Geologist Faces Jail:

QP Admits Fraud, Prosecutor Wants 10 Years

 

The former head of gold exploration company Southwestern Resources faces a possible 10-year prison term, the Vancouver Sun reports. John Gregory Paterson, who was the company’s president, CEO and largest shareholder, pleaded guilty to four counts of fraud involving false assay results from the Boka Gold Project in China. A sentencing hearing is underway in Vancouver.

 

But the process of justice has been slow. As Sun columnist David Baines reports, Paterson scammed shareholders from May 2003 to February 2007, when he issued 25 press releases reporting 446 assay results—of which 433 were fictional. Paterson was the qualified person who signed off on the phoney numbers.

 

He managed to continue his fraud during a 2005 PEA. His numbers were used to estimate a resource of 966,000 gold ounces indicated and four million ounces inferred.

 

It was only in 2007 that Southwestern executives and board members became suspicious about persistent delays in completing a pre-feas. In June of that year they launched an internal investigation. Paterson resigned. A delegation to China failed to locate Project Manager John Zhang, who received half a million dollars from Paterson.

 

The Crown prosecutor told court that Southwestern paid its CEO over $1 million a year from 2003 to 2005, rising to over $2 million in 2006. In his final year Paterson made $372,500 in salary and severance. He gained another $5.6 million by trading Southwestern shares through five brokerage accounts, the Crown added.

 

A class action lawsuit was settled in September 2008 for $15.52 million. The company put up $8.32 million while Paterson and his wife paid $7.2 million.

 

In June 2009 the B.C. Securities Commission slapped Paterson with a lifetime ban on trading, acting as a QP or engaging in IR activities. Shortly afterwards the Australasian Institute of Mining and Metallurgy revoked his membership.

 

The commission stated that due to the lawsuit, Paterson “is unable to pay the approximately $3.5 million to the BCSC that would have been required in this matter.”

 

The BCSC also found that on July 16, 2007 Paterson dumped 50,000 Southwestern shares at $5.96, knowing the company was about to come clean. When the news broke two days later, Southwestern plunged to $2.90, reducing its market cap by $157.7 million.

 

In May 2009 Hochschild Mining HCHDF, a JV partner with Southwestern in a Peruvian gold-silver project, took over the company for
.50 a share. The deal totalled $22.5 million.

 

RCMP laid charges in December 2010 and the case came to court yesterday.

 

The sentencing hearing continues in Vancouver where, the Sun reports, Paterson is expected to dispute Crown statements about the extent of damage his fraud inflicted.