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Case studies

In the early 1990s, a small North American company claimed that it had traced gold in a remote jungle in South East Asia. This prospecting opportunity was hyped to build expectation and provide a spurious platform of fact. The ensuing investment frenzy and herd instinct of investors created a multi-billlion dollar market for the company.

Commercial due diligence: looking beyond the first impression.

What actually had gone on? Research showed that several indicators of fraud had been evident from the beginning:

  1. Previous efforts to develop the site had failed.
  2. The exploration contract had already been cancelled prior to the media frenzy.
  3. Gold samples were tampered with and then salted on site to give a false impression of potential.
  4. The estimates of reserves had risen spectacularly over a short period of time with no supporting evidence.
  5. The individuals concerned had chequered backgrounds, and were selling stock while talking the shares up.

Financial regulators asked Capcon Argen to comment in retrospect on what went wrong. Its response in a nutshell:

  1. No due diligence
  2. No independent resting
  3. Avoidance of filters that prevent abuse of the market
  4. Obvious mediocrity of key individuals
  5. The herd instinct of investors
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