Neil Paterson and brother Sued for $340 Million
“One site said Neil and John controlled 7 million shares.
A national leader of Canada told a friend of mine that
Neil is in trouble. I sent out 30 emails so someone
will know.
P.S. I think MMY told Neil to do this in many phone
calls.
Thulasi Srikanthan
Staff Reporter
Southwestern Resources Corp., plunged deep in a mining
scandal, is suing ex-CEO John Paterson, accusing him
of fraud, breach of fiduciary duties and insider
trading after an investigation showed alteration of
assay results at its Boka gold project in southern
China.
While there were still indications of gold
mineralization in drill samples and historical mine
workings, Southwestern yesterday said mineral
resources were less than previously reported at the
Boka project in Yunnan province.
Shares of the junior B.C. miner tumbled 17 per cent in
Toronto yesterday to close at $1.70 – a stark contrast
to early 2004 when its shares soared past $20 on
reports of spectacular gold deposits at the Boka
project.
"We are doing the best we can," said David Black,
chair of Southwestern, in response to questions
yesterday about the filing at the Supreme Court of
British Columbia.
"Paterson engaged in a course of deceitful and
dishonest misconduct, in breach of his contractual,
fiduciary, and statutory duties" owed to Southwestern,
the company alleges.
This resulted in the former chief executive officer
"misrepresenting the assay results from the Boka
project and delaying the completion of
(Southwestern's) pre-feasibility study for the Boka
project to cover up the misconduct."
Paterson's actions were not only "fraudulent and
improper," the company claims, but they were also
"reprehensible, high-handed, reckless, wanton and
callous."
None of the allegations have been proven in court.
Southwestern said an independent mining consultant has
been conducting a comprehensive review of the Boka
project and now has largely completed a validation of
the drilling database in respect of the gold assay
data for the exploration work to date.
The mining company has commissioned a new mineral
resource estimate and accompanying technical report
for the Boka project, which is expected to be
completed in about eight weeks.
Chris Freimond, a spokesperson for Paterson, yesterday
released a statement, noting that "Mr. Paterson has
taken note of the company's statement, but had no
comment at this stage."
"He is still undergoing treatment for clinical
depression," said Freimond, adding that this was an
ongoing condition for Paterson who has been in and out
of hospital.
Southwestern's court filing also named Global Gold
Corp. and Glengarry Resource Management, companies
controlled by Paterson.
The documents allege that Paterson "altered or had
someone under his direction and control alter the
Original Assay Results, both in electronically and
paper format."
Falsified assay certificates were then also created to
match the alerted results, the documents allege.
"In carrying out his deceitful and dishonest
misconduct, Paterson increased the assay values for
actual gold found in certain samples by varying, but
yet to be determined, amounts," the documents claim.
Southwestern also claimed in the court filing that
Paterson, knowing the results were false, "caused" the
company to make disclosures, as it would benefit him
as a shareholder.
According to a regulatory filing in May this year,
Paterson personally held 789,250 shares of
Southwestern.
Global Gold Corp. in a regulatory filing earlier this
year was listed as holding about 7.27 million shares
of Southwestern.
After an extended delay in a project pre-feasibility
study, the company said Paterson resigned after
demanding and receiving a payout of $264,000.
Wendell Zerb, an analyst with Canaccord Adams, said
Southwestern's legal actions would do little to set
aside investors' concerns.
"At the end of the day, there appears to be a fairly
large fraud in place," said Zerb, who recommends
selling Southwestern shares.
"I am concluding there is limited economic potential
at Boka, which is frankly tragic," said Zerb. "I don't
think it's something that anybody associated with this
company, from the board to colleagues of these people
who are involved, to analysts to independent
engineers, you name it, I don't think anybody would
have expected something like this."
The company said yesterday it is seeking to recover
all damages and losses it has incurred as a result of
Paterson's alleged misconduct, including $1 million in
punitive damages, and the costs of its legal action.
Southwestern said it is also consulting with lawyers
in China to bring action against the former general
manager of the Boka project, John Zhang.
Meanwhile, Jay Strosberg, a lawyer in a $320 million
class action filed by Sutts, Strosberg LLP and
Siskinds LLP, called yesterday for investors who
bought shares based on Southwestern's prospectus that
included the Boka project to come forward.
"This strengthens our position or it verifies the
class-members assertions at the outset," Strosberg
said.
The class-action suit has yet to be certified.
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