Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 132 views

    Bre-X: Global Business Ethics and Corporate Governance

    Uploaded by

    Jebin James
    Bre-X Minerals Ltd claimed to have discovered $240 billion worth of gold in Indonesia in the 1990s, causing its stock price to surge. However, it was later revealed to be an elaborate fraud scheme. The chief geologist, Michael de Guzman, had salted rock samples with gold flakes to fake high-quality findings. When the mine's actual low-quality gold could not be found, de Guzman committed suicide and Bre-X's stock crashed to zero, resulting in major losses for investors and embarrassment for the Canadian financial sector.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Bre-X: Global Business Ethics and Corporate Governance

    Uploaded by

    Jebin James
    132 views10 pages
    Bre-X Minerals Ltd claimed to have discovered $240 billion worth of gold in Indonesia in the 1990s, causing its stock price to surge. However, it was later revealed to be an elaborate fraud scheme. The chief geologist, Michael de Guzman, had salted rock samples with gold flakes to fake high-quality findings. When the mine's actual low-quality gold could not be found, de Guzman committed suicide and Bre-X's stock crashed to zero, resulting in major losses for investors and embarrassment for the Canadian financial sector.

    Original Title

    Business Ethics

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Bre-X Minerals Ltd claimed to have discovered $240 billion worth of gold in Indonesia in the 1990s, causing its stock price to surge. However, it was later revealed to be an elaborate fraud scheme. The chief geologist, Michael de Guzman, had salted rock samples with gold flakes to fake high-quality findings. When the mine's actual low-quality gold could not be found, de Guzman committed suicide and Bre-X's stock crashed to zero, resulting in major losses for investors and embarrassment for the Canadian financial sector.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    132 views10 pages

    Bre-X: Global Business Ethics and Corporate Governance

    Uploaded by

    Jebin James
    Bre-X Minerals Ltd claimed to have discovered $240 billion worth of gold in Indonesia in the 1990s, causing its stock price to surge. However, it was later revealed to be an elaborate fraud scheme. The chief geologist, Michael de Guzman, had salted rock samples with gold flakes to fake high-quality findings. When the mine's actual low-quality gold could not be found, de Guzman committed suicide and Bre-X's stock crashed to zero, resulting in major losses for investors and embarrassment for the Canadian financial sector.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    You are on page 1of 10
    At a glance
    Powered by AI
    The key takeaways from the passage are that the Bre-X mining company committed fraud by salting rock samples with gold flakes to inflate the value of their mining claims and attract investors, leading to a multi-billion dollar stock valuation before the fraud was discovered.

    The passage describes how the chief geologist, Felix de Guzman, salted rock samples with gold flakes to convince labs and investors that significant gold deposits had been found. This caused Bre-X stock to surge before the fraud was discovered years later.

    The passage discusses the fraud triangle model and how factors of pressure (to attract investors), opportunity (to secretly salt samples), and rationalization (thinking the fraud wouldn't be detected) contributed to the perpetrators committing and continuing the fraud.

    GLOBAL BUSINESS

    ETHICS AND CORPORATE


    Bre-X GOVERNANCE
    SCAM CASE STUDY
    About Bre-X
    • David Walsh founded Bre-X Minerals Ltd (a subsidiary of Bresea
    1989 Resources Ltd)

    • As per the advice of geologist Felderhof, Walsh bought a property near


    1993 Busang River in Borneo, Indonesia.

    • Bre-X announced that it had discovered significant amounts of gold


    1994 (Worth of $240 Billion in 2014 prices)

    • Share Price increase from 30 Cents a share to $250 on open


    1994 market.

    • Suicide of de Guzman
    1997

    • Shares of Bre-X crash, Found the $6 Billion Gold Fraud


    1997

    Bre-X Scam 2
    The Story Behind FR
    ! De Guzman filed gold from his wedding ring and mixed the flakes in with the rock
    samples. This scheme is called "salting" and it happens frequently.

    ! De Guzman used a ratio of around 3oz of gold per ton of rock, which was small enough
    to not attract too much attention. The labs were convinced and gave Bre-X the thumbs
    up

    ! Shares of Bre-X, a penny stock, exploded on the Alberta Stock Exchange

    ! De Guzman started paying locals for their gold, which they got through panning. De
    Guzman would buy $61k worth of this panned gold over the next two and a half years

    ! Skeptical investors sent in an independent auditor, who noticed the rounded edges of
    the panned gold. But de Guzman explained it away with something called "volcanic
    pool" theory
    Bre-X Scam 3
    The Story Behind (...cntd) FR
    ! However, all of this wealth creation caught the attention of Indonesian President
    Suharto, who wanted to get in on the action. Right Away the Indonesian government
    revoked Bre-X's exploration permits

    ! The Indonesian government eventually left Bre-X with only 45% control of the mine,
    and the rest was left to be run by Freeport McMoran. Bre-X's market cap plunged by a
    billion dollars

    ! To offset this, de Guzman ramped up the amount of gold flake showing up in the core
    samples, and the stock soared again.

    ! But after much drilling, the miners from Freeport McMoran couldn't find a flake of gold.
    They were suspicious and they demanded that de Guzman explain

    ! de Guzman committed suicide. With no answers and no gold, the stock went to zero.
    Bre-X Scam 4
    FR
    Fraud Triangle Model
    Pressure
    ! Somebody who was behind the tempering of the samples of gold must have
    had the pressure of making huge profits for the company to attract many
    investors to buy shares that had increased in share price.
    ! After realizing that the quality of the gold from the mine was of low quality, the
    people in charge were under pressure to keep the trust of investors through
    gold of high quality
    ! Therefore, they decided to temper with samples of the gold that is given to
    investors to convince them that indeed they were making credible choices of
    investing in the company

    Bre-X Scam 5
    FR
    Fraud Triangle Model
    Opportunity
    ! Opportunity, in this case, refers to the method that is plotted to be used in
    committing the crime.
    ! In this particular case of Bre-X, the perpetrators identified that they could temper
    with the quality of the samples to make them look of higher quality to lure
    investors into making financial investments in the company
    ! The perpetrators in the scandal did it with a high level of secrecy that it was very
    difficult to identify the people responsible for the tempering
    ! The incidence of the chief geologist committing suicide may have diverted the
    attention of the people to see him as the person behind the whole scandal and
    conceal the other perpetrators in the scandal

    Bre-X Scam 6
    FR
    Fraud Triangle Model
    Rationalization
    ! Bre-X had no criminal activities in the past, and it was among the best mining
    companies in Canada. Investors trusted the company very easily with their
    investment.
    ! The perpetrators ceased this opportunity to tamper with the samples with the
    hope that it would remain undetected because of their clean background.
    ! Along the way, the company must have realized the low quality of their gold, but
    because of the high demand for their shares, the people in charge probably forged
    a way to make sure that investors do not leave the company.
    ! It is possible that the company had no intention of committing the crime, but
    because of the situations along the way, they decided to engage in a fraudulent
    activity to save the company from losing investors

    Bre-X Scam 7
    FR
    Aftermath
    Earnings
    $35 million • David Walsh
    $84 million • John Feldorhof
    ! Walsh would not be charged legally, meaning he had become a multimillionaire
    through this scandal. After the collapse of Bre-X, Walsh moved to the Bahamas with
    his earnings.
    ! Felderhof was being tried on the charges of insider trading and misleading investors.
    Many argued that he should have been charged with fraud and not these less
    disciplinary charges. Either way, in July 2007, the judge reached a not guilty verdict on
    this case. John Felderhof was found not guilty.
    Bre-X Scam 8
    FR
    Aftermath (…cntd)
    Loss
    • Ontario Municipal Employees
    $45 million Retirement Board

    $70 million • Quebec Public Sector Pension fund

    $100 million • Ontario Teachers Pension Plan

    There was fallout in the Canadian financial sector also; the fraud proved a major
    embarrassment for Peter Munk, the head of Barrick Gold, as well as for the then-head
    of the Toronto Stock Exchange (resulting in his ousting by 1999), and began a
    tumultuous realignment of the Canadian stock exchanges.

    Bre-X Scam 9
    Thank You.
    Bre-X any questions?
    SCAM SARATH KUMAR
    HAREESH NP
    HARIDEV KUMAR
    JEBIN JAMES
    JUBEL THOMAS

    You might also like