By
SANDRA RUBIN
The Financial Post
John Felderhof, the Bre-X Minerals Ltd. exploration chief who says he, too, was a victim of the gold fraud that lost investors billions, is alleged to have made $35-million in unreported stock sales before the company's collapse.
He is the only Bre-X insider to face any kind of charges relating to the stock market scam. He will have to answer eight counts of breaching securities laws in a Toronto courtroom next month.
In detailing its allegations of wrongdoing, the Ontario Securities Commission said that Mr. Felderhof sold $83.9-million worth of Bre-X shares between April 24 and Sept. 10, 1996.
Yet insider trading reports show he reported sales of only $49.2-million for that period. That leaves $34.7-million in trades unaccounted for.
Insiders in all publicly listed companies are obliged by law to fill out sheets disclosing all trades in their own company's shares to the regulator.
Joseph Groia, Mr. Felderhof's lawyer, said he could not explain the discrepancy because he has not yet seen the information on which the commission is basing its case.
"We don't know how the OSC calculated its numbers and until we know that, I don't know whether comparing it to the insider trading reports makes sense or not," Mr. Groia said.
But the commission's top cop said the allegations speak for themselves.
"We're alleging that we can prove there were $83.9-million worth of trades," said Michael Watson, the OSC's director of enforcement. "Because it's subject to prosecution, I can't go into details of the evidence but you can conclude --and we have evidence -- that that much was traded."
The OSC has said its investigation is continuing.
Putting a dollar figure on how much money Bre-X insiders made selling company stock is key for investors hoping to recover something from a Canadian class-action, now that a judge has ruled deep-pocketed brokerage houses can't be sued as part of that lawsuit.
"The issue of the number of shares sold is a live issue for us," said Harvey Strosberg, the Windsor, Ont., lawyer leading the Canada-wide class-action lawsuit. "We're looking into that.
"Our theory has been all along that this was part of a conspiracy to inflate the price of the shares. Selling the shares was obviously an important part of that plan." The lawsuit has been certified against the bankrupt company and its insiders.
The Financial Post has learned that Mr. Felderhof, a resident of the Cayman Islands, did most of his trading through what was then Deacon Capital Corp. in Toronto. It is now Dundee Securities Corp.
Sources said some of Mr. Felderhof's trades were jitneyed through an institutional brokerage in New York -- meaning the Canadian brokerage would have asked the U.S. firm to execute the trade on its behalf. Jitneying, a legal practice, nevertheless makes the seller more difficult to trace.
Bre-X's bankruptcy trustee, Deloitte & Touche Inc., has won a court order obliging Dundee to turn over all of Mr. Felderhof's trading records for closer scrutiny. There is no implication the brokerage house did anything wrong. It is up to each individual insider of a company to fill out his or her own trading sheets for the OSC.
Mr. Felderhof, a Dutch-born geologist who moved to Canada as a child, is the key surviving figure in the Bre-X drama. He was the link between the mining operations in Indonesia and the head office in Canada, and in a prime position to know how far up the corporate ladder knowledge of the salting scheme went.
