When it comes to prosecuting those allegedly responsible for egregious stock scams, Canada's judicial machinery cannot be accused of holding drumhead trials. On Dec. 6, the Ontario Securities Commission will resume arguing its case against John Felderhof, former geologist of Bre-X Minerals, before the Ontario Court of Justice in Toronto. More than seven years after Bre-X was revealed as one of the biggest mining frauds the world had ever seen, the Felderhof trial has so far heard from just two witnesses.
Sufficient time has elapsed that you may be fuzzy on the details of the Bre-X scandal. Recall that the shine came off the former mining darling in March 1997, about the same time Bre-X geologist Michael de Guzman mysteriously fell to his death from a helicopter over the jungles of Borneo. The company's Busang property in Indonesia, once touted as home to the world's largest gold deposit, was soon revealed to contain hardly any gold at all.
Two years elapsed before the OSC charged Felderhof with eight counts of violating securities laws, in May 1999. Four of those counts alleged he engaged in insider trading over five months in 1996, in which he sold about $84 million in Bre-X shares; the remaining counts allege he authorized or permitted Bre-X to issue false press releases. The matter didn't reach court until October 2000. After that, things moved so slowly that the first witness's lawyer begged the court to speed things up — the drawn-out questioning was said to have elevated former CFO Rolando Francisco's blood pressure.
Other people's blood boiled, too. Outright animosity between prosecutors, defence lawyers and trial judge Peter Hryn slowed the trial. OSC prosecutor Jay Naster and securities lawyer Joseph Groia, Felderhof's counsel, clashed from the outset. And the trial halted in April 2001, when the OSC attempted to have Hryn pulled from the case for failing to rein in Groia — a highly unusual move.
But the OSC failed to persuade Ontario Superior Court Justice Archie Campbell that Hryn had displayed bias against the prosecution. “A hard fought trial is not a tea party,” Campbell observed in his ruling. The Ontario Court of Appeal similarly rejected the OSC's arguments, forcing the commission back before Hryn. Naster has left — when the trial resumes, Bay Street litigator Frank Marrocco will lead the OSC's prosecution. More trial dates are scheduled throughout 2005.
It could be all for naught. Felderhof lives abroad. Reports indicate that since the scandal broke he has lived in the Cayman Islands and, more recently, Indonesia. Canada has no extradition treaty with either country. Even if such agreements existed, the OSC's charges against Felderhof are for provincial, summary offences, seldom recognized as extraditable offences. So it's unlikely the court could successfully impose any sentence or fine, even if the facts revealed at trial warrant it.