What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing in today's video we're going to go over one of the most blatant and unsophisticated. Yet large-scale scams in the history of precious metals, the allure of striking gold in an unclaimed piece of land literally and finding millions of dollars of mineable material, underneath your feet has captured the imagination of billions of people. But unfortunately, the desire to have that reality has sometimes driven people to go to extreme measures in this video. We're going to talk about one such time that this led to hundreds of millions of dollars worth of losses incurred by innocent victims, including teacher pensions and canadian public employee retirement funds.

We're talking about none other than the infamous case of briex. Brex was a collection of smaller companies sharing the prefix breed based in canada. It focused on mining, various minerals. It was founded in 1988 by former stockbroker david walsh and had a rough start in business.

He was able to raise money through a public equity offering in canada in 1989. However, for the next several years, walsh's exploration efforts failed to find significant deposits of any valuable resources in 1993 walsh bought the rights to buy a piece of land, nearly 500 000 acres. On an island in indonesia in particular, he bought about 80 rights to three different areas. Around busan on the island of borneo, walsh believed there to be gold on the property and began drilling.

The first phase of any mining process is to determine how much of the mineral there likely is at the site before the process of making. This estimate was even started. Briex issued a press release saying that the resources on the property were estimated to contain 20 million tons of material with 2 grams of gold per ton that is equivalent to about 1 million ounces of gold. At the time, gold was trading near 400, us dollars per ounce, implying that the total value of gold within the deposits in the project was as high as 400 million dollars.

Despite the relatively high initial estimates of how much gold there was in the project, react subsequently revised the estimates upwards in the following updates. In 1994, they announced publicly that their first drilling efforts had revealed that the deposits indeed contained sizable amounts of gold. They subsequently announced in a series of press releases, the confirmation of quo the highest grade reported to date, unquote, among other things, they especially focused on the central zone. One of the three locations which they had mineral rights to by march of 1994 rex claimed that the first drill hole had been completed.

They further announced that they had found quote economic gold mineralization from 33 feet to 99 feet over a continuous intercept of 66 feet. Averaging 0.12 ounces, a ton, including a 40-foot interval averaging 0.19 ounces, a ton. Only three weeks later, they announced that additional drilling results at the site found that the gold deposits were even better than previously estimated they announced quote. It is noteworthy that our grades to date are significantly higher than that of the kellyanne mine deposit, which contains a resource of 5 million ounces of gold.

The kellyanne mine was a successful mining operation by a different company close to the site where breed x was mining. Subsequent updates from the company over the next several months were even more positive. In june they reported that two new holes drilled also contained substantial gold deposits of 2 to 4 grams per ton. They also announced that they were planning on creating an additional 25 new holes in the area.

During this time, brie x stock was skyrocketing. In september they issued a press release claiming a quote: significant update from three indonesian mineral projects. They reported that 22 out of 31 holes drilled at the site had struck significant deposits. Around this same time.

The company also said that they were confident that they could mine 30 to 60 million tons of material at an average of at least 3 grams of gold per ton, implying about three to six million ounces of gold total. That's a significant increase in even their original optimistic estimate of one million ounces of gold from before the project started, but the good news didn't end there. By november of 1994, breex announced that additional drill sites had found even more gold. David walsh was quoted in a news report as saying that he thought the company would have a drill, confirmed reserve of two and a half million ounces of gold by the end of 1994..

Additionally, he said that deeper drilling tests had indicated that there was even more gold to be found at deeper levels. Underground walsh said that the estimated reserves of mineable gold at levels below 150 meters amounted to an additional one and a half million ounces of gold. He also gave projections for future drilling efforts in separate parts of the project. He said that another two drill sites would produce another two and a half million ounces of gold within another year, even more positively for the company walsh reported that the extraction of gold from the site was remarkably profitable.

The density of the gold was reported to be about 3 grams per ton. On the other hand, the cost of extracting the gold was only about 1 gram, meaning that 2 out of every 3 grams of gold mine were pure profit. Walsh reported that the new drill sites, which would produce the additional 2.5 million ounces had similar density and thus similar profit margins over the course of the next year, brie x continued the trajectory of ever increasing projections and favorable operating results in a year-end statement for 1995. The company said that the deposits in indonesia were quote very likely to become a goldmine of elite world-class status.

Our current objective is to drill out 20 million ounces by early fall of 1996., the company's annual report in 1995 lauded the success of the mining operation in strong terms, they said to investors quote: your company is on the threshold of proving up the world's largest school Deposit ever to be discovered unquote during this time, briex's stock price was rising rapidly before the indonesia, gold mining project was started, the stock traded for only a couple of canadian dollars. By the end of 1995, it had increased more than tenfold early 1996 increased media attention to the brie x project, which was by that point, claimed to be one of the four biggest school deposits ever discovered on earth had started to bring up questions, in particular, their Methodology concerning their gold deposit testing methods had been challenged by analysts in response rex's chief geologist, john felderhoff, said in an interview that these concerns were the product of people having a small amount of knowledge on the subject, and thus thinking that they were experts. He said to the doubters that quote: i strongly suggest that these individuals commenting on the reliability of the cyanide leech assay method, to go back to school. I do not have the time to educate them on the various grade, determination methods for gold commonly used on a global basis in the mining industry.

Unquote, briex then went on to announce that an independent engineering firm had been brought in to test the results of the drill holes and that the results indicated that, in fact, their previous estimates of the gold deposits were actually understated. By as much as twelve point. Nine percent in 1996, three x stocks started training on the large toronto stock exchange, where its stock price increased to 280 dollars. That marks a 100 fold increase compared to just two years prior brex also started trading in the u.s on the nasdaq exchange.

During this time, briex's publicly announced drilling results accelerated in optimism. For example, in june 1996, they announced an additional 14 million ounces of gold in one of the three zones that they were drilling. They declared that their ambitions had grown to a total of 50 million ounces. Total for the project by the middle of 1996, they had reported to shareholders that an independent engineering firm, gilborne engineering had calculated that there were already 46.9 million ounces of gold discovered at busan and that only 25 percent of the entire property had even been explored.

Yet, however, in early 1997, the first signs of the company having misled investors began to show it was revealed, and briex admitted that it's claimed 90 ownership to the rights of the drilling activities were false. David walsh admitted that this level of ownership was never practical reality and that the company quote never imagined that it would be able to hang on to 90 of the deposit. Unquote. The reason for the reduction in ownership was largely due to the indonesian government demanding an ownership stake of about 40 percent in exchange for permissions to drill on the land shortly thereafter, in march of 1997, a bizarre event happened that saw one of briex's.

Chief geologists fall. 800 feet out of a helicopter to his death. The death was reported to be a suicide caused by his discovery of having hepatitis b later that month, the new york times reported in an article that a fire in indonesia had destroyed much of his records of his work at the drill sites. This was soon followed by a devastating press release by the consulting firm freeport, which had been hired to perform due diligence at the mining sites.

In the press release they said that they had independently drilled seven holes within the project area to confirm the results that briex had previously announced. They found no gold. They said that there was a strong possibility that potential gold resources on the bootsang project, as previously reported by brie x, had been overstated because of invalid samples and assaying of those samples. In other words, the reported gold deposits of the project had been faked.

On the news, briex's stock tanked on the toronto stock exchange and the nasdaq trading was halted and when trading resumed it plunged. Eighty percent freeport's drilling was done at the same sites as briex's operations and found virtually no gold in any of the sites where brie x had reported finding vast amounts of readily mindable gold. The news was devastating by the end of trading. On march 24th, the stock had fallen to less than 10 percent of its highs, freeport described what they found at the busan site and the warning signs that they immediately saw when they arrived.

They said that rex showed an extreme negligence in logging, their core samples. They had a huge backlog of samples to be tested. There is almost no mining activity by the locals in the area. There was no visible gold at the surface of the site, and briex had a complete lack of professionalism at the site.

In fact, the gold samples that were independently verified over the course of the previous year were only ever samples that breex sent to the independent engineering firms. These samples have been dusted with gold taken from gold jewelry in order to give the false impression that there were gold deposits organically within the samples up until 1997. There were never any gold samples independently taken from the actual sites. At the same time as briex had been claiming massive amounts of gold at the project, all the insiders, including founder david walsh and john felderhoff, have been selling stock in the company.

The list of insider sell transactions is startling. David walsh alone made dozens of cells amounting to more than 25 million dollars worth of stock sold at the highs in 1995 and 1996.. Additionally, his wife sold more than twice that bringing home more than 30 million dollars of proceeds from stock sales. John felderhoff took it to the next level, selling more than 70 million dollars worth of stock.

Even more stock was sold by insiders and the other subsidiaries of brie x that also benefited from the fraud investors in brie x were additionally tricked by misrepresentations given by briex's financial partner, the us megabank jp morgan, jp morgan, partnered, with briex to market briex stock to Investors and gave conference calls to potential investors in which they promoted brex. Many of jb morgan's statements about briex's gold prospects were even more optimistic than briex's own statements. For example, 3x had estimated the cost to mine the gold from busan to be about 96. An ounce, a jp morgan, analyst told investors that they believe the cash cost of production would be quote significantly less than the 96 an ounce estimate.

They also said that they believed rex's estimates of the amounts of gold to be conservative and that jp morgan believed there to be about 150 million ounces at the site or more than double what briex claimed morgan made these estimates, despite having visited the busan site themselves. Although jp morgan is not an engineering company or a mining company, they were the leading mining bank in the world. They also had extensive knowledge of the due diligence process in mining operations and had sent their own analysts to drill sites to review briex's mining work. They should have been able to see the red flags and warning signs at the site when they visited.

However, jp morgan desperately wanted to land brex as a client due to the incredible interest in brief stock from investors, a client like briex could potentially bring millions or tens of millions of dollars in revenue to jp morgan in the form of institutional trading commissions. The result of the fraud perpetrated by briex and enabled by jpmorgan caused widespread financial harm to investors. It was reported that some of the biggest losers in the collapse of brie x's stock price were public sector organizations, including the ontario municipal employees, retirement board, the quebec public sector pension fund and the ontario teachers pension plan. These retirement funds lost hundreds of millions of dollars.

After the fraud brie x, founder david walsh, moved to the bahamas in 1998, one year after the fraud, his home was invaded by gunmen demanding money. The incident was resolved without bloodshed. However, only three weeks after the incident walsh was found dead in a freak brain aneurysm. As far as the rest of the perpetrators of the fraud, none of them were ever charged with insider trading, except for john felderhoff.

However, after a six year long trial, he was found not guilty. He was able to spend the rest of his life enjoying the proceeds of his 71 million dollar insider trading sales. Jp morgan has never been convicted of any wrongdoing in the entire incident. Alright guys that wraps it up for this video, if you enjoyed this content, make sure to leave a like and subscribe for future videos in the meantime.

Thank you so much for watching and we'll see you in the next one wall, street millennial, signing out.