John Felderhof, the lone remaining key figure in the multibillion-dollar Bre-X gold fraud, was found not guilty on Tuesday of insider trading and misleading investors in the only prosecution brought in the greatest mining scam of all time.

The Ontario Securities Commission, Canada's main market regulator, accused him in 1999 of four counts each of insider trading and misleading investors, saying he sold C$84 million (now worth $79 million) of Bre-X stock in 1996, months before independent surveys showed the company's much-touted gold deposit in Indonesia was worthless.

Shares of the company, which had soared to value the firm at C$6 billion, collapsed to nothing, costing thousands of investors their savings, and leaving ruined shareholders to sell their stock certificates off as bitter souvenirs to a public fascinated by the story.

Felderhof's lawyers had argued that Felderhof was not aware the results were false.

Judge Peter Hryn pointed to shortcomings in securities commission evidence that Felderhof should have noticed that test results from Bre-X's Busang site in Indonesia were faulty.

I prefer the evidence that there were not red flags that should have been apparent to Felderhof, Hryn told the court when announcing his decision.

Bre-X, which began its life in 1989 as a small Calgary, Alberta-based explorer, claimed in the mid-1990s it had made a massive gold find in Indonesia.

The company said in 1995 the deposit could contain more than 30 million ounces, then raised that estimate the following year to 57 million ounces, and then to 70 million ounces after agreeing in 1997 to partner with U.S. miner Freeport-McMoRan Copper & Gold to develop the project.

Felderhof, was even more optimistic, saying the area could hold as much as 200 million ounces of gold.

But things began to fall apart after reports that Freeport's tests of the site did not match Bre-X's results.

Subsequent analysis showed that ore samples had been salted with river gold from other parts of the world, as well as with bits of shaved off jewelry. The shares collapsed to nothing.

The Felderhof trial has faced years of delays, including a failed attempt by the Ontario Securities Commission to get the judge thrown off the case.

Felderhof has not attended the trial since March 2005. He is believed to have been living in Bali for much of that time, but the Globe and Mail newspaper on Monday quoted his ex-wife as saying she thought he is back in Canada, living in Nova Scotia.

Other key players in the scandal are dead. Geologist Mike de Guzman died mysteriously after tumbling from a helicopter into the Indonesia jungle, and chief executive and founder David Wash died in the Bahamas of a brain aneurysm after the fraud was exposed.

Bizarrely, newspaper reports surfaced in 2005 that de Guzman was alive and hiding out in Brazil.


Felderhof's prosecution is the only one brought in the Bre-X affair, a fact that has prompted many to hold the case up as an example of ineffectual Canadian market enforcement.

The Royal Canadian Mounted Police, meanwhile, said in 1999 it would not pursue charges against Felderhof, citing insufficient evidence.

It all seems that everything was just botched from start to finish. so, 10 years later, it's a bit of a travesty, said John Kinsey, portfolio manager at Caldwell Securities, interviewed before the verdict was released.

Investors have had little luck getting any of their money back. One-class action lawsuit launched in Texas fell apart in 2005, while two cased are slowly proceeding in Canada. In the meantime, remaining money in the company has been sucked up by lawyer's fees.