FARROW'S FAILURE.

Auckland Star, Volume LII, Issue 72, 26 March 1921, Page 19

FARROW'S FAILURE.

SOME AMAZING DISCOVERIES. invkt-;tor.« lose it/ per fi. j The many unfortunate shareholders in I Farrow's Bank who were present at the j New Ouildhal! Police Court in London on ■ January 10 heard the remarkable story of 'low the precarious position of the bank I was actually discovered. I booking much Improved in health. Mr. j Thos. Farrow, who had been confined in j the prison infirmary during the remand. I made his first appearance in Court, and J was charged, along with the deputy chair-j I man Crotch and the auditor Hart, with] I having falsified the balance-sheets, and I thus induced I he public to invest moneys! in the ii.mk. Sir Richard Muir related thp story of al transaction between the bank's directors I and a New York flrm named 'Norton and t.'o.. which led tn tin- disclosure of the bank's real position and the ultimate susJ pension of payment. The American firm, 'counsel said, was attracted by the supposed sound standing of the hank, -which h;id been boosted in " Farrow's Itunk Oazette," and Mr. Head, the London manager of the flnn, opened up negotiations with I controlling Interest in the bank. COMPENSATION FOR DIRECTORS. Farrow described the bnnk as one of the finest in the country, and after several interviews it was agreed that Messrs. Norton aud Co. would take up a considerable number of the bank share*. Mr. Read was to become managing director of the bank in the place of Farrow, and Norton's firm aws to pay compensation to Farrow aud to the directors who were giving up their directorships. When Mr. Read, however, came on the scene in earnest. Farrow refused to allow tiim to bocomo inunajrtng' <\ lre?tor until be had taken up £300,000 worth of shares. This he agreed to do, and on October 4 last Mr. Norton, Mr. Read, and Mr. Greetch, another partner, attended a meeting of the board to be elected directors. Farrow, however, held up tbe election until Mr. Read agreed to pay him £500,000 in cash as part of his compensation for loss of office. pay. Then a difficulty* arose with regard to Mr. Read becomiug a director at all until the had been paid. That difficulty was also adjusted, and on October 18 last Mr. Read was elected managing director, and the two othor partners were elected directors. Immediately on taking up appointment Mr. Road started an investigation ot thp books. The cashier Hart thwarted him for a time, but ultimately he did succeed in completing a n investigation, which proved to him that the financial position of the bank was entirely different from what it had been represented to He. •Crotch had told him that there was a "hidden" reserve—assets in the book which appeared at less than their full value. —aud Mr. Read, despite the result of his investigation!!, determined to continue the search for«thls " hidden treasure." He called In chartered accountants, who examined the books, and eventually reported that the balance-sheets wholly misled the position,for the bank was hopelessly insolvent. Accordingly Mr. Read cancelled the agreement on the ground that Farrow and his two colleagues had been guilty of publishiug false balance-sheets, and the matter was raised before the Board of Trade and the Treasury. What, asked counsel, was the object of Farrow and Crotch in inducing Sir. Read to come into the concern ? They thought that as soon as the crash came Mr. Read would be in the same . Boat as themselves, and that, in order to save his honour, he would agree to shoulder tbe financial burden. Although Farrow was head of the -bank, said counsel. Crotch was the leading spirit in the concern. * One of the most extraordinary features of this bank, he proceeded, was ttic nuge debit balances standing against the names of Its directors—sums due apparently from directors to the bank. Crotch apparently owed the bank anything from between £180.000 and £200,000. There was also an item of £33,000 standing against the name of a certain lady, and it was discovered that this nns also a debt of Crotch's. ''■ UOW THE UOSSES SVTELUD. " A most remarkable fact that will have to be stated is that, with the exception of the first portion of the year ending June 30, 190S, this bank, which was represented as one of the finest banking innt'tuTions in the country, has done nothing but make losses as a hanking concern." Sir Richard then gave some startling | figures of the actual losses made on each j year's business. They were a.s follow*;:— j WO9 01,000 19ir. £112,000! UOIO £14.000 19MJ £128.WM 1011 £SI.OOO 1917 £127.0>l l 1912 £71,000 IMS £ffii.l>nO! m:t f54.000 191H fi3B.otX>] 1914 £94,000 10' JO £1\}3.000 T*b(? t"tfl.l losses Involvctl wpre therefore £1,107,000, and that was quite apart from I the loss and depreciation in the value of j securities, which must be considerable. ! All the time the bank was paying Interest on deposit and current accounts and interest to thp sharehdlders. There was only one source from which these payments l could have been made, and that was out I of the capital funds standing in the | accounts to the credit of depositors customers. How wore those losj?ps V t , . sktni i Sir Richard. In the first place they were concealed by the fictitious values put upon the bank's assets. For instance, in the books of the company appears the item of fTSO.OOO in respect of the Dreadnought Cement Company limited) in Cambridgeshire, showing that that sum was due to the bank from the company. That was a wholly fictitious asset. The same thing applied to several other companies. In 1920 there -was an inflated balance of £2,371,000 I for which no justification could he made. I The reserve fund was absolutely fictitious, j and, however astonis-hing it might seem, -this amount did not exist even in. the books of Farrow's Bank. 17/ LOST IN EVERY £1. Iv Hart's room at the bank there was a locked cupboard. This was broken open, and there were found papers which showed '< how the fraudulent balance-sheets had bevn prepared. For each year a document had been prepared showing the true position of affairs and the deficiency for each year, and from this document Hart " rooked " the balance-sheet, showing how the profits had been made. It is difficult, adtW Sir Kichard, to say -what all the defendants have got ont of tbe bank. They had their salaries and' their dividends. The public, of course, are the sufferers. They lost at least 17,' in every £1 the> have placed in the bank. Evidence was theu led. —