Bre-X Case Report
“All That Glitters Isn’t Gold”
By: Brenda Harkins
Table of Contents
Page 1 ……………………………………………………………………….……Summary
Page 2-3……………………………………………………………………………Questions
Page 4 ……………………………………………………………………………….Works Cited
Summary
Bre-X Case Report
“All That Glitters Isn’t Gold
Bre-X was a small Canadian mining company started by David Walsh and his wife Jeannette. In 1992 Walsh declared personal bankruptcy and contacted his longtime friend John Felderhof who was a Dutch geologist. Felderhof recommended to Walsh to acquire mining rights to land in Indonesia. Felderhof told Walsh the land in Busang, Kalimantan had potential of producing gold. Walsh accumulated the $80,000.00 plus that was required to purchase 475,000 acres of land in Busang and the mining operations began in Indonesia by Bre-X. Felderhof was in charge of the mining operations. Felderhof employed as the chief geologist Mike de Guzman in Indonesia. Walsh was in charge of the “strategic and financial issues of the company including promoting Bre-X stock”. (Stanwick & Stanwick) The stage was set for one the largest unethical scams in the history of mining operations. These four people’s unethical behavior was monumental in producing the largest business scam in Canadian history and possibly the world.
The chain of events began in November of 1994 when Bre-X stated they had indeed found gold. The reserve estimate could be more than two million ounces this would not be the end of the deception, the all-time high figure would be touted to be two hundred million ounces. Stock prices began to increase from the original ten to thirty cent range to $2.80 a share. In a short two years the Bre-X stock would reach a high of $280.00 a share. This would all come to an end in early 1997 when it was indeed discovered this had all been a lie and there was no significant gold to be found on the Bre-X land in Indonesia.
David Walsh, John Felderhof, Mike de Guzman and yes in my opinion Jeannette Walsh had created an ultimate scam that was laced with unethical practices. This scam made all of these people rich at the expense of the investors who believed the information being feed to the public about the operations of Bre-X in Indonesia.
There were many red flags that were simply ignored by the owners and board members of Bre-X. The one red flag I think should have been the red light for everyone was the claim of the mines producing the “equivalent of 8 percent of the total world’s gold reserves”.(McGee and Heinz)
In the end two of the lead players of this scam are dead or presumed dead. One was charged for eight violations including inside trading. I believe Jeannette Walsh got off totally free of her involvement of this scam. I don’t see how she could not have known this was going on she was the corporate secretary and married to the owner of Bre-X.
Questions for Thought
1.) Who controls the information? In my opinion Bre-X’s owner David Walsh was responsible for the released information on all operations from Bre-X. He was listed as being the person who was in charge of the strategic and financial issues of the company including the promoting of Bre-X stock. David Walsh allowed the first hints of gold being found in the Indonesian mine when John Felferhof and other employees were claiming gold had been found in the Bre-X mine Walsh could have at any time made a public statement stating these were unfounded rumors, and he did not. My answer has to be David Walsh.
2.) Did David Walsh know all the unethical and illegal activities occurring at the mine? I believe he did know at most of the unethical and illegal activities. David Walsh and John Felderhof were good friends not just business associates. Felderhof was instrumental in the spread of the first rumors of gold being found in the Indonesian mine and I am sure he relayed this information to Walsh. Walsh also was not transparent with information from the start of the mining in Indonesia which leads you to believe there were things being hidden from the public deliberately. So my answer is for the most part yes he did.
3.) Determine the stakeholders in this case. Rank them according to importance and explain your reasoning. The stakeholders with Bre-X are the people who helped fund John Walsh to purchase the mining land in Indonesia because I am sure he did not have the $80,000.00 to purchase this land since he had filed personal bankruptcy in 1992. These people or financial institutions had a vested interest at least in the land purchased. The second stakeholders were the people who owned stock in Bre-X. Stock holders purchased stock in Bre-X as an investment and because the release of information that stated the gold deposits were estimated to be more than two million ounces, the stock prices were soaring and made Bre-X to look as if the stock was a lucrative investment.
4.) Examine the red flags identified in Table 1. Explain which of these red flags investors could have reasonably ignored. 1. The unexplained fire at Busang, even though it was a mystery fires break out many times for no apparent reason.
5.) What in your opinion motivated Felderhof to return to Toronto to defend the charges against him, especially because they were not considered extraditable charges? Felderhof in my opinion only returned to Toronto because his assets in the Cayman Islands were in jeopardy and he wanted to be recognized as being a victim instead of one of the guilty parties in this scandalized scam.
Works Cited
Stanwick, Peter A. and Stanwick, Sarah D. “Case 5: Bre-X All That Glitters Isn’t Gold.” Understanding Business Ethics. (2009): 246-252
“All That Glitters Isn’t Gold”
By: Brenda Harkins
Table of Contents
Page 1 ……………………………………………………………………….……Summary
Page 2-3……………………………………………………………………………Questions
Page 4 ……………………………………………………………………………….Works Cited
Summary
Bre-X Case Report
“All That Glitters Isn’t Gold
Bre-X was a small Canadian mining company started by David Walsh and his wife Jeannette. In 1992 Walsh declared personal bankruptcy and contacted his longtime friend John Felderhof who was a Dutch geologist. Felderhof recommended to Walsh to acquire mining rights to land in Indonesia. Felderhof told Walsh the land in Busang, Kalimantan had potential of producing gold. Walsh accumulated the $80,000.00 plus that was required to purchase 475,000 acres of land in Busang and the mining operations began in Indonesia by Bre-X. Felderhof was in charge of the mining operations. Felderhof employed as the chief geologist Mike de Guzman in Indonesia. Walsh was in charge of the “strategic and financial issues of the company including promoting Bre-X stock”. (Stanwick & Stanwick) The stage was set for one the largest unethical scams in the history of mining operations. These four people’s unethical behavior was monumental in producing the largest business scam in Canadian history and possibly the world.
The chain of events began in November of 1994 when Bre-X stated they had indeed found gold. The reserve estimate could be more than two million ounces this would not be the end of the deception, the all-time high figure would be touted to be two hundred million ounces. Stock prices began to increase from the original ten to thirty cent range to $2.80 a share. In a short two years the Bre-X stock would reach a high of $280.00 a share. This would all come to an end in early 1997 when it was indeed discovered this had all been a lie and there was no significant gold to be found on the Bre-X land in Indonesia.
David Walsh, John Felderhof, Mike de Guzman and yes in my opinion Jeannette Walsh had created an ultimate scam that was laced with unethical practices. This scam made all of these people rich at the expense of the investors who believed the information being feed to the public about the operations of Bre-X in Indonesia.
There were many red flags that were simply ignored by the owners and board members of Bre-X. The one red flag I think should have been the red light for everyone was the claim of the mines producing the “equivalent of 8 percent of the total world’s gold reserves”.(McGee and Heinz)
In the end two of the lead players of this scam are dead or presumed dead. One was charged for eight violations including inside trading. I believe Jeannette Walsh got off totally free of her involvement of this scam. I don’t see how she could not have known this was going on she was the corporate secretary and married to the owner of Bre-X.
Questions for Thought
1.) Who controls the information? In my opinion Bre-X’s owner David Walsh was responsible for the released information on all operations from Bre-X. He was listed as being the person who was in charge of the strategic and financial issues of the company including the promoting of Bre-X stock. David Walsh allowed the first hints of gold being found in the Indonesian mine when John Felferhof and other employees were claiming gold had been found in the Bre-X mine Walsh could have at any time made a public statement stating these were unfounded rumors, and he did not. My answer has to be David Walsh.
2.) Did David Walsh know all the unethical and illegal activities occurring at the mine? I believe he did know at most of the unethical and illegal activities. David Walsh and John Felderhof were good friends not just business associates. Felderhof was instrumental in the spread of the first rumors of gold being found in the Indonesian mine and I am sure he relayed this information to Walsh. Walsh also was not transparent with information from the start of the mining in Indonesia which leads you to believe there were things being hidden from the public deliberately. So my answer is for the most part yes he did.
3.) Determine the stakeholders in this case. Rank them according to importance and explain your reasoning. The stakeholders with Bre-X are the people who helped fund John Walsh to purchase the mining land in Indonesia because I am sure he did not have the $80,000.00 to purchase this land since he had filed personal bankruptcy in 1992. These people or financial institutions had a vested interest at least in the land purchased. The second stakeholders were the people who owned stock in Bre-X. Stock holders purchased stock in Bre-X as an investment and because the release of information that stated the gold deposits were estimated to be more than two million ounces, the stock prices were soaring and made Bre-X to look as if the stock was a lucrative investment.
4.) Examine the red flags identified in Table 1. Explain which of these red flags investors could have reasonably ignored. 1. The unexplained fire at Busang, even though it was a mystery fires break out many times for no apparent reason.
5.) What in your opinion motivated Felderhof to return to Toronto to defend the charges against him, especially because they were not considered extraditable charges? Felderhof in my opinion only returned to Toronto because his assets in the Cayman Islands were in jeopardy and he wanted to be recognized as being a victim instead of one of the guilty parties in this scandalized scam.
Works Cited
Stanwick, Peter A. and Stanwick, Sarah D. “Case 5: Bre-X All That Glitters Isn’t Gold.” Understanding Business Ethics. (2009): 246-252