Weeks after the scandal, the RCMP washed its hands of the case on the basis that it was too complicated and expensive to pursue.

And Tuesday's acquittal of Bre-X chief geologist John Felderhof on securities violations is the final, sad chapter in the saga.

He was charged with insider trading and with issuing press releases which propelled the stock based on information that turned out to be untrue. He argued, effectively, that he did not have any knowledge that the test results were fraudulent.

This illustrates the fact that U.S. laws protect investors better than do Canadian laws.

For instance, American officials vigorously, and rapidly, pursue investigations and don't drag them on for a decade. They pursue investigations no matter how complicated and expensive.

In addition, the laws protect American investors, caught up in frauds like Enron or WorldCom, by awarding them huge settlements from the banks and brokers who did business with them.

Meanwhile, Canadian investors, who have lost billions in Bre-X and other scandals, will get nothing.
Canada's problem is that its banks and brokers are the most powerful lobby in the country. They have made sure, over the years, that politicians keep the laws tipped in favour of the banks and their broker subsidiaries.

Take the case of Bre-X. These bank-brokers traded the stock in huge volumes for years and also underwrote issues. They made millions in trading commissions. Their analysts were shameless cheerleaders for Bre-X, endorsing drilling results that ended up being fraudulent.

They made fortunes and yet have escaped any responsibility for their incompetence. Their defense, permitted in Canada but not the U.S., is that they were hoodwinked too.

But that doesn't hold water with lots of people or with the American court system.

"Somebody was salting a mine. Start with that. A giant fraud," said an angry Claude Lamoureux, President of Ontario Teachers Pension Plan in an interview at the time. The Plan lost $60-million.

"After that, you say, did the analysts do their jobs? First somebody does a fraud then an analyst goes and says it's great and fabulous. It's either there or not there. Clearly, it wasn't there.

"We're talking about quality control. What did the analysts have in terms of quality control? Did the auditor? Probably not. The head office did not.''

So why did banks and brokers and their analysts get off scot-free in Canada? Because the burden of proof differs between the two countries' court systems involving market participation.

"It involves the theory of fraud on the market," explained class action expert and lawyer Harvey Strosberg. "In Canada, if there's a misrepresentation in the marketplace and you buy shares, but you bought them for reasons other than the misrepresentation, then you are not entitled to sue. In Canada, you have to prove that you relied on false statements to buy the stock."

The American laws are different.

"In the U.S., an investor's reliance on misrepresentations is a given. There's a deemed reliance in an efficient market," he said.

The "efficient market" test is required in the U.S. because otherwise people could be suing about price volatility in over-the-counter stocks that bear no relationship to statements made, whether misrepresentations or not.

"This [deemed reliance] is the biggest impediment in stock cases involving fraud on the market in Canada," he said.

The best reform would be to have securities laws that entitle investors to damages if misrepresentation is proven, either deliberately or through negligence, because there is a "deemed reliance" on such information.

But that's not the case - not even one decade after this Bre-X fiasco, along with others.

The result is that there is no consequences for John Felderhof who signed press releases that said Bre-X had made the biggest gold discovery in the history of the world which turned out not to be true. There are no consequences despite the fact $9-billion was lost and he was a director, head of geology and paid to manage drilling operations.

So it's little wonder why the Ontario Teachers Pension Plan, and other money managers, have preferred since then to buy stocks that are also listed in the U.S. It's so they can have proper protection from U.S. courts, cops and regulators.

For all the above reasons a listing on an American exchange coincidently may entice more proactive involvement of the global investment community further enhancing SH value. (although with a 20% discount when purchasing Canadian equities with $US on Canadian exchanges, shouldn't that be enough?)

RUF