Evening Post. SATURDAY, February 1, 1930. FINANCIAL JUGGLERS

Evening Post, Volume CIX, Issue 27, 1 February 1930, Page 8

Evening Post. SATURDAY, February 1, 1930. FINANCIAL JUGGLERS

When Mr. Justice Avory in passing sentence on Hairy and his accomplices described their frauds as "more serious than any other great frauds within fifty years," he may be taken to have had in mind what, next to the trial of Madeleine Smith, is probably the most famous of Scotch cases. The trial of the City of Glasgow Bank directors concluded just over iifly years ago, but their crimes, to which and not to the trial the Judge's dale refers, had been completed when shortly after declaring a dividend of 12 per cent, the Bank, with its 133 branches, suspended payment on the 2nd October, 1878. The liabilities of the Bank then amounted lo £12,400,000 and its estimated assets to £6,300,000, the deficit being almost exactly represented by the £6,000,000 which had been advanced lo four firms on utterly inadequate securities. For three years the position of the Bank had been ingeniously concealed from the shareholders by falsified balancesheets, and for this offence the six directors and the manager were tried and convicted. The mildness of the penalties imposed—eighteen months' imprisonment for the two principal offenders and eight months' imprisonment for the others—is as surprising as the harshness of the civil law which held trustees who had invested in the shares of the Bank personally liable. The liquidation realised £13,----645,000, from which the depositors were paid in full, but at the expense of some 1800 contributors, from whom about £4,500,000 (13s 4d in the £) was exacted. The distress caused among the shareholders, many of whom were of small means, made so strong an appeal lo public sympathy that no less a sum than £380,000 was raised by subscriptions and oilier means for the relief of the sufferers. By an Act passed in the year of the trial provision was made against a repetition of ihe most painful phase of the disaster by allowing the shareholders of a bank for the first lime to take advantage of the principle of limited liability.

A bank again figured conspicuously in what were known as the "Liberator" frauds which were exposed in 1892, but in this case an associated building society appears to have played a more essential part. Jabez Spencer Balfour was the founder of the London and General Bank which was worked in connection with the Liberator Permanent Building and Investment Society, the Land Allotment Company, and other companies forming what was known as "The Balfour Group." This body, we are told, professing to have a capital of £7,000^000, by means of prospectuses, false accounts, and balance-sheets, attracted thousands of shareholders and depositors. Estates were purchased, speculations undertaken, dividends were paid out of fictitious profits, and large sums were absorbed by managing directors. According to the statement of Sir Richard Webster in his opening address for the prosecution at the t'.ial of Balfour and four others in 1895, the total liabilities were £8,361,000; the "supposed assets" were £3,033,000; there were 23,000 shareholders and 28,000 creditors. An appeal to the public on behalf of the poorer sufferers, many of whom had lost the whole of their accumulated savings, realised £114,----000. Balfour's sentence was fourteen years' penal servitude, which was presumably the maximum penalty then as the Hatry case shows that it is to-day.

But the trial with which that of Hatry has more particularly invited comparison occurred about eight years later. Writing m the "New Statesman" of the 28th September last, its city editor said: —

There has been, of course, only one topic of conversation during the past week. That some of the companies of tho Hatry group were carrying as much stock as they could manage was fairly well known, but tho collapse, and the particular shape it assumed, came as a distinct shock to the city, and (with the exception, of course, of the War) has caused more emotion than imy debacle that I can remember, including even the Whitakor Wright affair.

Whitaker Wright's operations had been on a magnificent scale, and it must be admitted that for good no less than for evil there was something really magnificent about the man. At the age of 21 he emigrated to America, and making his way to the Wild West, where he engaged in mining speculations, he had become a millionaire at 31. How much of his million had gone, and by what process, when he returned lo England about thirteen years later. ,is not known, but it is certain that some of his mining companies had suffered heavy losses, and that he had left Philadelphia on that account. It was probably for the same reason that not long afterwards Wright left !the United Slates, but he found ample consolation in his native land. He struck oil again when he founded the London and Globe Finance Corporation. The function of this and two other "promoting companies" associated with it was not work but

speculation, not industry but the flotation of venture after venture, "playing into each other's hands and rigging the market with false reports and golden but illusive balancesheets." A sinister illustration of the wisdom of a cobbler's sticking to his last, may be noted in passing. Wright had the genius to plan and die courage to undertake the financing and construction of the Baker street and Waterloo Railway, now known as the "Bakerloo Tube," and it was this rare, if not unique, Irespass from parasitical and mischievous activities into a really great and beneficent undertaking that so embarrassed the finances of his London and Globe Finance Corporation as lo precipitate the crash. The charge on which Wright was brought to trial in January, 1904, was that as managing director of the London and Globe, the British American, and the Standard Exploration Corporations he had so manipulated their balance-sheets as to show large profits and cash balances which had no real existence. The scale and the skill of these manipulations may be illustrated by a single example. In 1899 the late Lord j Dufferin, whose responsibilities as the dupe of Whitaker Wright clouded the last days of his life, arid perhaps broke his heart, was put up as chairman to submit to a general meeting of the London and Globe a balance-sheet which credited the Corporation with a cash balance exceeding £500,000. It was literally correct, but the result had been secured as one of a series of thimble-rigging transfers between the three companies arranged by their managing director. The exact procedure is thus described by Mr. S. T. Falslead in his memoir of Sir Richard Muir, who was one of Wright's counsel at the trial:

It was subsequently proved that the actual amount of cash belonging to the London and Globe at the time tho Marquis of Dufferin mado his speech was ,is 29,300, and if the balance-sheet had been issued on 30th September, instead of sth December, it would have disclosed a deficit in the finance of tho London and Globe of the colossal sum of £1,600,000! The interval was utilised by Whitaker Wright to show a fictitious profit of £463,372. In this document it was stated that the London and Globe held shares in other companies to the valuo of £2,332,632 4s Id, the penny being an artistic touch much favoured by fraudulent company promoters. All of it was untrue. Some of tho shares held by tho Globe were put into the balance-sheet at twice their market value, while £700,000 worth had no market at .all. From the balancesheet also was omitted liabilities amounting to £1,603,456, no less than £1,600,000 of this amount being duo to London stockbrokers.

Though Hatry is credited with "the worst financial crash in the city, involving £2,000,000 sterling," he can hardly have accomplished a more brilliant piece of financial wizardry than this. And if, in the magnitude of his operations, Hairy has established a record, Whitaker Wright must be a very good second. The scale of his crash was at any rate i highly respectable. The shareholders of the London and Globe, which had a capital of £2,000,000, and had £500,000 in the bank a year or two before the liquidation, got nothing; the only assets were a few thousand pounds which were but a small drop in the bucket of debt; and the allied companies were in a similar position. Nor in attempting a comparison between these two financial prodigies must we forget that a sovereign was worth a good deal more in the days of Whitaker Wright than it is in Hatry's.