resumed in 2005 before ending two years later with a not guilty location. Felderhof moved to Manila and passed away in October 2019.
Bre-X was also the subject of an elegant action, but fell in 2014 when Ontario Chief Judge Paul Perrell ruled that “there was no moderate prospect of recovery for any of the defendants, even if the ongoing moves had been successful. “
Plaintiffs’ attorneys asked the court to distribute the remaining $3. 5 million retained through Bre-X executors and spent on charitable applicants, as a recovery effort would result in two hundred each. Perrell divided the amount between the Access to Justice Fund and the Telfer School. Of Management at the University of Ottawa.
The story of Bre-X dramatized in a 2016 film titled “Gold,” starring Matthew McConaughey. The film followed in the footsteps of Bre-X and a striking and wasted production.
Rumors that de Guzman faked his death have been made over the years, but no evidence has ever been presented to verify this story. Before his death, Walsh looked bitterly at the gold mine that never existed.
“Four years and part of hard paintings and the pot at the end of the rainbow is a dustbin,” he said.
Photo: PxFuel.
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