Geologist John Gregory Paterson of Southwestern Resources arrested for gold mining scam

A Salt Spring Island man has been arrested and faces multiple charges after a three-year investigation by the Federal RCMP Integrated Market Enforcement Team (IMET).

John Gregory Paterson, age 60, has been charged with nine counts under the Criminal Code, including five counts of fraud over $5,000 (section 380(1)(a)), two counts of fraud on the stock market (s. 380(2)), one count of publishing false statements to induce persons to become shareholders of a company (s. 400(1)(a)) and one count of publishing false statements to deceive shareholders of a company (s. 400(1)(b)). Paterson was arrested on Saturday, December 18, 2010, on a warrant requested by the RCMP.

Paterson, a geologist and a founder of the Vancouver-based mining exploration company Southwestern Resources Corp., served as President, Chief Executive Officer (“CEO”) and a member of Southwestern’s Board of Directors from its inception on June 18, 1990, until his resignation on June 19, 2007. Southwestern was publicly-traded and listed on the Toronto Stock Exchange.

The RCMP investigation began on July 20, 2007, when IMET received a complaint indicating erroneous information concerning drill results for a mineral property in the Province of Yunnan, People’s Republic of China, known as the Boka Project, had been published by the company.

The investigation alleges that Paterson knowingly inflated gold assay results of drilling on the Boka Project and reported these false assay results in a series of 25 news releases issued by the company from May 8, 2003 to February 21, 2007. The inflated gold data caused Southwestern’s share price to increase significantly. On July 19, 2007, a month after Paterson’s resignation, the company announced that there were errors in previously reported assay results for its Boka Project and withdrew all of its previously disclosed results for the project. The resulting sell-off of shares in Southwestern lead to an estimated one-day market capitalization loss in excess of $150 million.

This investigation also had a significant international component, including assistance from law enforcement authorities in the People’s Republic of China and Hong Kong.

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