MAC: Mines and Communities

Scandal still stalks the stock markets of Canada

Published by MAC on 2012-11-11
Source: Nostromo Research (2012-11-10)

What is it about the mentality of some Canadian citizens that seems to propel them into mining scams?

It's not a genetic propensity of course: the country has more than its fair share of industry critics.

Possibly it's because Canadian stock markets still host by far the largest number of dubious junior mining outfits.

And thereby attract equally dodgy entrepreneurs, as wasps to a honeypot.

Nostromo Research investigates further...

Canadian Shenanigans

Is it Bre-X Mark Two?

Nostromo Research

10 November 2012

The "From Money to Metal" website last week posted three new entries which have a lot in common.

They relate to allegedly fraudulent schemes, used by private promoters to profit from boosting a mining company's stock price, even when there's little or nothing in the ground to justify doing so.

All three schemes were played out by Canadian citizens in North America.

Take Kelly Fielder. He's alleged to have raised money for a capital pool company and defrauded the man who gave it to him; he's also currently promoting a gold "shell" company. See:

Then there's Bobby Genovese, a flamboyant private equity and venture capitalist, accused along with others of holding undisclosed control over tens of millions of shares in a US company called Liberty Silver.

Supposedly, this created a huge rally in the company's share value just before trading was suspended and the price collapsed. See:

Equally intriguing - and certainly as inventive - is Tom Coldicutt, a former Vancouver stockbroker, currently facing civil fraud charges in the United States for an OTC-BB (Over The Counter Bulletin Board) "shell selling scheme".

"Shell" (sometimes called "front" companies) are outfits listed on a stock exchange or similar market which may in reality have no assets to back their credibility. Unsuspecting, or naïve, investors who put money into them may end up in debt, while originators of the scheme become considerably better off  - at least for a short while.

The United States Securities & Exchange Commission (SEC) claims that Coldicutt and his wife Elizabeth employed a network of nominee officers and directors that allowed them to create fifteen purported "mining companies". According to the SEC, Coldicutt then sold the companies as shells, grossing US$4.8-million in dodgy profits [Stockwatch, 24 October, 2012; Street Wire, 23 October 2012].

The SEC maintains that the couple never intended to run the companies as exploration outfits, "merely form[ing them] to be sold as clean shells for the benefit of the Coldicutts and their network of corporate nominees".

Shell Shock

One example of this was a company called Mesquite Mining Inc, incorporated in October 2007 by one of Mrs. Coldicutt's friends "who knew nothing about mining".

Although Mesquite raised US$25,000 in a public offering purportedly made by 25 shareholders, "all of the money came from the Coldicutts", according to the SEC.

Like "many other companies in the scheme", Mesquite abandoned mining after obtaining its listing. In June 2009, Mr. Coldicutt negotiated an agreement to sell the company as a shell, obtaining US$225,000. (The company then became Mesa Energy Holdings Inc., an OTC-BB oil and gas company whose share price went to US$3.50 a share in 2010, but has now toppled to 17.9 cents.)

The other defendants in this case include Mr. Coldicutt's office manager who allegedly convinced her sister and a friend to serve as nominee officers and directors of two Coldicutt companies. Then there's a former housekeeper to the Coldicutts: the SEC claims she provided the names of 200 investors who purportedly subscribed to offerings in at least 12 of the Coldicutt companies.

San Diego lawyer, Robert Weaver, is said to have written opinion letters, served as securities counsel to the companies and helped prepare regulatory filings.

A final defendant is Elizabeth Coldicutt's son from a prior marriage, Christopher Greenwood. The SEC says he helped set up Las Rocas Mining Inc., a shell that Mr. Coldicutt ultimately sold for US$760,000.

The Coldicutts have disputed the SEC's contention that they only created the companies to sell them at a profit, arguing they were all formed to pursue genuine mining activities and only sold off as shells "after exploration activities showed [their properties] not to have commercial potential."

At the time of writing, no trial date had been set for a hearing of the case. See:

However the dark shadows, cast by the Bre-X scam fifteen years ago, still seem to hang heavy over Canada's stock markets. See: Canada-Ecuador: When Stock Exchanges Fuel Human Rights Violations

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