Sep 172012
 

Southwestern Resources Corp (formerly SWG on the TSX) was once a successful mining company based out of Vancouver, Canada. They were sitting on a gold mine, literally, in China. Test samples and lab reports from this mine was periodically gathered by CEO, John Paterson. John would then present the findings to the company’s board of directors and create press releases so investors and analysts can see how well the company is doing, which was great for the most part.

Then one day share holders asked for a pre-feasibility study, they wanted to know how viable future projects might be. But John was reluctant to do so and stalled the preliminary assessment for as long as he could, until eventually he resigned from the company ಠ_ರೃ

As it turns out, for many years John has fudged the numbers from the mines and inflated the values on the reports without anyone knowing. But once the truth was revealed, the stock plummeted from more than $30 per share to less than 30 cents! It was eventually bought out by another company. All that happened over 5 years ago. Today I read in the news that John has pleaded guilty and is facing up to 10 years in jail. But investors who lost $260 million are pretty much S.O.L. Canada’s legal system isn’t known for prosecuting white collar crime, but we’ll see what happens. Below is just one possible outcome.

 

And if you have been an investor long enough (which I haven’t, lol) you might remember a similar incident with the Bre-X gold salting scandal in the 1990s, when a $6 billion gold company went to zero after their gold results were determined to be false ( ゚д゚)

The point is it doesn’t take much to lose all your investment. You have to be careful when putting your hard earned money in individual companies. Just one bad apple can potentially ruin it for everyone else including the shareholders, and possibly even its bond holders. Financial fraud can happen to any business, not just mining firms. Which is why my rule is to never put more than 10% of my investible assets into any one company. And if you sense something is wrong, consider getting out before it might be too late.

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Random Useless Fact:  Humans are the only mammal that can’t swallow and breathe at the same time. Every other mammal can breathe while they eat. In fact, human infants are also able to do so, which lets them breathe while they nurse. We lose this ability around the age of 9 months, when our voice box drops as part of our development.  (source)

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Veronica @ Pelican on Money
09/18/2012 8:34 am

That’s scary. You got your le John and we have our le Madoff…

Liquid Independence
Admin
09/20/2012 8:14 am

That would suck if they were to have Madoff with money and never got caught 😀

Modest Money
09/18/2012 9:06 am

Good lesson about risking too much with one company. Personally I’m going to focus more on blue chip stocks to avoid this kind of thing. Boy would it suck to fall for his lies and then suddenly be out a big chunk of money.

Liquid Independence
Admin
09/20/2012 8:15 am
Reply to  Modest Money

Pretty outrageous. He should be banned from ever doing business in the capital markets in Canada forever.

Anne @ Unique Gifter
09/19/2012 7:14 am

Interesting. Bre-X resulted in a new set of regulations that dictate legal processes and reporting requirements for exploration and reserve measurement/reporting. So, depending on when this happened, there are very, very clear regulations that John would be breaking.

Liquid Independence
Admin
09/20/2012 8:18 am

I think this happened after Bre-X so John should’ve known what he was getting himself into. I’m currently invested in other gold companies. Fingers crossed I will not see something like this happen to me >_<.

Harry Campbell (@PFPro1)
09/19/2012 4:54 pm

The crazy thing about these types of situations is even blue chip stocks can fall victim to this. Enron anyone??

Liquid Independence
Admin
09/20/2012 8:19 am

I’ve heard about that story too. The unfortunate thing is it’s not just the company and shareholders that are hurt, but also the employees who are out of jobs when the business goes under.

The Dividend Trader
The Dividend Trader
09/20/2012 3:21 am

Love the graphics, pretty much say everything!

Liquid Independence
Admin
09/20/2012 8:22 am

Thanks, I wanted to show our justice system isn’t perfect. Most of the time white collar criminals just get a slap on the wrist, but we’ll have to see what happens here since it’s quite a serious case.

Steve@The Loonie Bin
Steve@The Loonie Bin
09/20/2012 5:22 am

I for one would gladly give up my voice box to be able to breathe while I eat….oh and and I avoid mining stocks like the plague.

Nortel is a good examples of when blue chips can go bad.

Liquid Independence
Admin
09/20/2012 8:27 am

How about a mining company mutual fund? lol, j/k. Perhaps ETF though. Nortel’s story was pretty sad at the end. I believe the only silver lining is that once it disassembled and tried to sell it’s intellectual properties and patents separately, other companies were able to buy those assets at pretty discounted prices.

Not Working
Not Working
09/21/2012 10:25 am

I will never be tired of the meme they are so funny haha