The Bre-X Fraud

By Douglas Goold and Andrew Willis

Last March, shares in the Canadian mining company Bre-X, once reported to be sitting on the largest gold reserves in the world, collapsed so rapidly that the computer system at the Toronto Stock Exchange crashed. In May, the stock, once valued at over $280 a share, was taken off the market. The company was worth nothing. There was no gold.

For those who have been living in a media vacuum for the last six months, the full story of the Bre-X fiasco is on the way. Despite the fact that investigators are still looking into the case, and that a host of lawsuits are only just getting started, there are a reported six books shortly due out on Bre-X.

The Bre-X Fraud, written by two reporters who covered the story for the Globe and Mail, is the first out of the gate. It is quick reading, divided into bite-sized (two- to three-page) sub-chapters and written in a spare, journalistic style that only occasionally slips. Much of the supporting material is weak (books like this should at least have an index), but this is to be expected.

Being so short, the book never attempts to deal with any part of the story in-depth. But as a brief overview of a complex and wide-ranging story, most readers will find it more than adequate.

As the authors point out, the Bre-X fraud “differed from past stock swindles only in its size and audacity.” Perhaps the only surprising thing about it was that it was pulled off by such a gang of losers.

Before Bre-X, David Walsh was a bankrupt slob with a Grade 10 education and a history of nothing but well-deserved financial failure. “All you had to do was meet him and you wouldn’t have bought the stock,” one investor later remarked.

The company’s chief geologist, John Felderhof, was a down-and-out has-been prospector with a reputation for exaggeration and heavy drinking. And Michael de Guzman, the Filipino polygamist who apparently committed suicide by jumping from a helicopter in March, looked up to Felderhof as a mentor!

This was hardly an all-star team.

The entire Bre-X story is truly a “fable for our times,” and in ways that the authors might have developed further. So many aspects of the case seem to define the ’90s: the creation of fantastic wealth almost by accident, the complete triumph of hype over substance, the fact that so many “experts” (particularly among the financial community) never had any idea what they were talking about, and, finally, the way the principals, now luxuriating in the Caribbean, have since cast themselves as victims and dupes so as to invite sympathy rather than contempt.

Except for de Guzman, whose body was half-eaten by maggots and wild pigs before it was fished out of the jungle, the men in charge of Bre-X did very well. Crime may or may not pay but in this case gross incompetence, ignorance, and totally irresponsible behaviour were richly rewarded indeed.

I hate to think that there’s a lesson in that.

Review first published September 6, 1997. David Walsh died in the Bahamas in 1998. The lawsuits I mention would drag on for a decade, with no criminal liability ultimately being found. The money, in the meantime, nearly all disappeared.


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