FREE ARTICLE PREVIEW: You are enjoying a free sample of exclusive
subscriber content. There is a limit of three free articles per week.

TABLE OF CONTENTS Dec 31, 2012 - Jan 6, 2013 Volume 98 Number 46 - 0 comments

Groia ground down but defiant after Felderhof's Bre-X trial

TEXT SIZE bigger text smaller text
By: Trish Saywell
2012-12-26

Early in 2012, the Law Society of Upper Canada convicted Toronto securities lawyer Joe Groia of “incivility” during his defense of John Felderhof against quasi-criminal charges laid by the Ontario Securities Commission of insider trading and issuing false or misleading information. (Felderhof was never charged with a criminal offence.) The geologist hired Groia in 1997, the trial began in 2000, and in 2007 Justice Peter Hyrn cleared Felderhof of all eight charges. Groia, who faces a four-month suspension and $250,000 in costs, recently sat down with The Northern Miner to discuss the Bre-X trial and its aftermath.

The Northern Miner: What are some of the points you’d like to make about the Bre-X case?

Joe Groia: John Felderhof’s case illustrates beyond any doubt that Bay Street convicts people — you’re guilty until proven innocent — and even then, it’s not altogether clear how you go about rehabilitating yourself.

TNM: Felderhof was called a pariah, and you were called a pariah for defending him.

JG: The regulators needed to charge and convict someone, and John’s bad luck was that he was the last man standing, and therefore he was the fellow who faced the hurricane. For the 10 years of that trial, the attitude on Bay Street was: ‘Well, of course John is guilty. If he wasn’t guilty, why would he have been charged?’ I think the Ontario Securities Commission directly and indirectly did a lot of things that contributed to that mindset. 

TNM: What disappoints you the most?

JG: John was acquitted on the merits, and there is a 600-page judgment that painstakingly goes through the evidence. But even as recently as a couple of weeks ago, a fairly senior lawyer in the mining industry who practices in the private sector and who claims to know a lot about the Bre-X case essentially said that it’s really too bad the judge got bamboozled by the defence team. Yet you read Justice Hyrn’s judgment, and it’s a textbook on due diligence and the work done by the Bre-X team.

TNM: Many people in the industry still believe he is guilty.

JG: It’s impossible to have a rational, sensible conversation with the naysayers out there, the people who want to believe John Felderhof is guilty. They don’t want to be bothered by the facts or the details.

TNM: Did you think the outcome of the acquittal would make a difference?

JG: I thought that if John was acquitted in the very strongest of language that people on Bay Street would say: ‘Maybe he was right.’ But it’s like spitting in the wind. It is extremely troubling, not just for John but for everyone who faces this kind of controversy, to think that they’ll be convicted in the court of public opinion just because they are charged, and even when they win, people won’t believe it. You would hope that a white-collar senior executive who gets acquitted would have a better chance of coming back to his old life than some criminal who gets convicted and sent to jail, and yet I think the sad reality is that Bay Street works at a standard that makes that almost impossible, and I think we all lose as a result.

TNM: Given the disappointments and the conviction of incivility, would you do it all over again?

JG: Even with the heartache and the personal tragedies that I had to help people endure, and even with standing to lose my licence at the Law Society, yes I would do it all over again. It cost me a huge amount of money. I don’t know if we will ever recover financially from finishing that case without being paid. But yes, I would do it all over again, because it is still going to be one of the high-water marks of my professional life. I had made a promise to John that I would see him get home safe, and I saw it as my duty to keep that promise to the end, at whatever the cost.

TNM: What do you think of John Felderhof?

JG: I have enormous admiration for him. What he has gone through and the strife that he has had to live through. What adds to what I call the tragedy of the story is that John had an incredibly successful career before Bre-X. I’ve worked with a lot of mining guys who have spent their whole lives and never have an economic deposit credited to their name. John had one-and-a-half or two.

TNM: Felderhof still believes there is an economic deposit at the Busang site.

JG: There is no question there is a real gold deposit at least in the Central zone. There may very well be one in the Southeast zone. I’ve never gone so far as to say it’s economic. In the courtroom we had gold that we purchased from the Southeast zone that Terry Leach [a geologist] and Phillip Hellman [a geochemistry expert] marked as an exhibit in the trial. Leach, who was an incredibly successful petrologist and a very successful pathfinder, said on more than one occasion before he died that in his view, the Southeast zone had all the indicia of a large, low-grade porphyry copper system.

TNM: You sent a survey crew back to Busang in 1998–1999. What did they find?

JG: After the military kicked Bre-X out, the illegal miners went in and they were digging adits — hundreds of adits, anywhere from 10 to 30 metres down into the bedrock — and they were milling.

TNM: Did the prosecution acknowledge there was gold at Busang?

JG: A key witness for the prosecution eventually agreed that one of the reasons why the scam was so successful is that they were adding gold to existing gold. We had all kinds of metallurgical work done that demonstrated there was real gold being produced. We had pictures of gold that had been found in bedrock that were absolutely consistent with in-situ gold and completely inconsistent with salted gold.

TNM: There are those who believe Felderhof knew or should have known what was going on. Can you comment?

JG: Even the Securities Commission in its zeal to convict John conceded he did not know there was a salting scam going on. I had John take a lie detector test. He passed with flying colours. There is no question John did not know and was as much a victim as anyone else. He was probably the biggest victim of Bre-X.

TNM: What is your take on Bre-X’s Filipino team at Busang: chief geologist Mike de Guzman, senior geologist Cesar Puspos and metallurgist and camp manager Jerry Alo?

JG: While we will never know for sure, I believe that Jerry Alo and Cesar Puspos were not capable of committing this fraud without help from Mike de Guzman. I dealt with Jerry and Cesar and they did not strike me as being the kind of criminal masterminds you would have needed for this scam. My personal view, at the risk of sounding like a conspiracy theorist, is that Mike de Guzman is alive and well and living somewhere in the Philippines.

TNM: Felderhof says he believes de Guzman was innocent.

JG: John and I have always disagreed about this. But if you believe as I do that de Guzman was involved, then when de Guzman left the Royal York Hotel and stopped in the Philippines, he knew he was headed back to a salting scandal. It would make no sense for de Guzman to leave the Philippines, because if he was involved, I think he made a lot of money trading the stock.

TNM: Felderhof says the Indonesian military or secret service tortured him, forced him to write a fake suicide note and threw him out of a helicopter.

JG: I could see the Indonesian government wanting to deal with people like John or Rolly Francisco [Bre-X’s chief financial officer], the people who knew where some of the skeletons were from the higher ups — the Bobby Hasan-type shenanigans. But I don’t think there was much reason for them to kill de Guzman, unless he was somehow bribing or paying off government officials. What would be the motive to kill him? If anything you would want to have a scapegoat.

TNM: So you’re convinced it was not suicide.

JG: I am 100% convinced it was not suicide . . . and if you wanted to pick one country in the world where you could hide out for a very long time, the Philippines would be it.

TNM: Felderhof says he spent a total of about $16 million on legal fees. Is that correct?

JG: I think $16 million is right for all the lawyers in five countries who worked on the case. I don’t know if that includes the $2 million he owes me or not.

TNM: You are also defending him pro bono in the two outstanding lawsuits: one a class-action suit, and the other filed by trustee Deloitte & Touche, is that right?

JG: Yes. He’s got no money.

TNM: Is it true that Ingrid, Felderhof’s second ex-wife, is suing you?

JG: Yes.

TNM: Why?

JG: I can’t figure that out. She sued me in Canada alleging that essentially I swindled her out of legal fees, even though I did the last half of the case for free.

TNM: All of the assets in the Cayman Islands — the US$3-million house in Vista del Mar, the US$1.25-million condominium on Seven Mile Beach and the US$434,000 house in Snug Harbour on Grand Cayman — are all in Ingrid’s name, correct?

JG: Yes.

TNM: And they have been frozen. If the remaining lawsuits end without a financial settlement, will she have access to all of it?

JG: Yes.

TNM: So she could end up with a significant amount of money.

JG: I don’t know what the real-estate values are any more, and I don’t know if she has encumbered them. I don’t know what she has spent, but I think so.

TNM: Some of the $83.9 million in proceeds from the sale by Felderhof of Bre-X stock between April and September 1996 has been spent on legal fees. Do you have any idea how much of that is left?

JG: As for whether there is any left with Ingrid, that is something you’d have to ask her. I have no doubt John does not have any money. You have seen where he lives.

TNM: Felderhof says he put all the Cayman assets in her name in 1996. He also says he received $3 million in the divorce settlement, all of which he has spent on legal fees. Is that correct?

JG: Yes. The only other thing to keep in mind is that this number does not include the money paid to exercise the options. I’m just going by memory, but I think something like $26 million was paid to the company when John exercised his Bre-X options. So my net number has always been around $57 million.

TNM: Can you elaborate on the stock options?

JG: One of the strong elements in John’s defence — and one of the reasons why you should believe he was not involved in the salting — was that his last trade in Bre-X shares was to exercise a huge number of Bre-X options in August and September 1996, just before the s––t hit the fan. He paid a huge amount of money, something like $14 million into the treasury of the company, and sat on those shares through the end of the demise. If a guy is involved in a salting scam, is he going to take $14 million of the money he has made in the market and pump it into the company? The cynical people say: ‘That just shows you how clever and sophisticated he is.’ Now, John is smart and determined — he is many things. But Machiavellian is not one of them.

TNM: Any final comments?

JG: The cartoon story that everyone believes about Bre-X is just not true. And yet there were days when I was defending my Law Society hearing, trying to talk about the case and why I defended it the way I did and the positions I took, but it was clear my efforts were falling on deaf ears.

TNM: You have said that Bre-X was probably the best lawyering you’ve ever done.

JG: Yes. And I still believe that.



© 1915 - 2014 The Northern Miner. All Rights Reserved.


Photos

Lawyer Joe Groia.
Lawyer Joe Groia.
Project manager Michael de Guzman at Bre-X Minerals' Busang gold project in East Kalimantan, Indonesia, in 1996. Photo by The Northern Miner
Project manager Michael de Guzman at Bre-X Minerals' Bu...


Horizontal ruler
Horizontal Ruler

Post A Comment

Disclaimer
Note: By submitting your comments you acknowledge that Northern Miner has the right to reproduce, broadcast and publicize those comments or any part thereof in any manner whatsoever. Please note that due to the volume of e-mails we receive, not all comments will be published and those that are published will not be edited. However, all will be carefully read, considered and appreciated.

Your Name (this will appear with your post) *

Email Address (will not be published) *

Comments *



* mandatory fields