A shakeout in Vancouver on high-spec stocks
At the lunch hour on Oct. 19, a bubble burst on the highly speculative Vancouver Stock Exchange: Seven Vancouver stocks collapsed. Beauford Resources went from $11.25 (Canadian) to $1 in one day. Rencon Mining fell from $3.35 to 41 cents. The five other stocks dropped the same way. Brokers say a bubble had been created, in hopes that European money was on the way to push the Vancouver stocks to new highs. The money didn't arrive and the bubble burst.
The collapse has damaged the already tarnished image of the Vancouver exchange.
Several brokerage firms from Vancouver and Toronto are suing their clients, many of whom went from riches to rags in an afternoon. On stocks worth more than the stock price drops below $1, the client must put up the full purchase price. That can be rough for an investor who bought a thousand shares at $11 and now owns stock worth $500.
Brokers, especially those in Vancouver, are taking a bath. Haywood Securities is seeking $86,000 from 17 of its clients who have not covered margin calls. Other firms are doing the same.
A Toronto-based broker described how the bubble burst: ''We were sitting on worthless stock being used as collateral, and when we realized it we just sold it.''
It seems that everyone did that at once. The only ones who made money were promoters.
''The stocks were manipulated, and the promoters took all the money out on the way up,'' the Toronto broker said.
The Royal Canadian Mounted Police is investigating the case.
At a news conference in Vancouver, stock-exchange president Tony Hepburn hinted the exchange may tighten its rules.
''We have learned from this,'' he said. Mr. Hepburn added that investors should have investigated the companies before buying.
In recent months many investors had been shying away from the Vancouver exchange. The value of shares traded on the exchange is off 44 percent so far this year. For the normally busy month of October, dollar value was down 28 percent, with just $1.9 billion worth of business this year, compared with $3.5 billion a year ago.
Promoters have now started a stampede to Calgary, which has a tiny exchange and fewer rules than Vancouver. One stock, Rich Lode, was delisted in Vancouver once this year, relisted, then delisted again in October. It has now popped up in Calgary, and Beauford Resources this week asked the Vancouver exchange to delist its shares. It, too, may be moving to Calgary.
The collapse in Vancouver came at about the same time as its most colorful promoter suffered a large personal loss. Murray Pezim (known as Murray the Pez) lost control of his companies in the Hemlo gold field.