STATES UNITED DISTRICT COURT FOR THE EASTERN DISTRICT OF TEXAS TEXARKANA DIVISION
Lane McNamara, et al., Plaintiffs, v. Bre-X Minerals Ltd., et al., Defendants.
Civil Action No. 5-97-CV-159 (Jury)
AFFIDAVIT OF RICHARD Y. ROBERTS I, Richard Y. Roberts, being duly sworn, depose and state: 1. I am an Executive Vice-President of Princeton Venture Research, Inc. ("PVR"), a
securities consulting and venture capital firm headquartered in Princeton, New Jersey, and Managing Director of PVR Securities, Inc. I am also of counsel to the law firm Reid & Priest. Prior to joining PVR, I served as a Commissioner of the United States Securities and Exchange Commission from October 1990 through July 1995. A full description of my employment background, experience, and qualifications is set forth in Exhibit 1. I have been retained by plaintiffs' counsel as an expert consultant in connection with the Bre-X Minerals Ltd. ("Bre-X" or the "Company") litigation. If called upon as a witness, I could and would testify to the matters set forth herein.
A.
Summary and Bases of Opinions
2.
This affidavit is submitted at the request of plaintiffs' counsel that I render an
opinion as to whether the defendants' alleged fraud had a substantial effect within the United
States. In summary, it is my opinion that the defendants' alleged fraud did indeed have substantial effects within the U.S., both in terms of the U.S. financial markets in general, and in terms of those investors who purchased Bre-X common stock between January 17, 1994 and May 2, 1997 (the "Class Period"). My opinion is based on the following facts: a. The Bre-X story was widely followed by U.S. investors and analysts during the entire Class Period through the U.S.-based financial press and the Company's filings with the U.S. Securities and Exchange Commission (the "SEC"). U.S.-based purchasers constituted both a significant number of Bre-X shareholders and a significant percentage of Bre-X common stock ownership prior to and after its NASDAQ National Market System ("NASDAQ-NMS") listing on August 19, 1996. Bre-X's NASDAQ-NMS listing was a major milestone for the Company, affording it unprecedented credibility, exposure, and liquidity, as evidenced by the fact that over 105 million Bre-X shares were traded on the NASDAQ-NMS with a value exceeding one-half billion dollars.
b.
c.
3.
My opinion is based upon my knowledge and experience, as well as a review of
the following documents and information: a. b. c. the Amended Class Action Complaint; Bre-X's public filings with the SEC, including Forms 20-F and Forms 6-K; contemporaneous news articles and reports published about Bre-X and other companies in the gold exploration and production industry; reports produced and disseminated by security analysts about Bre-X and other gold exploration and production companies; trading histories of the securities of Bre-X; historical stock price indices representing the markets for gold exploration companies and for the equity markets in general; historical gold prices, currency exchange rates, and other economic 2
d.
e. f.
g.
indicators and data.
B.
The Bre-X Story Was Widely Followed in the United States During the Class Period 4. Even prior to the listing of Bre-X stock on the NASDAQ-NMS, the Company's
developments were reported in the United States through a wide range of information sources. As early as the beginning of the Class Period, most, if not all of the Company's dozens of press releases regarding its exploration results, resource calculations, estimates of gold reserves, and other corporate developments were carried over all of the major U.S. based financial news wires and services, including the Press Release Newswire, Dow Jones News Service, Business Wire, the Associated Press, and Bloomberg News. These U.S. news services are extensively used by institutional and individual investors throughout this country in making purchase and sale decisions, as well as by professional securities analysts in making their buy and sell recommendations. These services are also widely syndicated through numerous local newspapers.
5.
Bre-X was also covered in the U.S.-based national financial press and general
press. The coverage was extensive and occurred prior to, during, and after the Company's NASDAQ-NMS listing. These publications included, for example, the Wall Street Journal, the Financial Times USA Edition, The New York Times, Barron's, Business Week, U.S. News and World Report and Forbes Magazine. 6. Bre-X also impacted U.S. purchasers through its official filings with the SEC. In
conjunction with its anticipated NASDAQ-NMS listing, Bre-X filed its registration statement on Form 20-F with the SEC on December 29, 1995. This filing was later amended and on April 29,
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1996, May 30, 1996, and August 19, 1996. Bre-X's Forms 20-F included, among other items:
a.
audited financial statements from the Company's inception (August 22, 1988) through its 1995 fiscal year, which ended on November 30, 1995; management's discussion and analysis of financial condition and results of operations; a description of the Company's business; a description of the Company's properties, including the Busang Gold Project; and; drilling results released to date, including the statement that : "Geostatical calculations for the Central Zone and Southeast Zone I, based upon 42,000 m (1995) of drilling data and results to date, indicate an open-pittable in-situ resource in excess of 30 million ounces averaging 3 grams per ton.1 Bre-X also filed numerous Form 6-K's with the SEC. Form 6-K is the report
b.
c. d.
e.
7.
required to be filed by a foreign registrant promptly after information deemed to be of material important to security holders is made public. Bre-X issued Form 6-K reports, with copies of Company press releases attached as exhibits, regarding among other matters, its Busang drilling results and reserve calculations, the status of its Contracts of Work lodged with the Government of Indonesia, its corporate financing, and other Company developments including its plans to ally with larger partners. C. U.S. Investors Owned a Large Amount of Bre-X Common Stock Prior to its NASDAQ-NMS Listing
Form 20-F/A-1, filed with the SEC on April 29, 1996, pg. 7; Annual Report on Form 20-F, filed with the SEC on May 30, 1996, pg. 8; Form 20-F/A-3, filed with the SEC on August 19, 1996, pg. 8. attached hereto as Exhibits 2, 3 and 4, respectively.
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8.
Bre-X common stock began trading on the Alberta Stock Exchange on July 11,
1989.2 In addition, Bre-X common stock was listed on the Toronto Stock Exchange as of April 23, 1996, the NASDAQ-NMS as of August 19, 1996 and the Montreal Stock Exchange as of September 3, 1996. Although there was no organized active market for Bre-X common shares in the U.S. until August 19, 1996, U.S. citizens were able to, and did, purchase shares on either the Alberta Stock Exchange or the Toronto Stock Exchange. 9. As of November 30, 1995, 26,559,880 shares of Bre-X were held by registered
holders in the United States.3 Any shares held by unregistered U.S. holders would add to this figure. As of March 29, 1996, 22,903,180 Bre-X common shares were owned by registered holders in the United States.4 As of May 15, 1996, U.S. registered holders owned 23,011,180 Bre-X common shares.5 This figure represented approximately 20% of Bre-X publicly-held shares outstanding at that time (i.e., shares not held by insiders, including Bresea Resources Ltd.). Again, these percentages are incomplete and understated, as they do not include unregistered U.S. holders.
2
See Exhibit 4, pg. 19.
Bre-X Form 20-F, filed with the SEC on December 29, 1995, pg. 14., attached as Exhibit 5 hereto. Figures have been adjusted for the 10-for-1 stock split effected in May, 1996.
4
3
See Exhibit 4, pg. 20. See Exhibit 3, pg. 17.
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10.
Because the majority of Bre-X common shares were registered in the name of
intermediaries such as brokerage houses and clearing houses on behalf of their respective clients, Bre-X did not have knowledge of the beneficial owners. In my opinion, it is very likely that U.S. registered and unregistered holders held an even greater proportion of Bre-X common shares than disclosed in the Company's filings. 11. The magnitude of U.S. holdings is confirmed, however, by the fact that U.S.-based
institutional investors were, taken as a block, perhaps the largest holder of publicly-held Bre-X common stock. U.S.-based institutions owned at least 14,775,400 Bre-X common shares as of June 30, 1996, prior to its U.S. listing.6 By September 30, 1996, American institutions owned at least 20,375,620 shares of Bre-X, and by December 31, 1996, American institutions held 26,939,950 shares, or almost one-quarter of all publicly-held Bre-X common stock. The following chart lists the top forty U.S. based institutional investors holding Bre-X common stock as of December 31, 1996, as well as the number of shares held. A complete list is set forth at pages 3 and 4 of Exhibit 6.
Summary of U.S. Institutional Common Stock Ownership @ 12/31/96
Institution Total Fidelity Contrafund Inc Appaloosa Management L.P.
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City, State
Shares Owned 26,939,950
Boston, Massachusetts Short Hills, New Jersey
4,393,800 3,000,000
See Vickers Stock Research Corporation Stock Traders Guide ("Vickers"). This publication compiles equity ownership data required to be filed on a periodic basis by institutional investors owning more than $100 million in equity securities. Institutional investors include mutual funds, insurance companies, pension funds, educational and charitable endowments and other professional investment managers. A listing of U.S. institutions and their Bre-X holdings from June 30, 1996 through March 31, 1997 is attached as Exhibit 6 hereto.
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Fidelity Select Portfolios - American Gold Boston, Massachusetts FMR Corporation Boston, Massachusetts Fidelity Select Portfolios - Precious Metals & Mineral Boston, Massachusetts IDS Stock Fund, Inc. Minneapolis, Minnesota Invesco Strategic Portfolio-Gold Denver, Colorado Fidelity Magellan Fund Inc Boston, Massachusetts Fidelity Advisor Natural Resources Fund Boston, Massachusetts IDS Global Growth Fund Minneapolis, Minnesota IDS Precious Metals Fund, Inc. Minneapolis, Minnesota Fidelity Growth Company Fund Boston, Massachusetts Fidelity Mid-Cap Stock Fund Boston, Massachusetts Fidelity Overseas Fund Boston, Massachusetts Variable Insurance Products Fund II-Contrafund Portfolio Boston, Massachusetts GW Capital Management, Inc. Englewood, Colorado Great West Life Assurance Company Englewood, Colorado Capital Croesus Management Corporation New York, New York U.S. World Gold Fund San Antonio, Texas Variable Insurance Products Fund - Overseas Portfolio Boston, Massachusetts Fidelity Asset Manager Boston, Massachusetts Variable Insurance Products Fd-Growth Portfolio Boston, Massachusetts Fidelity Advisor Equity Growth Fund Boston, Massachusetts Furman Selz Incorporated Wilmington, Delaware Behnam Global Gold Fund Mountain View, California Fidelity Diversified International Fund Boston, Massachusetts Fidelity Advisors Strategic Opportunities Fund Boston, Massachusetts G.T. Global Natural Resources San Francisco, California Scudder Gold Fund Boston, Massachusetts Fidelity Emerging Growth Fund Boston, Massachusetts Fidelity Advisor Overseas Fund Boston, Massachusetts IDS Life International Equity Fund Minneapolis, Minnesota Morgan Stanley Group Inc. New York, New York Morgan Stanley Institutional Fund-Gold Portfolio New York, New York Strome, Susskind Investment Management L.P. Santa Monica, California First Union Corporation Charlotte, North Carolina Franklin Gold Fund, Inc. San Mateo, California Fidelity Select Portfolios - Industrial Materials Boston, Massachusetts MFS Gold & Natural Resources Fund Boston, Massachusetts Gerbino (Kenneth J.) & Company Beverly Hills, California
1,956,800 1,795,700 1,550,000 1,500,000 1,400,000 1,220,000 1,000,000 1,000,000 600,000 594,600 566,200 488,500 412,700 354,500 354,500 310,000 300,000 289,700 285,000 259,800 255,600 214,400 200,000 200,000 200,000 191,700 175,000 175,000 161,600 135,000 118,600 106,100 105,000 100,000 100,000 80,000 75,000 74,350
12.
An even more impressive measure of the extent of U.S. institutional investor
ownership of Bre-X is its comparison to other institutional investors who file reports of their holdings with the SEC. From September 30, 1996 onward, U.S. institutional investors held over 50% of all shares held by similar investors, including international investors. Indeed, even as early as June 30, 1996, U.S. institutions held a near majority of 49.8% of institutionally held shares.
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13.
Based on my experience, if the proper data is made available during discovery in
this litigation, this data will show that U.S. registered and unregistered holders actively purchased Bre-X common stock on Canadian exchanges prior to its NASDAQ-NMS listing, as well as thereafter. Because U.S. investors, particularly U.S. institutional investors, were purchasing BreX common stock on Canadian exchanges prior to Bre-X's NASDAQ-NMS listing, the extent of American ownership of Bre-X has, in my opinion, been understated in the Company's filings. D. Bre-X's NASDAQ-NMS Listing Was a Milestone, Affording the Company Unprecedented Credibility, Exposure and Liquidity 14. Bre-X common stock began trading in the United States on the NASDAQ-NMS
on August 19, 1996. The NASDAQ-NMS is the most sophisticated and active portion of the NASDAQ market, the world's second largest equity market in terms of dollar trading volume, ranking behind only the New York Stock Exchange. It is one of the world's most sophisticated, open, and well-developed securities markets. Prices are determined by many individual and institutional buyers and sellers, and market makers who are able, through an "auction market", to carry out their transactions in an orderly and efficient manner, by communicating through their computer terminals. 15. The NASDAQ-NMS listing was widely acknowledged as an important milestone
for the Bre-X, as shown in the following February 19, 1996 Dow Jones News Service interview with Bre-X executive Stephen McAnulty: Bre-X is seeking a listing on the Toronto Stock Exchange and the Nasdaq Stock Market. Its only listing now is on the Alberta Stock Exchange, a relatively minor stock market. McAnulty says Bre-X expects to start trading on the TSE shortly after release of the Kilborn report. It expects to land a Nasdaq listing in March, he adds, with a possible listing on an overseas market further down the line. Through the new listings, Bre-X aims to boost the company's exposure and the stock's liquidity, McAnulty says. McAnulty says 8
some of the top-10 U.S. brokerage firms will start covering Bre-X following the Toronto and Nasdaq listings, but he declines to identify the brokers. Further to this end, Bre-X's Walsh was in New York late last week meeting with U.S. brokers to expand coverage of the company, McAnulty says. U.S. analysts are expected to pay close attention. After all, this type of gold discovery ''possibly only comes along once in a lifetime,'' says analyst Dave Thomas of Goepel Shields & Partners Inc.
16.
The U.S. equity securities markets are an important national asset. As discussed
by William J. Baumol and Burton G. Malkiel:7 The securities markets of this country clearly continue to hold the lead among international markets. Companies of comparable size in terms of market capitalization tend to enjoy better markets in the United States than they do abroad. Both individual and institutional investors are able to trade at lower bidask spreads in the United States' markets. While U.S. and foreign markets may be equally efficient with respect to assimilation of information, foreign markets tend to be far less efficient in providing transactions ability at low cost... Moreover, the U.S. securities markets have led the world in financial innovation.
17.
The NASDAQ-NMS listing did in fact provide the exposure and liquidity which
the Company desired. Bre-X common stock was actively traded on the NASDAQ-NMS from August 19, 1996 through May 6, 1997. During this time, 105,203,900 Bre-X common stock shares were reported as traded on the NASDAQ-NMS, or a daily average of about 585,000 shares. These volume figures ranked Bre-X in the top 5% of NASDAQ-NMS stocks. By way of comparison, Bre-X's volume of trading -- occurring during an eight-and-a-half month period -was equal to the entire 1996 annual trading for such well-known American companies as Food
William J. Baumol and Burton G. Malkiel, Redundant Regulation of Foreign Security Trading and U.S. Competitiveness; Modernizing U.S. Securities Regulations: Economic and Legal Perspectives, Edited by Kenneth Lehn and Robert W. Kamphuis, Jr., Irwin Professional Publishing, 1992.
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Lion, Inc., Control Data Systems, Inc. and Ames Departments Stores, Inc. 18. The dollar value of Bre-X NASDAQ-NMS trading was...