Southwestern settles lawsuits for $15.5 million

Southwestern Resources (SWG-T, SWGGF-O) has settled the class action lawsuits brought against it last year following news that drill grades in the database of its Boka gold project in China had been manually changed, inflating gold grades.

Former Southwestern president and CEO, John Paterson, his wife and their affiliates will pay a total of $15.5 million to the plaintiffs of the class actions.

Southwestern’s contribution to the settlement payment will be about $7-7.5 million, the company said. Court approvals for the settlements should take three to six months.

Paterson resigned in June 2007 one day after Southwestern announced it was delaying a prefeasibility study, citing personal reasons.

After a review of tens of thousands of drill data entries, it was learned that the real Boka resource was one-tenth the original estimate totaling about 337,000 oz. gold.

On July 19, 2007, the share sell-off started. In one day, Southwestern shares fell by more than half to $2.90 from $6.34 with more than 6 million shares changing hands on news that samples had been tampered with.

Fast forward to today’s news about the settlement; the stock dipped nearly 10%, or 6, to 57 apiece on a trading volume of about 71,000 shares.

The class actions, filed in British Columbia, Ontario and Quebec, accused both Southwestern and Paterson of misleading investors and demanded as much as $320 million in compensation.

Around the same time, Southwestern sued Paterson and affiliated companies, for fraud, breach of fiduciary, statutory and contractual duties, and insider trading, seeking to recover all damages and losses. The company obtained a court injunction freezing Paterson’s assets as well as his wife’s. No recent updated has been provided on the status of this lawsuit.

Southwestern ended up selling the Boka project to a Chinese company in May 2008 for US$9.4 million plus a 2.7% net smelter return royalty. The company is now focusing on its projects, including the joint venture it holds with Hochschild Mining for the Liam gold-silver property in Peru.

Timo Jauristo, current Southwestern president and CEO, says the settlement will allow the company to move forward.

“After a challenging period for our shareholders, employees and associates, we can now look forward and focus on the future,” Jauristo said in a statement.