A PENNY PRETTY
DAVID BLANN WAS TAKEN ABACK AT HOW STRONGLY his boss was reacting. John Lepinski's voice grew icy cold, to the point of anger, as if Blann were somehow to blame for the drilling news being so grim. In one telephone conversation, Lepinski asked sternly, "Did you know where you were drilling? Did you have good control of it?" Lepinski was looking for confirmation that he was sitting on between 30 million and 36 million tonnes of copper-bearing rock.
"Pretty good control," replied Blann. "We weren't going to miss 30 million tonnes, that's for sure."
It was the summer of 1996. Blann, a 35-year-old geological engineer, was working as a project manager for Getty Copper Corp., a Coquitlam, B.C.-based junior exploration company. He had spent months tramping through the woods in the mountains southwest of Kamloops, plotting and drilling test holes to ascertain how much copper lay under one of Getty's most important pieces of property, dubbed Getty South. Specifically, he was looking to verify the estimate of 30-to-36 million tonnes of copper-bearing rock. But after 13 test holes had been drilled, the core samples showed that copper in that quantity simply was not there. As Getty's president and biggest shareholder, Lepinski was disappointed, to say the least.
Not long after he delivered the bad news to Lepinski, Blann says he was frozen out in his work at Getty, "pushed to the side." At the end of the year, he quit in frustration.
What Lepinski did next propelled Getty Copper down a turbulent trajectory: He chose to overlook Blann's findings and continued to raise millions of dollars from investors by claiming that an estimated 36 million tonnes of copper-rich rock was waiting to be mined at Getty South.
Today, most of those investors are accusing Getty and Lepinski of swindling them.
Although it hasn't broken in the mainstream press, the saga of Getty Copper has riveted B.C.'s investment and mining community, especially during a four-week trial that unfolded at a Vancouver courthouse this past summer. It stemmed from a $37-million lawsuit launched by Getty against some of its detractors. Before the case sputtered to a bizarre halt, revelations about questionable copper estimates, buried mining reports, "fake" board minutes, RCMP raids, unorthodox share transactions and bitter boardroom battles all came to light.
More than a few observers of B.C.'s Wild West mining-promotion scene thought Getty Copper could be added to the growing list of examples illustrating the shortcomings of Canada's financial regulatory system. Indeed, the RCMP's Integrated Market Enforcement Team (IMET) dropped a three-year investigation into Getty Copper this past spring, over the strong protests of the experienced investigators who worked on the case. The British Columbia Securities Commission has meanwhile displayed little interest in Getty, despite being fully aware of irregularities within the company. Thus, Getty Copper's stock continues to trade on the TSX Venture Exchange.
"The system has collapsed under legal bullshit," says Bud Cramm, who was one of the IMET officers who investigated Getty Copper. "And for the poor victims--I just shake my head."
GETTY COPPER OWNS THE MINERAL RIGHTS to several pieces of land that hug a ridge of mountains in Highland Valley, B.C., an area where copper is bountiful. While the Getty properties have been poked and prodded by various companies for half a century, no one has ever developed a mine there. In the early 1970s, John Lepinski began staking claims to the land. He consolidated his holdings into Getty Copper in 1992.
Born and raised in the B.C. Interior, Lepinski is a short, thickset, middle-aged entrepreneur, known in his community as a gregarious man who is devoted to his family and his golf game. He engenders strong loyalty among friends and many business acquaintances--but he is also someone who took to taping conversations with colleagues.
Lepinski's main business is running Coquitlam's John B. Neighbourhood Pub, located in a suburban strip mall next door to a beer-and-wine store, also Lepinski's. The pub is spacious, clean and prosperous, with big-screen TVs dangling from the ceilings. Getty Copper's offices are housed upstairs.
The company's two most important properties are known as Getty North and Getty South. While Getty North has about 72 million tonnes of copper-bearing rock, this has never been enough to make a mine economical. Much more ore is required--and the company's hopes have long been pinned on its discovery at Getty South.
To determine what was under the ground at Getty South, Lepinski in late 1991 hired an independent geologist, Stephen Gower, to examine geological reports on the site ranging in vintage from the 1950s to the early '80s. No samples were taken from the site. The following spring, Gower submitted his findings, saying that "a deposit exists on the Getty South of at least 36 million tonnes of 0.47% copper"--a concentration worth mining when considered alongside Getty North. But Gower qualified his finding by saying some of the data he used were incomplete and "some assumptions have been made to fill in the missing areas." So Gower's estimate was an educated guess, an "inferred" number--which in the mining world means a reasonable assumption.
Still, this estimate was promising enough to attract money to carry out drilling tests and raise money. All told, $18 million has been extracted from investors by Getty Copper since 1995, mostly in private placements.
By the summer of 1996, David Blann had been charged with plotting and drilling test holes. Consultants Watts, Griffis and McOuat (WGM) were brought on board to help assess the data, a specialty of the Toronto-based firm.
After Blann completed the drilling, he knew the Gower estimate was unrealistic. "I never saw a deposit there, not in the area of the Gower estimate," says Blann emphatically. Before quitting Getty, Blann wrote a memo to the company's board and WGM, which had filed an interim report on the site. Blann slammed both companies for continuing to use the Gower estimate, which was appearing in some of Getty's public statements. "I believe with the current information that the use of the words '36 million tonnes grading 0.36-0.47% copper' should not be used as it is not possible in the area where the reported reserves were located," wrote Blann. "It is therefore imperative that these figures not be used any further." Even Stephen Gower, who retired from the mining business eight years ago, says he's "very surprised" Getty Copper continued using his estimate after the 1996 drilling got under way. "I knew from the first drilling [the estimate] should be changing," he remarks.
To this day, David Blann is the only qualified expert who has conducted any significant tests on Getty South in decades. Indeed, the story of Getty Copper over the past 11 years has been about interpreting--or usually ignoring--Blann's findings.
Three months after Blann quit Getty, WGM submitted its final report, saying the drilling result "casts doubt on the resource estimate of 36 million tonnes at .47% [copper]" and that, over all, the results were "disappointing."
Meanwhile, conflict was brewing on Getty's board. Director Kjeld Werbes, (Werbes'smarital troubles would generate national headlines two years later when his estranged wife dropped their disabled 17-month-old daughter off the Capilano Suspension Bridge. Fortunately, branches broke the child's fall. In 2004, the bridge operator and Werbes's wife, Nadia Hama, reached a settlement, with neither party admitting liability.)
a prominent Vancouver corporate lawyer, was growing deeply unhappy with Lepinski's management. Werbes had been responsible for introducing Lepinski to Vancouver's investment community, which furnished the company's financing. By late 1997, however, Werbes regretted having extended the favour.
In a lacerating and lengthy letter of resignation that was later filed in court, the lawyer chastised the board and executive committee. He complained that they had failed to establish safeguards to deal with Lepinski's numerous alleged conflicts of interest; that "the treasury of Getty has since October, 1996, been used by the President [Lepinski] as a blind pool"; and that Lepinski was issuing news releases that contained "half-truths and [which] twist the facts," bringing the company into disrepute. Moreover, Werbes said Lepinski had ignored the board's wishes, in particular its demand that an independent president be hired from the mining industry to take over from Lepinski. Finally, Werbes said he lacked "complete confidence" in Lepinski and, as a parting shot, appealed to the board to "look after the minority shareholders to the best of your ability. They did raise $12 million for Getty and deserve your greatest respect and attention even if the results are to the detriment of the president's self-serving interests."
Werbes's departure coincided with a downturn in the company's fortunes. Copper prices remained stubbornly low, and the unfolding Bre-X scandal made investors leery of mining ventures. In its own right, Getty's reputation had curdled among Canadian and international investors, who were frustrated by a lack of information from the company. The stock--which had once traded at more than $5 a share--plummeted to the penny realm of 10 to 20 cents (all share prices adjusted to reflect a one-share-for-two consolidation of Getty Copper's stock in 2002).
Lepinski soon ran into more flak, this time from a disgruntled employee. In 1998, a staff geologist, Bruce Perry, (Perrywas prone to violence: In 1982, while living in Dryden, Ontario, he tried to murder his wife by plunging a filleting knife into her right eye, choking and striking her. He left her to die on their kitchen floor with the broken blade protruding from her eye socket (she miraculously survived the attack). Perry was found not guilty by reason of insanity.) flew into a rage over one of Lepinski's decisions and threatened to go to Getty's head office and "take the peckerhead out," according to a decision made by Perry's professional body. After Perry menaced Lepinski, he was fired, but he was soon deriding his former boss on mining-related Internet bulletin boards with missives such as this one, quoted in a court filing: "The real issue here is not me or the law, the real issue is stopping an unscrupulous old style promoter from further ripping off the unsuspecting public." Getty Copper sued Perry for defamation, among other things, although the case was never pursued in court. However, Perry was reprimanded for his behaviour by the Association of Professional Engineers and Geoscientists of B.C.
FOR THE NEXT FOUR YEARS, GETTY WAS PRETTY much moribund. Nevertheless, the company still used the Gower estimate in its public information. The company's fortunes were finally revived when a new group of backers began kicking its tires, led by an exuberant lawyer named Robert Gardner. (Gardner knows what it's like to be investigated by the authorities. In the early '90s, B.C.'s law society investigated him for two years concerning allegations of money laundering and professional misconduct made by the lawyer of a former client. Gardner was cleared of any wrongdoing) As a young man, Gardner had weathered the gruelling selection process of the Special Air Service (SAS), Britain's world-famous special forces unit, and then was trained in various ways to bump people off. In the 1960s, he immigrated to Vancouver, where, as a dashing Cambridge-educated barrister, he became one of the city's star litigators and Queen's Counsels, defending everyone from mining promoter Murray Pezim to big-time cocaine dealers and a '70s-era prostitute who numbered the then chief justice of B.C. among her clientele. Since then, Gardner has dabbled in the movie industry, run as a candidate for the provincial Social Credit party (unsuccessfully, against NDP icon Mike Harcourt) and sailed around the Pacific Rim on his yacht. He lives with a former fashion model half his age, with whom he has two small children. A wiry, energetic 66-year-old with a toothy grin, he has a West Coast bon vivant disposition and a countenance that brings Julius Caesar to mind.
After he quit practising law, Gardner went into business; he is chairman of Genco Resources Ltd., a small Vancouver mining company that owns a silver and gold mine in Mexico. As an investor, Gardner hooked up with the Blankstein brothers, Gordon and Robert, two of Howe Street's promoter cowboys. By 2002, Gardner and the Blanksteins were moving into the rough-and-tumble world of mining, convinced, correctly, that copper, silver and gold prices would soon rise. Gordon Blankstein had known John Lepinski socially for a few years and was familiar with the Getty properties. "I liked the man, I liked his wife and kids and thought he was a nice man," he recalls. Soon Gardner and the Blanksteins were driving up to Highland Valley, where Lepinski walked them around the Getty properties. Gardner recalls that the only ore estimate that came out of Lepinski's mouth for Getty South was "36 million tonnes at .47% copper"--the Gower figures. "He was touting the property as being even better than that," says Gardner. "One just accepted those numbers were correct." No other numbers were available. Securities law requires companies to disclose material developments in their fortunes. Yet, although it superceded the Gower estimate, Getty never made the WGM report public.
Won over, Gardner, the Blanksteins and a group of B.C. investors who often followed the trio's lead began scooping up Getty stock--a total of $6 million or $7 million worth. In June of 2003, Gardner joined Getty's board of directors. To add some gravitas, he brought with him a prominent and formidable personality--Brian Smith, the former Social Credit attorney-general of B.C., who had also been chairman of both BC Hydro and Canadian National Railway. Thanks to all the new blood, Getty's stock price, which had been languishing near 10 cents, climbed to close to 80 cents by the end of 2003.
NOT LONG AFTER HE JOINED GETTY'S BOARD, Gardner was alarmed to learn of a 2002 transaction between Getty and Robak Industries Ltd., a company entirely controlled by Lepinski since the 1970s.
While Getty was founded to develop mines--using money raised as a public company--it is Robak that actually owned the mining rights that Getty Copper sought to exploit. Getty, obviously, would be on a better footing if it had the property itself. Its ultimate goal was to have 100% control. As an interim step, in 1995, Robak and Getty made an agreement. According to a report later filed in court, the agreement stipulated that if Getty raised and spent $5.1 million toward getting a mine into production, it would earn a half interest in the property--so long as the money was spent within six years.
But by 2002, only about $800,000 had been spent on the site. So Lepinski came up with a new approach. Getty would pay Robak for the 50% stake in its own shares.
The question was, how many shares? If there was a lot of copper, Robak should get a lot of shares. If the property had little or no value, then not so much.
To determine the value of the land, Lepinski contacted Ross Glanville, a veteran mining engineer and valuator who'd worked for companies such as Placer Dome and Teck Cominco. Glanville drove out to Coquitlam and met with Lepinski in Getty's boardroom. Lepinski pulled together a pile of reports about the Getty South property. "He put them on the board table and I took them to read and review," recalls Glanville.
A tall, pale 60-year-old with rust-coloured hair and a donnish demeanour, Glanville would later conclude that he had not seen at least two reports that would have cast doubt on the Gower estimate. Given what information he had at hand at the time, he used the Gower estimate as a benchmark. In his valuation, Glanville estimated that half of the Getty South property could be worth $2.5 million. From this figure, it was decided that it would be fair to the shareholders of Getty if Lepinksi were to receive 12 million shares.
Glanville's report was submitted to Getty's directors in October, 2002. One person who quickly responded was director Vic Preto, a retired government geologist, who circulated a lengthy e-mail, later filed in court, saying it was evident Glanville had not been provided with all of the documentation on Getty South, and that "Gower's resource estimate of 36 million tonnes at 0.47% copper has always bothered me." What was more, the 1996 drilling overseen by Blann "was not successful in proving up a significant resource." Glanville says Lepinski then phoned him and read him what appeared to be selected excerpts of Preto's e-mail--but only innocuous parts.
Preto's misgivings didn't stop the share swap. With Glanville's valuation in hand, Getty Copper held a special shareholders' meeting in December of 2002, where the transaction to give 12 million shares to Robak was overwhelmingly approved.
But now a new problem arose: The deal had never formally been reviewed and approved by Getty's board after Glanville's valuation was completed. And that approval was a necessity for the paperwork on the transaction that had to be submitted to regulators. So, according to later court proceedings, it was decided that "fake" minutes of a fictitious board meeting would be created. They were drafted by a legal assistant to lawyer Bernie Zinkhofer at Getty's law firm, Lang Michener. (Zinkhofer won't comment on the matter.) Filed in court, what these allegedly "fake" minutes say is that a board meeting occurred on Nov. 12, 2002, by teleconference, and that the share transaction was given the green light.
This was not the only unusual thing that is alleged to have transpired. Lepinski, without consulting the board, arbitrarily changed a clause in the terms of the sale. According to a 2004 report by Glanville, later filed in court, the clause had originally said that Getty would be entitled to recover its production costs, up to a maximum of the total production revenue from the Getty South property. Lepinski altered the ceiling on reimbursement to 80% of revenue. What this meant was that even if a mine went into production, Getty Copper would not likely be recouping all of its investment and production costs before it turned a profit, but instead would be channelling money to Robak and Lepinksi. This change alone, according to Glanville's report, made the deal "blatantly unfair" to shareholders of Getty and extremely beneficial to Robak and Lepinski.
The more he learned of this transaction, the more Gardner feared he and his cohort of investors had paid too much for Getty Copper's stock, while Lepinski had garnered more control of the company. Then, in June, 2004, Gardner received a phone call from an RCMP inspector who'd been hearing rumours about Getty.
BILL MAJCHER IS THE EPITOME OF A BLAND Canadian--an average-looking, soft-spoken and unfailingly polite Cape Bretoner. Nevertheless, he managed to spend 13 years as an undercover RCMP officer, infiltrating some of the world's most violent criminal organizations (Majcher's coup de grâce came when he brought down Martin Chambers, a disbarred Vancouver lawyer who laundered money for the Hells Angels and Russian mobsters under the nose of law enforcement for years. To ensnare Chambers, Majcher set up a sting operation with the FBI in Florida, pretending to be a drug cartel front man looking to launder money. On a luxury boat, Majcher entertained the criminal, slowly reeling him in.
At one point, while doing a background check on Majcher, Chambers held the Mountie in a hotel room until his story checked out. When the operation was rolled up in 2002, Chambers and 59 others in his circle were arrested. Chambers is currently serving a 15-year sentence in an American prison.) --a Colombian drug cartel, for one.
Such successes helped elevate Majcher from corporal to inspector, and he landed a job as head of the RCMP's new Integrated Market Enforcement Team in Vancouver, a special unit designed to probe stock market frauds. Set up in the wake of the Bre-X and Enron scandals, IMET opened for business in December, 2003. A few months into the job, Majcher heard that Robert Gardner was discovering irregularities at Getty. When Majcher telephoned Gardner, he persuaded the businessman to meet some of his investigators.
Majcher sent over three of his best people--Bud Cramm, Orville Nickel and Brent Mudry. Combined, they had more than 50 years of experience investigating white-collar crime. They left the meeting excited over what Gardner had told them and the documents he'd provided. Majcher then assigned Cramm, a gruff-spoken Newfoundlander who'd spent three decades digging up frauds, as lead investigator on the file.
In July of 2004, IMET investigators raided the offices of Getty Copper; of Don Willoughby, the company's chief financial officer; and of Lang Michener, the company's law firm. Based on what they found, the team was soon convinced a fraud had occurred. To Cramm, Getty Copper looked like a "typical mine scam." Orv Nickel pointed to the 2002 Robak-Getty transaction as benefiting Lepinski improperly. "He is creating a new agreement out of the old agreement and he is doing it to the detriment of shareholders at this moment," says Nickel. "He is making a decision to arbitrarily create 12 million shares and give them to himself and gain more control of the company for a useless piece of property."
WHILE THE MOUNTIES WERE RAMPING UP their investigation, Getty Copper was spiralling into civil war. The precipitating incident came in the winter of 2004, when Ross Glanville was asked to do a report on a small parcel of land the company had rights to adjacent to the Getty site. When Glanville met with Robert Gardner and director Vic Preto, they gave him two reports on Getty South that Glanville says he had not received from Lepinski 17 months earlier. Now Glanville realized he would have to correct his 2002 valuation on Getty South. He says, "I looked at them, and obviously there was not 36 million tonnes of copper at 0.47%."
Three months later, Glanville's new valuation was presented to the board, and it was a shocker: Glanville now said the company's interest in Getty South was not worth $2.5 million, as he had originally reported, but a mere $100,000, due to all of the onerous terms Lepinski had placed on the property. In other words, it was moose pasture. For Gardner and the Blanksteins, this confirmed their suspicion they'd been suckered.
A fissure quickly opened in the board at a heated meeting on June 2, 2004. On one side were Lepinski and his allies: CFO Willoughby, Jean-Jacques Treyvaud and Pat Raleigh. The outnumbered rebels were Gardner, Smith and Preto. According to minutes later filed in court, Gardner demanded Lepinski step down as chair, alleging he was in a conflict of interest. Lepinski refused. Gardner then asked the board to bring in Josiah Wood, a former British Columbia Court of Appeal judge and a partner at the law firm Blake, Cassels & Graydon, to conduct an investigation of Getty, the 2002 transaction and related matters. Moreover, Gardner said, it was imperative that the British Columbia Securities Commission (BCSC) and the TSX be informed about Glanville's new report.
Lepinski and his allies resisted. Brian Smith stood up and pointed an accusatory finger at Lepinski, threatening, "If the board does not vote to retain Blake Cassels, I am going to the securities commission myself!" This worked. The directors agreed Wood would go ahead with his inquiries and meet with the BCSC and TSX, disclosing the differences between Glanville's two reports (which he did). Soon afterward, Wood began interviewing everyone connected to the 2002 Robak transaction. By the end of that month, Wood had written a 49-page report that lamented the "absence of full co-operation" by the Lepinski camp.
Filed in court, the document is clinically condemnatory, saying the company "did not properly discharge its disclosure obligations" by truthfully relating how the 1996 drilling and subsequent reports had cast doubt on the Gower estimate. As for the 2002 Robak transaction, the report said there was a "serious breakdown in corporate governance," with the company failing to carry out the deal at arm's length. "Instead, Mr. Lepinski was effectively left to negotiate with himself," Wood wrote. Wood also said it was unclear who approved the final terms of the agreement, and concluded that the company and its directors could be subject to civil actions for "misrepresentation, oppression, breach of the director's statutory duty of care, and potentially breach of fiduciary duty." Finally, Wood recommended that Lepinski be cut adrift with a settlement package.
Two days after Wood's report was submitted to Getty, the company's board held another acrimonious meeting. Lepinski was pushed out as president and replaced by Vic Preto. However, the board had balked at giving Wood's report to the BCSC. Nevertheless, Gardner says he met with the security commission's enforcement branch after the meeting and laid out the entire history of the problems that had been plaguing Getty.
Gardner's victory would be short-lived: Lepinski was not going down without a fight. He was now convinced that Gardner, Smith, the Blanksteins, Preto and Glanville had conspired to get rid of him so they could wrest away control of his beloved company. Lepinski had been secretly taping his telephone conversations with these colleagues for nearly two years. Now he also began taping board meetings. And he hired Howard Shapray, a prominent Vancouver lawyer, to aid in his fight.
Shapray, who is renowned for his aggressive style--demonstrated in his service to clients such as controversial mining magnate Robert Friedland and former FBI chief of counterterrorism Oliver (Buck) Revell--began showing up at Getty's board meetings and injecting himself into the proceedings to advise Lepinski. The meetings soon deteriorated into farce, with the two warring factions even meeting in separate locales. "They were terrible, terrible meetings," remembers Brian Smith. "They would go on for four or five hours. The atmosphere was charged with conspiracy."
WHILE EVENTS WERE TURNING UGLY AT GETTY COPPER, the same was true over at IMET. Majcher and his charges were running into problems within their own organization. For the Getty case, IMET had been assigned a lawyer from the federal Department of Justice who, the investigators say, had little experience with securities law. "Which is insane," snorts Cramm. The investigators also complain that while the timing of their arrival was negotiated beforehand, Lang Michener also knew what the police would be looking for. "The law firm knew we were coming--there was no secret to that--but we wanted them not to know specifically what we were after," says Majcher.
No matter how strongly Majcher, Cramm and Nickel felt about Getty Copper, they couldn't convince their designated lawyer to take the evidence to a provincial Crown prosecutor and have charges laid. Just to make sure they weren't delusional, the policemen took the case to Richard Peck, a prominent Vancouver lawyer, Queen's Counsel and former Law Society of British Columbia bencher with a sterling reputation, and asked for his opinion. Peck won't talk about his conclusions due to solicitor-client confidentiality, but all the IMET officers say Peck told them charges could be laid against Getty Copper. "Peck came back and said there is evidence of criminality," recalls Nickel. "And 'you might want to look at this'--other offences may have been committed."
It didn't matter: The file was stuck in a bureaucratic cul-de-sac. And as time passed and no charges were laid by the RCMP, the pendulum swung back in Lepinski's favour; after all, his supporters on the board outnumbered the Gardner camp and, more importantly, he controlled a lot (at the time, 28%) of the company's stock.
Indeed, the reign of Gardner, Smith and Preto would be short-lived. In October, 2004, a board meeting was filibustered by the Gardner group for two hours to prevent Lepinski and his supporters from dumping Preto as president. But it was to no avail. Lepinski was soon elected as managing director of the company. "He had the board," says Gardner simply. "It was an aggressive effort to regain control over what had been given up. And ultimately that proved successful."
In the next wave of developments, Gardner, Preto and Smith resigned, and the lawsuits started flying. Lepinski sued Gardner, Preto and Glanville, claiming defamation and conspiracy, and also later sued Blake, Cassels & Graydon over Josiah Wood's report. Gardner and the Blanksteins, along with a group of shareholders, countersued, although Gardner later dropped out of the action.
Meanwhile, at IMET, the team investigating Getty was dissolving. In the summer of 2005, Bud Cramm retired from the RCMP. He is bitter that the Getty case did not proceed. He says Getty illustrates the hurdles police face in bringing white-collar cases to trial, pointing out that Getty's directors hired some of the best legal talent in Vancouver. Their own lawyer was out of his league. "We were up against the battleship Missouri with a BB gun," declares Cramm. (The lawyer has since moved on to a different job in the federal government.)
By the time Cramm left, Majcher had also been sidelined, having been shunted into the RCMP's doghouse. His mistake was in running for the federal Conservative Party nomination in the riding of Richmond. Majcher says he believed he was following RCMP procedures for political office-seekers; and, in the end, he didn't win the nomination. Nonetheless, in the top-down and unforgiving culture of the RCMP exemplified by now departed commissioner Giuliano Zaccar-delli, he'd gone too far. "Free thinking is not encouraged in the RCMP," observes Majcher. "In fact, you are punished for being a free thinker." Majcher was suspended with pay and placed under investigation for his transgression. (IMET did not respond to a request for comment on Majcher's case.)
In an interview last June, Majcher likened Getty Copper to a "Baby Bre-X." "It follows the same fact pattern as Bre-X," he said. "What separates Getty from a Bre-X is just size and opportunity. . . .If I had free rein to do what I needed to do, there would have been charges. But if you don't have Crown or prosecutor support, you are basically pissing into the wind." The 45-year-old finally left the Mounties this past summer with a settlement package. He is now a managing director of Baron Group, a Hong Kong-based merchant bank.
Orv Nickel also left IMET in the summer of 2006. He contends that the Getty Copper case is symptomatic of a dysfunctional RMCP. "A culture has been created--a culture of entitlement," he says. "A culture where, if we don't make decisions and don't do anything, we can't get any criticism."
HAVING VANQUISHED ITS ENEMIES, Getty Copper should probably have left well enough alone. Instead, it pursued its suit against Gardner, Preto and Glanville in court, seeking $37 million in damages. But just before the trial began last May, Getty made the surprising move of settling with Gardner, agreeing to pay him $700,000 in stock that Lepinski owned in Genco, Gardner's mining company.
That left the case against Preto and Glanville, which was jerry-built at best. Glanville's only connection to Getty was his writing of two valuations, and he had no motive to produce misleading reports; on the contrary, his standing in the mining industry rests on producing accurate estimates. He didn't own any Getty stock or sit on its board or know Gardner and his supporters. "It's so bizarre," he remarks. "Why would I put my reputation on the line?" And Preto, a pensioner, had spent most of his seven years on Getty's board raising little fuss. Neither man was wealthy in comparison to Gardner.
But if Getty thought Preto and Glanville would be easy to roll over, it was mistaken. The defendants hired Gardner's lawyer, John Shields, who'd been preparing for this trial for years and knew the material intimately.
When the case began at the Vancouver courthouse on Smithe Street, Getty's lawyers laid out their arguments: They claimed that Getty Copper had faxed Glanville the two reports that cast doubt on the Gower estimate, along with Preto's 2002 e-mail in the same vein; and that other geologists felt the Gower estimate was reasonable, including, at times, Preto and Bruce Perry. Therefore, Lepinski was blameless in using the infamous figure through the years. They also said Preto had breached his "duty of care," meaning that by being inconsistent in his support of the Gower estimate over the years, he had failed to protect the company.
(The company's lawyers have also said Watts, Griffis and McOuat felt the 1996 drilling results didn't necessarily prove or disprove the Gower estimate; that the "fake" board minutes were not an issue because they accurately reflected how the board felt about the 2002 share transaction between Getty and Robak; and that Lepinski's changes to that deal were within the bounds of what is common in the mining industry.)
But things unravelled once the first and, as it turned out, only witness took the stand: Don Willoughby, Getty's CFO and a director since 1992. Willoughby is Lepinski's accountant and friend, and has been the trustee of his children, as well as being a partner at the respected Burnaby accounting firm of Cinnamon Jang Willoughby & Co. For seven long days, Willoughby was taken to task by Shields and one of Glanville's other lawyers.
And he fared poorly. Willoughby admitted there was no effort to inform the stock exchange or potential investors that the Gower estimate had been disputed; that he had no recollection of any board meeting to approve the 2002 transaction between Getty and Robak; and that Lepinski basically arranged the sale on his own. He even testified that the terms changed by Lepinski in the 2002 transaction might not be good for Getty, and that he'd voted to sue Glanville without even reading the valuator's reports in their entirety or getting another expert opinion on them.
Then, another bombshell: The trial unearthed a scoping study done by a company called AMEC E&C Services Ltd. that had been finished in September of 2003 but had apparently been kept secret. This study estimated the cost of putting a mine into production at Getty North and South as being anywhere from $48 million (U.S.) to $67 million (U.S.). That was far higher than previous estimates, but the real upshot was that Getty would need four to five times as much copper-bearing rock to turn a profit on a mine. Yet, the court heard, the AMEC study was not shown to Gardner or the Blanksteins, who raised $2 million for Getty in a private placement three months after it was completed. Nor was the report ever given to the TSX.
With the damage mounting, Getty Copper decided to shut down its own lawsuit in June. The company quickly settled with both Glanville and Preto, who received $95,000 and $200,000, respectively, plus their court costs. The company said the suit was costing too much, given that both men were not worth a lot of money even if the company won. Which raises the question: Why not sue Gardner, the fellow who actually had deep pockets?
Today, Getty Copper is facing a new trial in the fall of 2008 to decide the lawsuit launched by the Blanksteins and other shareholders. Although $18 million has been raised since 1995, no mine has been built, nor is one likely to be built any time soon. What happened to all that money?
Much of it, Willoughby admitted in court, has gone to pay Getty's high-priced lawyers. The company's stock price has rebounded this past year, closing as high as 36 cents in the summer, although it has since fallen to half that. Lepinski has refused all interview requests, although he's said in a court document that his opponents have ruined his life "in a ruthless, Machiavellian scheme that included instigation of a criminal investigation. . .by the RCMP, scripted and orchestrated by Mr. Gardner."
And IMET, on the very eve of the Getty trial, announced it was dropping its investigation into the company. Inspector George Pemberton, who succeeded Maj-cher as head of IMET's Vancouver division, says he won't discuss the decision, other than to say "the evidence didn't indicate it was in the public interest to take to Crown counsel."
Meanwhile, on Getty Copper's website, a qualifying footnote has been added regarding its most crucial asset. But the Gower estimate of 36 million tonnes at 0.47% copper still stands for the Getty South property.
MOUNTIES GOT THEIR MANDATE --LAWYERS WOULD BE NICE, TOO
David Baines performs a ritual every year. The veteran Vancouver Sun business columnist, who investigates chicanery among the Howe Street crowd, does an assessment of just how well the RCMP's Integrated Market Enforcement Team (IMET) is doing its job. And so far, since IMET opened its doors in December of 2003, Baines has had nary a kind word to say, calling the agency "impotent" and a "disaster-in-progress."
Baines's criticisms are well founded: Since its inception, IMET has spent about $80 million by his figuring and, as of early September, has laid charges in a grand total of four cases in Toronto and one in Vancouver. Its Montreal and Calgary teams have generated nothing. Even IMET's former investigators believe it's been a failure, saying the team has fallen prey to the RCMP's mind-numbing, Kremlin-like bureaucratic culture. "I think it is just incompetence and indifference," says Bill Majcher, the former RCMP inspector who ran IMET's Vancouver office for a year and a half after it first opened. "As an organization, we strived for mediocrity and often achieved it."
IMET was created in the wake of the corporate scandals that began with Bre-X and crested with the collapse of Enron, Tyco and WorldCom. Yet the landscape today is little changed. "For stock market scams to get found out, investigated, charged and convicted, the chances are pretty slim in Canada," says Wes Voorheis, a Toronto lawyer, shareholder adviser and the new CEO of Conrad Black's former media company, Hollinger Inc. "It's just this side of pathetic. The [regulatory] system is fucking broken in Canada and needs to be fixed."
As for IMET, "I think the emphasis on white-collar fraud is not high enough in the RCMP, and the crooks know it," says Voorheis. "I don't think a whole lot has changed. Certainly the reputation we've earned internationally is, if you want to commit securities fraud, come to Canada." In fact, Finance Minister Jim Flaherty obliquely acknowledged this in a speech he gave last June, saying, "For many outside of Canada, our system is seen as cumbersome, fragmented, slow, repetitive and lacking the proper tools of enforcement."
Even British Columbia Securities Commission chairman Doug Hyndman has joined the chorus of complaints: In September, Hyndman, who put the IMET bill to date at $100 million, said the program has produced "almost nothing."
So why has IMET, which was supposed to be the new bad cop on the block, failed? The RCMP's culture is clearly a factor. And white-collar crime cases are usually complicated matters, involving arcane financial manoeuvrings. "They are not daylight robberies--there is no smoking gun or bodies," says Baines. "There are nuances." And IMET lacks a sufficient staff of investigators who have the forensic accounting backgrounds to uncover and assess whether the law is being broken.
But the biggest problem seems to be with the lawyers. For one thing, IMET does not have access to counsel experienced in securities law. Secondly, the standard of proof that they are required to meet to satisfy Crown counsel for charges to be laid is very high. White-collar criminals, on the other hand, can afford the sharpest, most aggressive and most expensive corporate litigators in the land.
Ultimately, to be successful, "You need to get the investigation arm, Crown and judiciary all to agree on a case," observes Baines. "You never get those three--it breaks down at one or more stages."
Superintendent John Sliter, IMET's national director, says the force is reviewing how they can do things better. "There is appreciation for a general view that these complex investigations are taking too long to reach the prosecution stage," Sliter wrote in an e-mail response to a request for an interview. Sliter pointed out that the federal government has appointed Nick Le Pan to look into ways "on how to best strengthen the IMET program."