Fraud Prevention and Detection

1
Fraud Prevention and Detection Group
Project Group 1James FarmerAngie LensingMindy
ClevengerKatya Silkina
2
Bre-X Minerals, Ltd.
3
Overview

• Founded in 1988
• Chairman and president Mr. Walsh
• Unable to raise for explorations
• Geologist John Felderhof
• De Guzman

4
Gold Fraud
1988Formed
1989Incorporated
1993 Purchased Busang
1995 Estimated depositsof 30 millionounces of
gold
1996 Stock climbedup to 270 per share
March 19, 1997Michael de Guzman falls out of
helicopter
March 26, 1997FreePort announces discrepancies
in previous findings Stock looses 83 of its
value in one day
5
What allowed the fraud to happen?

• Crushing all samples as opposed to saving a slab
• Gold was in the nuggets no deposits come in
  nuggets!
• No gold was found at the surface

• No inspectors at the site
• In 1996 two different reports showed
  discrepancies in Busang
• Felderhof and De Guzman had past of submitting
  false data
• Mining methods were not meeting the excavation
  standards

6
Fraud Detection

• The fire in the laboratory with core samples
• De Guzman fell to his death from the helicopter
• Independent drilling of 7 holes by FreePort
• Independent mining consultant confirmed
  fraudulent alteration of gold

7
Fraud Prevention

• Provide more details about exploration methods
• Require independent reports to confirm the first
  disclosure
• Distinguish brokerage opinions from material
  disclosed by the company
• Establish National Securities Regulation
  Committee

8
References
Ankli, Robert and Sheila Varadan. Bre-X in
Hindsight What We Know About the Busang Gold
Fraud. http//www.sbaer.uca.edu/research/1999/ A
vram, Joshua. Bre-X - - - How Did They Do It?
Newsmagazine. May 19, 1997. Ebsco.
http//libinfo.uark.edu/ DePalma, Anthony.
Nothing Worth Mining Found on Bre-X Site. The
New York Times. May 5, 1997. Lexis-Nexis.
http//libinfo.uark.edu/ De Santis, Solange and
Mark Heinzl. Canada Recommends Tougher for
Mining Firms after Bre-X Fiasco. Wall Street
Journal. Jun 9, 1998. ProQuest Direct.
http//libinfo.uark.edu/ Heinzl, Mark. Bre-X
Hid Rock-Sampoling Ways, Touted Nonexistent
Goild, Probe Report Finds. Wall Street
Journal. February 19, 1998. ProQuest Direct.
http//libinfo.uark.edu/ Stuttaford, Genevieve,
Maria Simson, and Jeff Zaleski. Bre-X The
Inside Story. Publishers Weekly. March 9,
1998. ProQuest. http//libinfo.uark.edu/
9
References
Symonds, William. After Bre-X, Golds Glow is
Gone.Business Week. June 15, 1997.
http//www.businessweek.com/ Wells, Jennifer.
The Bre-X Bust Is the Worlds Greatest Gold
Find a Fraud? Canadian Business and Current
Affairs. April 7, 1997. Lexis-Nexis. http//libin
fo.uark.edu/