Can you say CanabravaShares Issued 44,922,936
Last Close 7/26/2007 $2.95
Friday July 27 2007 - Street Wire
by Stockwatch Business Reporter
Ronald Martin, a retiree living on Saltspring Island, B.C., and the owner of 3,000 shares of Southwestern Resources Corp., is starting a class-action lawsuit against the company and its former president John Paterson. Mr. Martin alleges the company misled him and other investors about the merit of its Boka project in China from 2005 to 2007, causing them to buy their shares at an inflated price. The shares traded as high as $15 during the period; they last closed at $2.95, plunging after the news that drill results were compromised.
Mr. Martin's lawsuit outlines Southwestern's alleged misrepresentations over the past two years. These include press releases about drill results from the project, a technical report on the property and the company's various financial filings. In the company's annual report from 2006, for example, Mr. Paterson wrote, "Our success at Boka is a direct reflection of the quality of the company's technical personnel operating in China." These various reports characterized Boka "as a project of 'considerable merit,'" claims Mr. Martin.
In June, 2007, things began to unravel at Southwestern. On June 18, the company delayed the project's prefeasibility study for six months. Two days later, Mr. Paterson suddenly resigned. (On July 26, The Globe and Mail reported that, according to his wife, Mr. Paterson was in hospital because of clinical depression.)
It only got worse. On July 19, the company asked for a halt in trading of its stock before the markets opened. It put out another press release later that morning. In the release, the company said it had fired John Zhang, the general manager for the project, after discovering that the results from the project were unreliable because of compromised drill core and poor quality control.
The company opened at $2.79 when trading resumed, after closing at $6.34 the day before. Two minutes later, it traded as low as $1.25, before bouncing back above $2.50 only 12 minutes after the halt ended. It closed at $2.90 that day and over six million shares were traded.
Mr. Paterson, by signing off on the misleading results, is responsible for the damage Mr. Martin and his fellow shareholders have suffered, says the lawsuit. Mr. Martin also says Mr. Paterson and the company are guilty of the usual laundry list of sins, including "high-handed, reckless, wanton, entirely without care, disgraceful, willful and motivated by economic considerations," making them liable for punitive damages.
Mr. Martin's suit is not the only class action the company faces. The day after the frenzy on July 19, Sutts Strosberg LLP and Siskinds LLP started a class action in Ontario. Reidar Mogerman, the lawyer representing Mr. Martin, says the two suits will not conflict. While it is complicated when class actions are started in different provinces, the courts and the lawyers find ways to co-ordinate amongst themselves to avoid conflicting judgments.
The law firm Camp Fiorante Matthews dug up Mr. Martin as its lead plaintiff. None of the allegations have been proven in court.