McARTHUR ON TRIAL

Press, Volume LXXII, Issue 21858, 11 August 1936, Page 9

McARTHUR ON TRIAL

CROSS-EXAMINATION

OF ACCUSED QUESTIONS ASKED ABOUT YACHT

LETTER ADMITTED AS NOT TRUE IPRKSS ASSOCIATION TEL2SGEAM.) WELLINGTON, August 10. The prosecution of J. W. S. McArthur was continued in the Supreme Court this morning with the continuation of the examination-in-chief of McArthur. The acting-Chief Justice (Sir John Reed) presidedThe charges are as follows; — (1) That McArthur, being a director of the Investment Executive Trust of New Zealand. Ltd., on or about March 16, 1933, made, circulated, or published or concurred in the making, circulating. or publishing a report to the debenture-holders for the year ended December 31, 1932, which was false m certain material particulars, (2) That, on or about April 8, 1933. he made or published, or concurred in making or publishing a Prospectus which was false m certain material Pa (3)°That, between April 8, 1933, and Anril 3, 1934, he circulated or concurred in circulating, a .prospectus which was false in certain material Pa (4) C That on or about March 20, 1934, he made, circulated, or published, or concurred in the making, circulating, or publishing of a report to the debenture-holders for the half-yeax ended December 31, 1933, which was false in certain material particulars. (5) That, on or about April 3, 1934. he published a prospectus which was false in certain material particulars. (6) That, between April 7. 1934. and Allgust 8, 1934, he concurred in circulating a prospectus dated April 3. 1934. which was false in certain material particulars. . .. Auckland wag named in each of the charges as the place of the alleged Mr V. R. Meredith, Crown Prosecutor at Auckland, and Mr C. F. Evans-gcott are appearing for the Crown, and Mr H. F. O’Leary, K.C., with Mr R. E. Tripe, appear for McArthur. .. Control Sought

About the power of attorney to control Sterling Investments. Ltd., McArthur said that the Investment Executive Trust was advancing funds to Sterling Investments and the Executive Trust wished to have control. Questioned about transactions by which he got the yacht Morewa. ha said that the Pacific Exploration Company was formed chiefly to explore the possibilities of certain islands in the Pacific, principally for timber, minerals, and phosphates. The building of the boat was started from share subscriptions in the Sterling Company. The judge asked who were the shareholders, to which McArthur replied they were Sterling Investments and a few nominal Shareholders in the Investment Executive Trust, which was really Alcorn and himself. He did not think there were any other shareholders in the Investment Trust at that time. . The project was abandoned in' 'its early stages, he added, because it was evident that with the growth'of the trust it would be impossible for him to consider any exploration work. Money was owing to Sterling Investments for the construction of the yacht, the amount being about £ 10,000- He arranged to take over the yacht himself and assume the liability of the cost. The debt was eventually cancelled when he cancelled his Sterling debentures. and the yacht was thus paid for by him. Cross-examined by Mr Meredith, McArthur agreed that he brought the Investment Executive Trust into being and controlled its activities. Before that he was mainly concerned in the Se'.wyn Timber Company and Redwood Forests. He was the chief ordinary shareholder of the Selwyn Timber Company. That company got into difficulties and went into liquidation In June, 1980. He thought, he admitted, there were substantial liabilities, but said that there were very substantial assets also. Mr Meredith went on to question McArthur about a judgment of £3OOO against him on the State Forest Service. McArthur denied wishing to avoid pressure, but said that ho wanted time to pay. He admitted he was being threatened at the time w r ith bankruptcy proceedings. He identified 4 letter he wrote to the Crown Solicitor at Auckland, enclosed with which was a statement of his financial pcsition, showing liabilities £19,240 and rssets £405. McArthur admitted that the letter Was not true, but said that It was fair. Jt was untrue because it did not contain assets transferred by him to the Sterling Company and held nominally in his son’s name. It was strictly tine because the assets were not in his name. He was being pursued by powerful financial interests, who wanted to make him bankrupt and would have to pay £3OOO to do it. The Other Assets

There v/ere 25,000 shares in the Edgecumbe Company, paid up to 6s. They were transferred to the Sterling Company for a £1250 consideration. Those were practically all the assets he had besides those he put in the letter. Cross-examined in regard to properties he then held in Grey street, Auckland, and Parnell, he admitted there v/ere mortgages on these of £6OOO and that he got them back free of mortgage through Mr Wynward. The transaction was by a round of dealings which, he admitted, virtually made him receiver for the assets of his own company, and that the creditors in the Selwyn Timber Company were placed in the same position in relation to himself as formerly they were to the bank. “A rather neat position,” commented B/D Meredith.

After further .questioning designed to force admissions that McArthur had used the money of companies to his owp advantage, Mr Meredith went on to question him in detail as to the nature and fittings of the yacht Morewa. He put it to McArthur that from the very first the yacht was intended for McArthur himself. McArthur said that that was not so. It was not originally intended for him, but latterly it was so. The sum of about £ 10.000 for the yacht came from the realisation of his own assets and from the Investment Executive Trust It came from funds of the Sterling Company. Re took the Morewa over Ip December, 1933, before she was quite finished. ’ Mr. Meredith: She was fitted out for ?C McAvtbur: She was well fitted out. Mr Meredith: I think she had her own special silverT^-Yes. What was the inscription on the silver?— There Was just a flag on it I think the silver was about £SOO worth?—l think it was less than that. To further Questions, McArthur said he* once took the Morewa to Norfolk Island

Yacht For Exploratory Work McArthur said that when the yacht was started it was for _ exploratory work, but when he decided to taice it over he altered the internal arrangements. At that time the hull bad been completed and the bulkheads had been put in. ... In reply to further questions. McArthur agreed that it was intended to house variovs organisations in wnicn he was interested in the “Daily telegraph” building. „ • Mr Meredith: So you were really going to occupy and not sell it-

McArthur: Yes. . .. , McArthur said that extensive alterations were required to make the building suitable, and about £115,000 was spent in this connexion. He did nor. at the time he bought the “Daily Telegraph” building, notify the debentuxe holders of his intentions, and no minutes were kept of any advances. Mr Meredith questioned Mcnnnur closely on the contents of literature issued by him. He asked McArthur whether he suggested it was ; quite reasonable and justifiable to divert huge sums of money from various companies for the purpose of purchasing the building in Sydney. McArthur said that with plans they had in mind he thought it was. Purchase of Sydney Building

The purchase of the “Daily Telegraph” building in Sydney was the subject of more of Mr Meredith’s questions. , A , , McArthur said he and Alcorn decided to buy it at a time when they had no available cash. The sum of £50,000 needed was obtained from the Investment Executive Trust. He then formed the British National Investment Trust, which became owner of the building. He and Alcorn were the proprietors of the British National Investment Trust and they increased its shax-eholding capital and themselves subscribed for more than 230,000 2s shares. They paid nothing for them. They could control the whole thing. They passed a resolution allotting 49.598 shares to Alcorn and 190,000 to McArthur, and a resolution that they should pay 10 per cent, of the cost Within a month. That amount was paid later. The position then was that the British National Investment Trust owned the building and that he and Alcoim owned shares in the British National Investment Trust. Then the British National Trust was formed with one of its principal objects the taking over of British National Investment Trust shares. There was a distinct advantage in transferring them at a price representing equity in the building that would establish the value in Australia. He and Alcorn sold British National Investment Trust shares to Bi'itish National Trust the same day that they got them for 23s a share, they having not paid sixpence. He and Alcorn then held paper amounting to more than £250,000, fox* which they had paid nothing. At that time nothing had been done to the building by way of improvement and there was only the prospect that it had been well bought. It was bought, however, for much less than its value so that the British National Trust had real equity in it. Mr Meredith: You and Alcorn had made your profit on paper? McArthur: Yes.

Mr Meredith: That profit, I take it. really would be realised later when the building was sold or something was done with it? McArthur: Yes, or when it was revenue-producing. McArthur said it was not intended at the beginning that the yacht was built for him.

McArthur was further crossexamined about various transactions.

Use of Investors’ Money

In reply to Mr Meredith as to the way the purchase of tha “Daily Telegraph” building was financed and implications of the transaction generally, McArthur said that a successful deal meant a substantial profit to the investors. to Alcorn, and to him. If tbe deal had failed the investors would have had to stand the less. Mr O’Leary raid this was an unfair comparison to put to McArthur, as the deal was a successful one. McArthur interposed that had it been other than a good investment it would not have been made. His Honour said this seemed to him. as had been quoted in the recent Engglish pepper case, like an office boy taking half a crown from the till because he thought he had a good thing for the Grand National. Mr O’Leary: I submit with rerpect that that is an unfair remark to make to the jury. His Honour said that was the way it was put in the English pepper case. Mr O’Leary replied that in the pepper case persons who put their money in lest all, and it was the same in the Lord Kylsant case. In the preseht case they would lose only six shillings, not through McArthur's fault, but through the legislation. His Honour: I say without hesiuhion that where directors take trust moneys

Mr O’Leary: But they were not trust moneys. His Honour: I mile they are. Where moneys are received by directors from the public fear investment, these are trust moneys, and it is a wrongful thing in such circumstances that s’jch money should be invested in something that must be a gamble. Mx- Meredith, to McArthur: In your view directors of investment trusts can use public moneys for their own speculations? McArthur; No, but if investors are going to benefit I say it is quite equitable. McArthur's cross-examination was not completed when the court rose.