Hi Ho "SILVER"

[Skol]

Caveat Emptor

I thought the Bre-X scandal was a bad one, I was in Canada at the time.



Former Vancouver geologist and mining executive John Gregory Paterson, who created and distributed hundreds of bogus assay results to boost the share price of Toronto Stock Exchange-listed Southwestern Resources Corp., has pleaded guilty to four of nine counts of fraud.

Paterson, 62, entered the guilty plea through defence lawyer Rod Anderson on Monday morning, just before an 83-day trial was scheduled to begin in Vancouver Provincial Court.

Crown counsel Ian Hay told Judge Harbans Dhillon that the four charges capture the essential elements of the fraud. He said he will stay the other five charges.

Hay also said he is seeking a 10-year sentence on each of the four counts, to be served concurrently. Anderson has not yet said what term he is seeking.

The 11th-hour guilty plea turned the anticipated trial into a sentencing hearing, but that doesn’t mean it will be short or smooth. Hay told court there is still substantial disagreement about the aggravating and mitigating circumstances, in particular the amount of damage the fraud inflicted on the company and its shareholders.

Throughout the morning, Paterson — tall and gangly, with short, white hair and a full moustache — sat quietly behind his lawyers. He took some notes but otherwise sat motionless and expressionless.

In his opening statement, Hay told court how the fraud — which rocked the mining community and the stock market when it was discovered in June 2007 — started and ended.

Paterson was the president, chief executive officer and largest shareholder of Southwestern in 2002 when it optioned a prospective gold property in China (the Boka project).

Paterson assumed responsibility for the exploration program and served as the “qualified person,” who is responsible for compiling and disseminating information about the project, including assay results.

Hay said Paterson received the first set of assay results directly from the lab in May 2003 and included what he purported to be the results in a news release.

Hay said that, from May 2003 to February 2007, Paterson issued 25 consecutive releases reporting assay results on the Boka project. Problem was, they were not true: “Every one contained false numbers created by John Paterson replacing the true numbers,” Hay told court.

He said that, of the 446 assay results that were reported, 433 were “inflated values.”

The release was circulated to company executives and board members, then sent to the TSX surveillance department and publicly distributed through an electronic dissemination service.

Because the results might influence the stock price, the company also filed a “material change report” on SEDAR, the national securities database.

Hay said Paterson also entered the same figures into the company’s databases at the project site and its Vancouver head office. These results formed the basis for later technical reports on the property, and those reports, in turn, were used by analysts to recommend the stock to investors.

Investors and analysts, unaware of the fraud, pushed for a pre-feasibility study, which lenders require before they will finance this sort of project. Such studies include independent verification of assay results.

Hay said evidence will show Paterson engaged in “a series of ploys” to delay and defeat the verification process. He said Paterson sent emails to the on-site project manager, John Zhang, instructing him “to perform certain tasks that could only frustrate it.”

He also said evidence will show Paterson transferred $200,000 US of personal funds from a brokerage account at L.O.M. Securities in Bermuda to another account in Zhang’s name.

By June 2007, Southwestern executives and board members became concerned about the delays. That month, Paterson resigned and, according to Hay, nobody at Southwestern was able to speak to him again.

Southwestern set up an internal committee to investigate the matter. Members were dispatched to China to meet with Zhang, “but when they get there, Mr. Zhang had disappeared,” Hay said.

Meanwhile, he continued, a “lost” drill core was found in another warehouse. New assays from that core showed considerably lower values.

At that juncture, company officials obtained copies of the original assay certificates the lab had sent Paterson and found they didn’t match the assays recorded on the company’s databases. In July 2007, the company issued a news release warning the public not to rely on previously issued assay results.

Hay said that, just days before this announcement, Paterson made a second payment to Zhang, this time for $300,000 Cdn, through the same Bermuda accounts.

In November 2007, an independent mining consultant verified the reported assay results had been manipulated, and disclosed the real values. The stock price plunged to pennies.

The RCMP Integrated Market Enforcement Team in Vancouver commenced an investigation and laid charges in December 2010.

Meanwhile, said Hay, Southwestern was paying Paterson hefty compensation: more than $1 million per year from 2003 to 2005, more than $2 million in 2006, and $372,500 in salary and severance during 2007 when he resigned.

Hay also said that, between May 2003 and July 2007, Paterson traded Southwestern through five brokerage accounts, including one in a Bermuda account called “Sugna” (which he deduced to be an inversion of “Angus,” the Shaughnessy street where Paterson lives). He said Paterson netted $5.6 million from these trades after all costs, including tax.

After the fraud was exposed, Southwestern shareholders filed a class-action lawsuit. Hay said that, to settle the suit, the company agreed to pay $7 million, Paterson $4.2 million and his wife $3 million.

He also noted the company, based on the bogus assay results, accelerated options payments on the Boka properties, spending $4 million to acquire a 70-per-cent interest, and then another $1.7 million to boost that interest to 90 per cent.

In total, he said, the company invested $39 million in the Boka project, but when the fraud was exposed, the property was written down to $10 million.

He also noted the company engaged in a share buyback program, purchasing 1.3 million shares for $10.6 million based on the false assumption that the stock was underpriced relative to the assay results.

He further noted that the bogus assay results were incorporated, by reference, in three share offerings: the first in August 2003, which raised $15.3 million; the second in March 2004, which raised $40.2 million; and the third in September 2005, which raised $26.5 million.

Hay said witnesses will tell the court that investors lost a total of $260 million as a result of the fraud. He did not explain how this figure was calculated. Anderson is expected to take issue with this and other damage figures Hay is claiming.

After the fraud was detected, Paterson was also pursued by the B.C. Securities Commission. In June 2009, he admitted to fraud and illegal insider trading, and agreed to a lifetime ban from the B.C. marketplace. Among other things, he can never again serve as a qualified person.

Although he lived and worked as a geologist in Vancouver, he was licensed with the Australasian Institute of Mining and Metallurgy in Australia. A week after he signed the settlement agreement with the BCSC, the institute permanently revoked his membership.

The sentencing hearing continues Wednesday morning.

[skid]

I have taken a position - I don't own any. My position's the sharemarket, which historically has risen when gold's declined, and vice versa, however the opposite is now the case.

Gold's up, so's the sharemarket, something isn't right, gold and silver are enormously overvalued.

Demand for silver in China is reported as lacklustre given the 15 months of fabrication demand they've accumulated.

What makes you so sure it isnt the sharemarket that is the bubble?

[Skol]

What makes you so sure it isnt the sharemarket that is the bubble?

Because the stockmarket hasn't gone up 766% in 9 years.

The sale of silver coins at the US Mint are down 33% this year compared with last year Jan - Sept.

Signs of a mania-sales of silver coins at the US Mint to the nearest million.

2007 10m
2008 19m
2009 28m
2010 34m
2011 40m

So far this year 25m have been sold, the mania's ending, but how abruptly remains to be seen.

If the S&P500 had gone parabolic like silver it would be at 7283 instead of 1460 and DJIA 63,600 instead of 13,600.

[skid]

Just pulling your chain on the sharemarket bubble--But if you think PMs are about to fall off the cliff,even with the coming inflation produced by QE3,then fair enough..dont buy any

[Skol]

Up 4% overnight ....toot toot here come $40 .........

Looks like the locomotive's gone into reverse, a train wreck coming up.

[elZorro]

Looks like the locomotive's gone into reverse, a train wreck coming up.

Couldn't resist posting this.. Might need to turn the sound down on the video.

http://www.equedia.com/blog/view.php...m_medium=email

[Skol]

Silver descending vertically at the moment, looks like the good job numbers could stick the knife into PM prices, everything else except for oil's in the green.

The losses in gold and silver have been a feature of CNBC this morning.

[skid]

Not so sure I would call it good job numbers ,but definitely a relief to the US[and Obama]
Guess the big question is can it be sustained
Charts are still bullish on PMs though--see how it plays out next week

[skid]

You have to wonder though,..unemployment consistently getting worse and then suddenly,right before the election[the last one before] it bounces.....nah.they wouldnt do something like fiddle with the numbers in a place like the states.......would they?

[Pumice]

You have to wonder though,..unemployment consistently getting worse and then suddenly,right before the election[the last one before] it bounces.....nah.they wouldnt do something like fiddle with the numbers in a place like the states.......would they?

Its actually been consistently improving since 2009.

chart:Attachment 4165