U.S.$404-million jury award denied by judge Rollercoaster for

Within the space of less than a week, Utah-based Gold Standard (NASDAQ) has gone from rags to riches to rags.

The penury-wealth-penury fast track began Sept. 3 when a jury in Utah ruled defendant Getty Oil must pay Gold Standard US$154 million in compensatory damages and US$250 million in punitive damages. Gold Standard first launched the suit over Utah’s Mercur mine against Getty, Texaco Inc. and American Barrick (TSE) in 1986. It alleged, among other things, that Getty unlawfully reduced Gold Standard’s 25% participating interest in the mine to a 15% net profits interest (NPI).

The nub of the argument, according to Gold Standard President Scott Smith, is whether Getty ever produced a proper feasibility study with which Gold Standard could persuade banks to fund his company’s slice of development costs. Getty said it did; Gold Standard said the report was an engineering report, not a feasibility study, and therefore not sufficiently convincing for bankers.

The ruling in favor of Gold Standard was handed down by a 10-member jury following seven weeks of testimony. The next trading day, news of the judgment pushed Gold Standard stock to about US$4 per share on volume of roughly two million shares.

For Gold Standard shareholders, the euphoria was shortlived. Six days after the jury handed down its verdict, the presiding judge overturned that ruling. “I was absolutely shocked, I was amazed, I was outraged,” Smith told The Northern Miner, following the judge’s ruling.

Smith, with about one million shares of Gold Standard, is one of the major shareholders in the company. Another is FCMI Financial Corp. (TSE), a venture-capital and money management firm controlled by Albert Friedberg. Friedberg also runs a commodity trading firm from a Bay Street office in Toronto.

FCMI holds 1.5 million shares of Gold Standard and 1.75 million warrants exercisable at $2.25 (750,000 warrants) and 75 cents (the remaining one million). Fully diluted, FCMI holds 18.5% of the issued shares of Gold Standard.

In fact, much of the asset value of FCMI stems from the Gold Standard holding. After cash and marketable securities valued at nearly $8 million and $2.2 million invested in New Zealand real estate, FCMI holds $3.3 million (as evaluated on March 31, 1993) in Gold Standard securities.

FCMI has roughly 5.2 million shares (the Class A non-voting shares) outstanding on a fully diluted basis. About 64% of those shares are tightly held by management, so FCMI sports a rather thin public float. (For more information, see the TSE market story on page 9.)

Henry Fenig, FCMI’s executive vice-president, said the judge’s ruling reversing the jury verdict was a surprise, but it may have beneficial effects. “What Judge Noel’s decision may do is speed up the appeals process,” he said. After the jury’s ruling on Sept. 3, Getty announced it was appealing. However, now that Gold Standard, and not Getty, must appeal, the process should be less time-consuming, Fenig said.

Another relatively large player in the Gold Standard case was a private, numbered company created by Ray Saadien in 1987. Formerly with Canarim, Saadien is now a vice-president with Yorkton Securities in Vancouver. Saadien, through 321264 B.C. Ltd., bought two million Gold Standard shares. The money — about $2.25 million — was raised through private investors in the U.S. and Canada. Before committing the funds, however, Saadien, a geologist, performed what amounts to due diligence by having the entire Mercur project assessed in terms of geology, engineering and, most importantly, litigational factors. Only after that evaluation did his group commit funds.

In April, 1993, Gold Standard reached an out-of-court settlement with American Barrick. Barrick paid $5.2 million for Gold Standard to relinquish all rights to the Mercur property. However, the junior could still pursue litigation against the former operator, Getty Oil.

After paying legal fees associated with the Barrick settlement ($547,000) and deferred legal expenses of $1.4 million, Gold Standard was left with roughly $2.4 million to continue battling Getty in court.

It was this funding, together with the infusion of cash from FCMI, the Saadien group and a group of European investors through Dean Witter of Canada in 1989 that has let Gold Standard continue its suit over the past seven years.

No one could say how long the appeals process may take.