By SANDRA RUBIN
The Financial Post

  The Mounties also acknowledged yesterday they concentrated their two-year probe almost exclusively on who tampered with gold samples in Indonesia. The force did not focus on who may have orchestrated the securities swindle in order to manipulate the company's stock price.

  Investors in Canada and the U.S. lost billions of dollars when stock in the tiny Calgary exploration firm collapsed on news its Indonesian gold find was worthless.

  David Walsh, the late founder of Bre-X, called the Mounties on Sunday, May 4, 1997, after receiving an independent report confirming someone had added gold to Indonesian core samples to give the impression of a rich strike. Two RCMP officers drove out to the Bre-X offices that afternoon, Mr. Walsh said in an Oct. 9, 1997, deposition filed with a Calgary court.

  "Did they at that point take control of the books, records and papers, computer programs of Bre-X . . . such as they were in the Calgary office, or was that some time later?" he was asked.

  "No, that was the following week," he replied.

  Mr. Walsh was then asked whether he knew of documents being shredded in the intervening days. He said yes.

  He explained Bre-X had had six young college graduates in its offices receiving a tryout in the firm's investor relations department. Five of them resigned when the stock swindle became public, leaving behind "mounds of paper" that had been swept into garbage bags.

  "They were not thrown out because we had reporters going through our garbage bin in the back of the building in the past, and we asked the RCMP," Mr. Walsh said.

  "There wasn't the personnel to start going through every piece of paper to see that there wasn't a phone number or doodling on it. It was basically junk; it was garbage that the boys had accumulated over a period of time on their desks."

  He said the material being shredded was only copies of old press releases and newspaper clippings, and that one of the firm's lawyers, Howard Gorman of Macleod Dixon, provided advice. "We told the RCMP this is what we planned to do. They didn't have a problem."

  The Bre-X head office would almost certainly have housed key documents such as personal notebooks and diaries, and records of faxes and e-mails sent and received between the Indonesian and Canadian operations.

  Mr. Walsh was asked how long the shredding operation took. "I don't recall, a day, a day-and-a-half maybe."

  The RCMP announced two weeks ago it has abandoned the Bre-X investigation without laying criminal charges because there was "insufficient evidence" to proceed. But several sources say it actually shut down its active investigation roughly six months ago.

  Inspector Peter Macauley, who headed the two-year Bre-X probe, said yesterday the Mounties could not have protected the evidence as soon as they were called in, because "we're not going in with a search warrant, so we have no grounds for search and seizure. We are there responding to a complaint."

  He said he was not sure whether the two officers asked Bre-X's board, which was gathered at the head office that weekend, whether the company was prepared to hand everything over voluntarily. He said it eventually took a month to catalogue all the evidence.

  "In an ideal world, they would have locked the doors, gone out, and let us have access to the company for a month. But they still had a business to run."

  He said he had no knowledge of the shredding, but "I can't see any of our people giving permission to shred documents in the middle of an investigation."

   Jim Abbott, the Reform party's critic for the Solicitor-General's Department, is planning to put a motion before the Commons Standing Committee on Justice on Friday requiring RCMP Commissioner Philip Murray to come and explain the force's actions.

  The MP said he wants to know whether the Bre-X investigation was mishandled. "If Canada cannot be taken seriously in matters of international crime, we stand a chance of becoming the laughingstock of the world," said Mr. Abbott, who represents the British Columbia riding of Kootenay-Columbia.

  Insp. Macauley denied that the federal government had leaned on the force to limit the scope of its investigation to who tampered with core samples in Indonesia.

  A source has told the National Post the Mounties were clearly instructed not to investigate the larger picture: A fraud carried out specifically to affect the price of shares on Canada's public markets. Fraud on the market is a violation under the Criminal Code that carries a prison term of up to 10 years

  The source said the RCMP was informed that the Ontario Securities Commission would handle anything affecting the stock, even though the stock market regulator does not have full police powers. "The guys doing the work were pissed off about that," said the source, who spoke on condition of anonymity.

  He said Ottawa imposed the limits "because they didn't have the resources, they didn't want to waste a lot of time on it, and they thought the OSC was going to take care of a big part of it."

  Insp. Macauley did confirm that his investigation focused almost exclusively on the tampering in Indonesia -- but insisted it was his call."We made the decision very early on in this investigation due to the size, so that we were not reinventing the wheel, that we would leave the Securities Act violations up to the OSC and we would concentrate on the fraud -- in particular, the salting of the core samples."

  He said a fraud on the market investigation, "was in the back of our mind. It was a possibility. But we did concentrate on the core samples and [we believed] the rest would follow.

  "We did not undertake this concentrating on the stock market manipulation. It was concentrated on the fraud."

  The RCMP assembled an 11-person Bre-X team, which included some highly seasoned forensic specialists, and officers travelled to Indonesia, Australia, and the Philippines in the course of their probe.

  Insp. Macauley denied reports that money was tight, although another source familiar with the situation said: "All I know is people entitled to sit in business class for a 25-hour flight were told to sit in economy class."

  Mr. Abbott said he plans to try to get some answers about whether Ottawa moved to limit the high-profile inquiry. Any instruction on an RCMP investigation would have to come from the office of Herb Gray, the solicitor-general at the time, he said.

  "The government would not have wanted this kind of embarrassment in the middle of the 1997 election campaign," said Mr. Abbott. "That's the most obvious reason for doing something like this.

  "But there must always be a separation between the RCMP and any policing action, and any direction or implied instruction from their political masters."