Bre-X trial finally begins; Felderhof pleads not guilty

The insider trading case against former Bre-X executive John Felderhof heard its first testimony Wednesday, after the judge hearing the case refused a defence motion to dismiss the case.

Felderhof, through his lawyer, pleaded not guilty to eight charges, four counts of insider trading, and four counts of issuing false news releases. Felderhof was not in court. He is believed to be in the Cayman Islands, where he has a home. There is no extradition treaty between Canada and the Caymans.

In his opening arguments, Ontario Securities Commission lawyer Jay Naster said Felderhof, as Bre-X's chief geologist, was in a position to know key information about the mining operation that was not known to the general public.

"This case is about whether or not John Felderhof was prohibited from selling $84 million of shares because he had knowledge of facts that weren't disclosed," Naster told Ontario Court Judge Peter Hryn.

Felderhof sold Bre-X stock in 1996 for $84 million.

Wednesday morning, Judge Hryn denied a defence motion to stay the proceedings, and ordered the Ontario Securities Commission to provide the defence with full disclosure.

The defence had also argued that the OSC investigation was not thorough, and said the case should be thrown out because it violates the Charter of Rights. The judge said he would address the constitutional angle at the end of the trial.

The OSC charges are the only ones brought by Canadian regulators against Bre-X or any of its executives.

If Felderhof is found guilty of the charges, he faces up to two years in prison for each of the eight counts. Moreover, a fine could be levied against him of up to three times the profit he made by selling his shares.

Felderhof is one of the few surviving figures in the Bre-X debacle. He has continually denied involvement in any fraud while serving as the company's vice-chairman and chief geologist.

The trial, which could last two months, may shed some light on the inner workings of a company that burst onto the market with untold promises, only to implode suddenly as reality hit.

Calgary-based Bre-X was a shining star of the stock market from 1995 to 1997. The company touted that it had discovered the world's largest gold deposit in Indonesia.

But by the spring of 1997, new tests from the site came up empty.

The company's geologist, Michael de Guzman, died mysteriously when he fell from a helicopter into the Indonesian jungle.

In 1998, president David Walsh suffered a brain aneurysm at his home in the Bahamas and died.

The stock, which had been worth more than $200 a share, is now worthless.

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A class-action lawsuit by former shareholders alleges core samples were tampered with so as to artificially inflate the company's value. Other civil suits have been filed.