Couple looted, lied, Lydia board alleges

Despite the OSC's order two years ago barring the von Anhalts from acting as directors of Lydia, they continued to do so, "referring to the board members as ‘puppets’ and referring to the staff of the Ontario Securities Commission as ‘impotent,’" the documents say.

The Toronto Star
November 18, 2004

Couple looted, lied, Lydia board alleges
Funds diverted for personal use, directors claim. Board fears it has ‘Bre-X Minerals situation’ on its hands.
Madavi Acharya-Tom Yew

The founders of Lydia Diamond Exploration of Canada Ltd. have been using money collected from shareholders to "support their extravagant lifestyle," the company's board of directors alleges.

Jurgen and Emilia von Anhalt, who refer to themselves as prince and princess, also made false claims earlier this year about finding a sizeable "blue diamond" at the company's property near Peterborough, the board alleged, leaving it fearful that it had a "Bre-X Minerals situation" on its hands.

The explosive allegations, which have not been proven in court, are the basis for an unusual motion expected to be heard today in Ontario Superior Court.

The province's stock-market regulator is asking a judge to declare that the von Anhalts are violating securities law and should be prevented from voting or exercising any other rights at a shareholders meeting on Nov. 24.

The Ontario Securities Commission also wants the couple to refund any money they received for Lydia shares in the last two years. In November, 2002, the OSC issued a 12-year trading ban against the von Anhalts after finding that the pair had raised $1.6 million by selling securities without registration and without a prospectus, and made misleading statements to investors.

The von Anhalts, who say they are descended from German royalty, could not be reached for comment yesterday.

The company's board of directors begged the OSC to "consider the interests of 2,600 shareholders," and take action against the founders, according to court documents filed for today's hearing.

"It is with regret and concern that the board of Lydia Diamond Exploration of Canada
Ltd. come before the Ontario Securities Commission and urgently request immediate attention and intervention in this serious matter," the board said in a submission dated Oct. 7.

The board's plea was "a major factor" in the commission's decision to take action against the von Anhalts, Michael Watson, OSC director of enforcement, said in an interview yesterday.

Lydia directors discovered last year that the company's expenses were not being paid, even though some of them had lent the von Anhalts money to do so, the documents show.

"It was with shock and disbelief that the members of the board realized in mid-2003 that many of the representations that had been made by the von Anhalts were, in fact, false."

Then, last January, the couple were having dinner at the home of director Heinke Martens when they revealed that they had found "a 0.98 carat blue diamond" on Lydia property. They said "they had found it themselves, not in one of the drilling samples, but on a lake, further north," Martens said in a separate affidavit. "They told me that the authenticity of the diamond had already been confirmed and that they were simply waiting for a certificate documenting this. They insisted we celebrate this find by toasting with champagne."

Months later, when there was still no sign of the diamond or a certificate, the board determined that the story was "likely a fabrication on the part of the von Anhalts to support their lavish personal lifestyle and to pay their substantial, accruing personal debts."

Fearing "a situation like that of Bre-X Minerals," when investors lost billions in 1997 after the Alberta company's gold deposit in Indonesia was exposed as a hoax, the board issued a news release warning potential investors that any rumours about "encouraging results" were false.

Despite the OSC's order two years ago barring the von Anhalts from acting as directors of Lydia, they continued to do so, "referring to the board members as ‘puppets’ and referring to the staff of the Ontario Securities Commission as ‘impotent,’" the documents say.

The ruling followed a colourful hearing that included testimony about the use of a psychic to help search for diamonds. The von Anhalts argued the violations were technical and inadvertent.

Lydia shares do not trade on any stock exchange.

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