U.S. Federal Court Judge David Folsom excluded Canadians from the Texas-based suit in January in what was clearly a major early-round victory for Bre-X defendants. The decision effectively removed up to two-thirds of all Bre-X shareholders from the suit -- rendering them ineligible for any eventual U.S. settlement or Texas jury award.

  Houston lawyer Paul Yetter argued that U.S. courts can take jurisdiction because Canadians were directly damaged by the actions of Wall Street investment banks J.P. Morgan & Co. and Lehman Brothers Inc. -- and the U.S. is the only place they can hope for any redress.

  "What we have here are two U.S. defendants making representations out of the U.S. that they knew were crossing the border into Canada," he said. "If they don't have to answer here, where should it be? What other country should entertain these claims? What other place?

  "The truth is, without this court these Canadian investors will have no forum to pursue these claims resulting from their losses."

  Mr. Yetter pointed to a series of statements he said came from J.P. Morgan, which was Bre-X's financial advisor from June, 1996 to February, 1997. He said its gold analyst told the Financial Post after visiting Busang in 1996 that the site could contain up to 150-million oz. of gold, and "throw off cash flow of $500-million a year."

  "He was not merely repeating puffery by Bre-X," Mr. Yetter argued. "His forecasting was well beyond what the company itself was saying.

  "This is not a defendant caught in a web cast too broadly. This is a defendant that issued statements to the investing public that it should be responsible for. And as far as I know, there is no other lawyer anywhere that has a class action against J.P. Morgan."

  As for Lehman Brothers, he alleged that analyst Daniel McConvey, a former exploration executive with Barrick Gold Corp., was "as bullish or more so than J.P. Morgan."

  "He called Busang 'the gold discovery of the century,' and said the deposit could be more than 100-million oz. He talked about 'spectacular' drill results. They were talking about Busang producing more gold in one place than all 10 of Barrick's mines in one year.

  "These are statements that injured investors on both sides of the border, yet there is no recourse for Canadians investors in their own courts."

  Last Monday, Mr. Yetter filed sworn statements by 92 Canadians who said they had read the J.P. Morgan or Lehman Brothers remarks, and decided to buy Bre-X stock. In his original ruling, the judge said there was no direct link shown between actions in the U.S. and Canadian losses.

  But New York lawyer Bruce Angiolillo, representing Lehman Brothers, attacked the statements as "grossly untimely filings that flat-out violate the rules of civil procedure. "Frankly, these declarations just smell. It's a cut and paste job. "

  He argued that only a fraction of the gold fraud took place in the U.S., and certainly not enough to allow U.S. courts to take jurisdiction over Canadian shareholders.

  "This case is about a colossal fraud that was hatched in Indonesia by a Canadian corporation in Canada," he said. ""We're talking here about a comment in a newspaper, and a report by an analyst. That's not substantial conduct in the U.S."

  Larry Portnoy, representing J.P. Morgan, said it's ridicuous to say conduct by the New York financial firms led to the more than $3-billion in shareholder losses.

  "It's not even until 24 months into the fraud that there was any U.S. conduct here," he argued. "The U.S. conduct is in no way substantial. It is a footnote here. It's a sideshow."

  He defended J.P. Morgan's now-infamous estimate that Busang could contain up to 150-million oz. by saying the analyst started his sentence to a journalist with: "My guess is . . . "

  "J.P. Morgan in no way vouched for Bre-X or for the gold in the ground."