Investors’ money diverted ‘to keep group afloat’

Press, 22 April 1977, Page 2

Investors’ money diverted ‘to keep group afloat’

PA Auckland, Money paid by investors for bricks and mortar was diverted and swallowed up in the never-ending task of keeping the JBL group of companies afloat, said the Crown Prosecutor (Mr D. S. Morris) in the Supreme Court at Auckland yesterday. Mr Morris was continuing his opening address to the jury in the trial of nine former executives of the group who have denied charges of conspiracy to defraud the public. The trial is before Mr Justice Somers. The nine defendants are James Edward Jeffs, Vaughan Josephs Jeffs, and Philip Paul Sargent. company directors; Hugh Buchanan Jones, Rex Evans, and Hugo

Stephen Fanning, chartered accountants; Michael Bruce Gurney Thomson and Barrie Phelps Hopkins, solicitors; and Peter Kenneth Leneve Arnold, a company executive.

Mr Morris told the jury that money paid to JBL Consolidated in respect of an investment went to the general account of the construction company, JBL Sargent. It was then returned to JBL Consolidated’s general account, and finally used for genera' purposes. “This cheque swap,” he said, “was contemporaneous.”

The practical result of this manipulation was that money paid by investors for bricks and mortar was diverted, and used for the i purpose of keeping the [group of companies afloat. However, nothing about i this course of action was I mentioned in brochures, nor [did the company treat the use of the funds as a means of giving the investors any form of security. I Mr Morris said that, in [March, 1971, there was intensive liquidity pressure, land the company asked for [the total amount of an investment to be paid to it. It had previously received 10 per cent, wity 90 per cent going to the company’s solicitors before settelement of a syndicate. “About $400,000 was received by the company in that month,” he said. JBL made no attempt before dispersing investors’ money to ensure that they obtained some interest in the syndicate property equivalent to their deposit. The company took great

care to avoid explaining to prospective investors what it intended to do with their funds. Mr Morris said that syndicate investors were issued with a trust receipt, but this [was worth nothing. “If people are not told what is going to happen to their money, how are they going to know?” he said. JBL could not tell investors what was happening to their money. To say the money was going in a never-ending stream into the company’s pockets would have dried the inflow of funds to a trickle, and the company could not afford to let that happen Mr Morris said that as there were several members of a land syndicate, there would always be some delay between the first member’s investment and investment by the last. There would be a further interval before settlement while JBL staff prepareddocumentation, he said. This was inevitable, but once this had been attended to it was imperative that settlement should be made without delay, so that investors got the security from the certificate of title as owners.

JBL, Mr Morris said, adopted a regular practice ol deliberately delaying settlements to ease pressure on its dwindling resources. For that additional period investors’ funds were at risk in the general pool. At each monthly meeting, the company received documents which showed the state of its activities. The cash-flow budget for October, 1971, set out the anticipated payments for that month of about $311,000. In November, another cash-flow budget was set out, but there was also a copy of the October budget which showed that actual expenditure was about $15,000.

That was just one of many examples which showed how settlements were delayed, Mr Morris said. JBL, through its subsidiary, JBL Seafoods, ran a fish business known as the Seafoods Bazaar. Investment was invited for a part of the franchise in this business, with a view to forming a trading partnership. Mr Morris said. The success of the enterprise in raising funds was remarkable, he said. From February 18, 1971, to May 3, 1972, $373,000 was received. In spite of the issue of a trust receipt for investors in the partnership, the group transferred funds immediately from the trust account to Jhe JBL general account, -and it went to where the need was greatest. “It was,” Mr Morris said, “no more than a fundraising exercise.” He said that at the time the idea of a partnership was mooted, the assets of JBL Seafoods were already under three debentures. The group had very carefully refrained from explaining its intention for the public money, which was “simply squandered.” Mr Morris said that by means of Trading Partnership One, investments were to be used towards the purchase of assets to the value of $425,000. However with its liquidity situation, JBL knew that the moneys would be used for other purposes.

The jury might think that it was impossible for the company to arrange payment of the debentures and the investors’ money, which had long since been dissipated, Mr Morris said.

The Crown’s case was that JBL must have understood that a day of reckoning had to come, he said.