B.C. geologist charged with fraud in gold-mining scam
Published Monday, December 20, 2010 9:39AM PST
A B.C. geologist has been charged with nine counts of fraud for allegedly releasing hugely exaggerated results for his mining company's gold explorations in China.
Sixty-year-old John Gregory Paterson, the founder and former CEO of Southwestern Resources, was arrested at his Saltspring Island home on Saturday. He faces nine criminal charges, including five counts of fraud over $5,000 and two counts of fraud on the stock market, and could spend up to 14 years in prison.
Investigators believe that Paterson knowingly inflated the results of gold assay drills in Yunnan province, and distributed those false results in 25 news releases between 2003 and 2007.
Mining consultants hired by the company identified 433 discrepancies in reported gold grades, including more than 60 cases in which Southwestern reported "significant" gold findings when the actual assays had turned up next to nothing.
The false reports caused the company's share prices to skyrocket, while in actuality the project had not found enough gold to make it economically viable.
Paterson resigned from Southwestern in June 2007, and a month later, the company announced that there had been errors in its assay results.
The news prompted a massive sell-off of Southwestern shares, leading to a one-day loss of $157.7 million.
Three days before the false results were made public, Paterson sold off 50,000 shares in the company for a net profit of $298,240, according to the B.C. Securities Commission.
The alleged fraud prompted a class-action lawsuit from shareholders, which ended with a $15.5-million settlement in 2008. Paterson has voluntarily handed over all his assets -- about $3.5 million -- to help pay back investors.
Last year, Paterson admitted that he committed fraud and illegal insider trading in a settlement with the BCSC. He has been banned from trading for life.