Commentary; Vindication or Vilification?

John Felderhof has released a statement discussing his July acquittal on eight Securities Act offences, saying “the court’s ruling vindicates my position.” (The full statement appears above.)

The court found the former vice-president of Bre-X Minerals not guilty on four charges of insider trading and four of misleading disclosure. It is clear from the context that he is referring to the disclosure charges, Felderhof’s “position” on Busang not being relevant to the judge’s reasons for acquittal in the trading charges.

Whether that acquittal amounts to a “vindication” — in the sense of justifying the proposition that he had no reason to suspect a fraud at the Busang gold project — is debatable. What had to be proved to acquit him was an honest and reasonable, if mistaken, belief that there was no fraud. We are now certain he held just that.

But it does not mean — and Judge Peter Hryn did not say it means — that Felderhof is now right. There is no magic ladder from a reasonable and honest belief to the truth. And the acquittal does not justify Felderhof’s attack on Strathcona Mineral Services for its equally reasonable (and correct) conclusion that there were reasons to suspect fraud. Regina vs. Felderhof was about John Felderhof, not about Strathcona, or its principal Graham Farquharson. An acquittal does not entitle the accused to turn around and put the witnesses on trial.

It is a fact not sufficiently remarked on that — whatever other explanations existed for Strathcona’s “red flags” — the real explanation for them was that alluvial gold was being added to the samples. Strathcona was right about the fraud, whatever Judge Hryn may have had to say later about whether the evidence that came out at trial cleared Felderhof. Felderhof, on the other hand, met the evidence of fraud with the statement that he believed “eventually our work and our deposit at Busang will be confirmed” — this, in May 1997, a month or so after his consultant (and later expert witness) Philip Hellman had offered the opinion that salting was a likely explanation for the negative results from twinned holes drilled by Freeport-McMoRan Copper & Gold.

Graham Farquharson was right; John Felderhof was wrong. After 10 years, neither has changed.

Felderhof’s hope that “one day someone will go back and re-evaluate the property,” doesn’t need to be a mere hope. What’s stopping him? Money’s not nearly as tight as it was after the first time his project collapsed. Raise a few million and drill it off: put up or shut up.

After all, why was that money so tight in the late 1990s? When, exactly, did the junior exploration market crater? I recall some bad news in the spring of 1997 that might have set it off.

Of all the exploration bubbles that burst in 1997, only Bre-X was big enough, rich enough, and high profile enough to have sparked the subsequent four years of investor disfavour the mining industry suffered. If someone had caught the salting earlier — and that someone could have been Felderhof, if he hadn’t explained the warnings away, or one of Bre-X’s sleepwalking consultants, if they’d done better science — perhaps a lot more shareholder value would have been saved than just what was in Bre-X.

For that, John Felderhof owes the industry an apology: and if he can’t bring himself to apologize for not recognizing what was wrong, when both Strathcona and Freeport geologists did, he should at least apologize for his arrogance when the truth did come out, and since. Or he should observe a decent silence.