BEARING THE END

Evening Post, Volume CXXII, Issue 36, 11 August 1936, Page 10

BEARING THE END

TRIAL OF MCARTHUR

EVIDENCE FINISHED

MR. O'LEARY'S ADDRESS

Evidence for the defence was completed in the Supremo" Court today, the seventh day of the trial of John William Shaw McArthur, a company director, formerly of Auckland, and senior counsel for the defence, Mr. H. P. O'Leary, K.C., began his address to the jury within 'an hour of the Court's resuming. - Prior to that McArthur was re-examined in the wit-ness-box by Mr. O'Leary for less than twenty minutes and he was followed by two accountants, the last witnesses for the defence.

McArthur is facing six charges relating to the issue of alleged false reports and prospectuses of the Investment Executive Trust of New Zealand, Ltd.

The Acting Chief Justice (Sir John Reed) and a jury are hearing the case, in which Mri V. R. Meredith and Mr. C. Evans-Scott are appearing for the Crown, and Mr. O'Leary, with him Mr. B. E. Tripe, for the defence. In reply .to Mr. O'Leary, Me Arthur said that he had given evidence for six days before the Sydney Commission," and had been examined and cross-examined by three different counsel. Every detail was then brought out at greater length than in the present hearing. In October, 1935, one of the present charges was laid against him. Regarding the comment in the "Investors' Journal," McArthur said that that journal had consistently attacked him and had circularised the Stock Exchanges for monetary assistance. He believed the Stock Exchange brokers subscribed to the "Journal" The,second auditor of the .company Mr. O'Neill, was in Sydney for the proceedings under subpoena. He attended every day for five months but was not called. LOAN FOE TRUST BUILDING. McArthur was asked by Mr. O'Leary whether he recalled the remark made by his Honour yesterday afternoon to the effect that the loan to the B.NIT for the purchase of the Trust building was on a par with an office boy taking '2s 6d out of the till to put on a horse in the Grand National. "I say it was not a parallel," replied McArthur, "because in this case the £50,000 advanced to 8.N.1.T. was a temporary loan on security. The loan was repaid with interest. It was always secured." His Honour asked Mr. O'Leary ■whether he was going to suggest that if a person bought a cottage for ;£SOO, on which there was a mortgage for £250, and if he got anyone to lend him the £250 to buy it, the person lending the £250 was fully secured. Mr. O'Leary replied that that was not the question in this case. His Honour replied with the suggestion that it was. How many people in New Zealand, he asked, had lost everything .in the sort of transaction that appeared to be absolutely certain to produce a profit? Counsel .replied that that was not the present case. His Honour: You say it was a firstclass speculation and he consequently was able to borrow trust moneys to pay the full amount being paid on this property? Mr. O'Leary: As events turned out, he was right. His Honour: Events have nothing to do with that. It is just the same as the office boy with the 2s 6d. . . If the liorse wins and he gets 7s 6d and puts the 2s 6d back, he commits an offence just the same. Mr. O'Leary: What offence? His Honour: Taking 2s 6d he had no right to. H,is Honour continued that it was not strictly a breach of criminal law for a trustee to commit a breach of trust, but the distinction between ,a breach of trust and theft was very, very slight. Mr. O'Leary said that there was a difference. His Honour: There is a distinction without a difference. Counsel expressed surprise at that: His Honour said that a breach of trust might be a criminal offence, but it was not necessarily a criminal offence. "NO RISK WHATEVER." Mr. O'Leary (to the accused): As fcvents turned out, was there any risk tit all? "There was no risk whatever,"- replied McArthur. He pointed out that he had purchased the building for less than one-third of its value in a forced sale. The Government valuation of the land alone was £93,000, and a leading! valuer's estimate of the value of the land alone was £160,000 which was £60,000 more than the price he paid for both land and building. He had spent £115,000 on it after buying

In reply to a question from his Honour as to the amount realised on the recent sale of the building, Mr. O'Leary said that the amount, subject to confirmation, was £273,000. Mr. O'Leary (to the accused): That Is being fought by you, even at that price? ,

McArthur: I say that is £150,000 below its value because it conld not be replaced today for £450,000. The building was actually bought by 8.N.1.T., continued McArthur, but he could have carried out the deal dishonestly by getting a dummy to do it and taking the whole of the profit. At all times he disclosed all his dealings with the purchase, once it was made. In all the ivansactions consideration and security were always given.

ACCOUNTANTS' EVIDENCE

Robert Arthur Glen, public accountant, Wellington, said'that in conjunction with Mr. Johnston he investigated certain books of the Investment Executive Trust to ascertain the spread of investments at certain dates. As a result the statement^alrcady before the Court had been prepared. There were six dates given in the statement, namely, December 31, 1932, March 16 1933, April 8, 1933, December 31, 1933 March 20, 1934, and April 3, 1934. The company's investments were diversified over 220 to 230 investments on' March 31, 1932. On March 16, 1933, April 8, 1933, December 31, 1933, March 20, 1934, and at April 3, 1934; there was not less than 220 different investments. On April 3, 1934, the total of all investments was £675,996. The total of investments actually held other than in subsidiary companies as at that date was £167,192.

In reply to Mr. Evans-Scott as to what was meant by "value" in the Btatement, witness said the cost price of the investments.

Mr. Evans-Scott: You made no attempt to value the investments?— No.

Continuing his cross-examination, Mr. Evans-Scott dealt, with a comparison of Mr. Glen's statement and the statement prepared by Mr. Andergon,! Public Trust. Office accountant. Mr. Evans-Scott: So*"that the- position In relation to the amount in associated companies was continually increasing in proportion to the total?— That is so.

Mr< Anderson worked his figures, Mr. Glen, from the amounts in the Jedgers. When a company takes out a

trial balance it will take these amounts as being correct—the ones in the ledgers?—l presume it will. You have not checked your figures with the amounts in the ledgers?— No. There is a column in the statement prepared by Mr. Anderson called "English investments." The amount of the English investments is shown by Mr. Anderson at various dates. You haven't gone into that?—l have not. Would you just tell us the largest investment held by the company apart from the New Zealand shareholders' trust at April 3, 1934? The British National Trust, I would suggest, Mr. Glen, £147,000?— That is the largest. Mr. Evans-Scott: That is No. 1 associated company. I suggest the next largest is the Southern British National Trust, £55,000—N0. 2 associated company?— That appears to be so. And the next largest is the Transport Mutual and General, shown in your statement as £36,000?— That appears to be so. Then, Mr. Glen, we have the Cambridge Clothing Co., which we have heard a little about—£.l6,4oo in that?— That is so. Apart from these companies is there as much as £10,000 in any other company?—l don't think so. Mr. Evans-Scott: You will find that so, Mr. Glen. Mr. Tripe (re-examining witness): I think it is a fair statement to say that the cash book is the basis of the books of the company?—l think that is a fair statement. Did you have any of the entries, and if so how many of the entries, on this statement (that produced by the defence) checked from the cash book and journal of the I.E.T.? —I am able to say between one-quarter and one-third of the investments were checked from the cash book or journal, perhaps both, l Mr. Anderson's figures for the last 1 period were taken out as at March 31, 1934, which is not the date of the prospectus the subject of a charge?—My last date was April 3, the actual data of the prospectus. ' Your figure differs from Mr. Anderson's? —Apparently, yes. Being nearly £40,000 greater for the total investments? —Yes. And the proportion between the investments in associated companies and investments other than in associated companies?— The round proportions are approximately the same. ; At April 3, 1934, the figure in your statement for investments other than in associated companies is £167,192. In the statement prepared for the prosecution it is: £140,780. In other- words three days later your figure is £27,000 larger than Mr. Anderson's? —Yes. Donald Gordon Johnston, public accountant, of Wellington, corroborated the evidence given by the previous witness. ■ Mr. Tripe: Mr. Evans-Scott put it to the previous witness that "value" as shown in your statement means the cost price?—the cost to the I.E.T. company. Did you notice in your investigations of these books any of the dealings in these investments?— There were quite a number of dealings through the books—sales of investments at differ.ent times. • Can you tell us whether these investments were sold: generally speaking at a profit or at a loss on the cost price?—l .should say generally speak--ing that there was profit on the sale of investments. There were some losses?— Yes. There were losses. ■ Was there more profit than loss in the items you saw? —I should say that the profit was greater than the loss. MR. O'LEARY'S ADDRESS. "This is a case of great importance," said Mr. O'Leary in his address to the jury. "It is important to the authorities who set the ball rolling with the Barton Commission in December, 1933. It is important to the public. It is important, most important, to the man in the dock. Gentlemen, this trial is the culmination of the commissions, the' inspectorships, the inquiries, the publicity, the allegations, the innuendoes which have received such notoriety during the last three years; and the culmination is, as I have said, of most importance to the man whom we represent because the issue is whether he will disappear down those stairs (the stairs from the dock to the cells below)—be away from the public gaze for some time —or whether he will be free to endeavour to salvage the wreck that he says is not due to anything that he did but was due to the precipitancy of the action of the authorities and' the subsequent legislation—not due to him, he contends, because he says, as he said in the box and which has not been refuted by the Crown, that at all times up to the time that control was taken from him, the money was there. I shall have more to say on that later." ■ THE CROWN'S PART. Mr. O'Leary referred to the charges and the history leading up to them. After all the investigations he contended that the position the Crown was in was that it felt something must. be done to justify the action that was taken, and the best that could be done was a charge against McArthur of falsity, not in what he said in the reports and prospectuses, but mainly in what he did not say. McArthur had given evidence that all the various transactions were investigated, and counsel put it to the jury that if there was a semblance of dishonesty in any of them Me Arthur would have been prosecuted. But none such was disclosed, and the Crown had to fall back on the miserable charge of a false prospectus and false report to justify the drastic action that it took three years ago.

"Gentlemen," continued Mr. O'Leary, "I ask you what offence has been disclosed with reference to the purchase of the Trust building. Nothing whatever. What offence has been disclosed with reference to the acquisition of the yacht by Mr. McArthur? None whatever. If there had been he would have been prosecuted. What offence has been disclosed with reference to the acquisition of the Sterling assets by McArthur? None whatever, gentlemen. You can accept that, because, as I say, all this investigation had behind it the cry, which I put to you when opening the defence, 'We want McArthur.' If there had been a semblance of dishonesty he would have been prosecuted."

Mr. O'Leary next referred to the onus on the Crown of proving the charges. "I am going to submit to you," he told the jury, "that your onus or responsibility m this case is lightened by the fact that such an onus as the law imposes on the Crown has not been discharged by it. I complained early in this case of unnecessary details which were being introduced and which I submitted had very little or no relevancy, but which were introduced, I submitted, for prejudice. Gentlemen, I was overruled in my objection by his Honour the learned Judge. Of course, I must defer, and had to defer, to that ruling, and the submission of these details proceeded. But, gentlemen, I still complain, and I say that a mass of this material was introduced merely to prejudice the fair trial of McArthur on the indictment and the charges that have been laid against him."

His Honour (interposing): Just a moment. You understand the effect of your suggestion. The Crown cannot call any evidence which is inadmissible. I rule whether evidence is admissible or not. Consequently you are charging me with being a party to prejudicing the accused.

Mr. O'Leary said he had no intention of so doing. If that was the interpretation his Honour put on his submission, he apologised.

His Honour: You see that must be

so. Either the evidence is admissible or it is not admissible. If I admit it, then you are accusing me of prejudicing the accused. QUESTIONS ABOUT THE YACHT. Mr. O'Leary said he did not contend that. He was going on to give a concrete example of what he submitted was the position, and he thought his Honour would realise from that what he had in mind. What he wanted to refer to was the yacht Morewa. Mr. O'Leary continued his address. What he really had in mind, he said, was Mr. Meredith's cross-examination of McArthur concerning the yacht. There were questions about special notepaper and the silverware. Not only that, photos of the yacht had been produced and passed round for the jury's inspection. That was what he referred to. and it was a sample of what he submitted he was entitled to object to. He submitted that the questions about the yacht had been introduced for the purpose of prejudicing the jury, if it could be done, in their deliberations. "This -case," counsel continued, "I submit to you, can be dealt with on a broad issue, and in considering it on a broad issue I ask this: Why is McArthur the only one charged in respect of these documents?" Mr. O'Leary said that they had beard earlier that •it was the only case of its kind that had been brought in New Zealand. His Honour had pointed out that it was not the first in the Empire. That was perfectly true. There were the "pepper" case and the Kylsant case. "Was Hope in no way responsible, or Pollard, Alcorn, Glasson?" continued Mr. O'Leary. "There is no prosecution of them. Hope, on the contrary, is accepted as an innocent individual and is put forward by the Crown in support of the case. Glasson, Alcorn, Pollard —no prosecution. Why, gentlemen? Because behind this prosecution, and all along, the impelling motive has been, 'We want McArthur.' "As I said earlier, the Crown set the ball rolling by its Commission, by its legislation, and now the Crown is prosecuting. I cannot help commenting on the fact that one of the inspectors, and also particularly an accountant on behalf of the Public Trustee, who is the liquidator an/1 who represents, I should say, a person, an official who has to be impartial in connection with these transactions, have taken a very active part in this prosecution. Not merely: have they giveii evidence, but Mr. .Anderson has occupied the place usually occupied by the detective in charge of the case—behind the prosecutor, with his notes and prompting and information throughout. So far as the prosecution itself is concerned, I have no real cause for complaint. The matters that I have complained of in cross-examination I do not say are not admissible, but if the Crown chooses to ask these questions, then I am entitled to make such use of them as I feel I ought to. The Crown has been very fortunate in having the service of the most experienced Crown Prosecutor in New Zealand, Mr. Meredith, of Auckland. Mr. Meredith as prosecutor knows his functions and we are fortunate in that also. He has done his best, but I submit his best has fallen short of convincing you that McArthur committed a criminal offence. The outstanding fact in connection with the McArthur business was that when McArthur was prevented from taking any further part.in the operations of this company the money was there. That is what distinguishes this case from the Kylsant case and the "pepper" case. In those cases the people had no money and lost their all. McArthur told us in the box, and the figures show, that the money was there when the Government came down on him. Gentlemen, that evidence was not attacked. McArthur was not asked one question to throw any doubt on that specific and definite statement that he made, and you must accept it as being the position that when the Government passed this legislation and prevented him from operating, the money was there. McArthur's explanation of the purchase' of the Trust building had not been seriously challenged, continued counsel. He saw that the building could be bought at a figure which would mean a great profit, and he worked it out that if it was done through the I.E.T. there was a probability, if not a certainty, that a huge income tax would be payable. He worked out a plan which would mean a legitimate avoidance of income tax. and he thought that he was entitled to something by way of profit, because by his perception and ingenuity he had avoided the huge income tax on the company. As a result he took out of the transaction £60,000 in B.N.T. debentures, which he used for the wiping out of an I.E.T. debenture over the Sterling investments, most of which had previously belonged to him, and he had the Sterling investments returned to him. •NOT A TRUE ANALOGY." "I submit," continued Mr. O'Leary, "that the analogy drawn by his Honour is not apt in this case; that this is hot the same assthe office boy taking 2s 6d from the till and investing it on the Grand National. Curiously enough, the Grand National is being run today, and I hope that boys who are going to put their half-crowns on Billy Boy, Diamond, and the others will not dip into the till, but will come by it by legitimate means. But I do suggest that however they get the money, it will be different from what McArthur did in buying a property for £100,000 which subsequent events showed must have been worth £200,000 to £300,000. He borrowed money from the I.E.T. and repaid it. ..."

Mr. O'Leary said that the analogy of the office boy was not a true one. If there had been the slightest offence by McArthur in connection with the B.N.T. deal and the purchase of the building the months of investigation would have brought it to light and McArthur would have been standing his trial for whatever offences had been disclosed. Because he was being charged only in relation to reports and prospectuses, it could be assumed that no offence whatever had been disclosed in regard to the building transaction.

Mr. O'Leary commented upon the fact that of the hundreds of debenture holders whom it was suggested were fraudulently dealt with only two had given evidence, while on the other hand" they found that'one-third of their number had transferred their debentures to the new Me Arthur Trust in Brisbane, showing the confidence which a great number of them had in' the man who was now being charged. A STRANGE KIND OP MOUSE. Coming to the charges in detail, Mr. O'Leary said that McArthur was being charged with issuing badly-drawn reports and prospectuses, putting in too much in some respects and not enough in others. Anyone who had followed the publicity the McArthur business had received must comment, "What a charge after all this! The mountain has brought forth a mouse, and a mouse of a kind that we have not previously seen in New Zealand,"

Counsel continued that a false statement, to be criminal, had to be made deliberately, not merely by negligence or imprudence.

Me Arthur, said Mr. O'Leary, had faced his accusers as he had always been prepared to face those who were against him. He had gone into the witness-box and been cross-examined by Mr. Meredith, though he need not have stirred out of the dock and that could not have been the subject of comment by either the prosecutor or the Judge. Counsel submitted that the

jury could not but be impressed by McArthur's explanation of the issue of the reports and prospectuses. McArthur had explained that it was his policy and that of other trust companies not to give information of■ investments. He was not in the same position as others, because there were powerful influences ever ready to use their forces against. him if they had an opportunity. He had to guard at times against information going to people who. might use it to crush him. Diversification was a policy of his, but at no time had he said there would be even diversification. When he had got in only one-fifth of the capital he required, the Government prevented him from carrying out his plan. Because he had been so stopped, the authorities, failing in their suggestions that there was dishonesty, turned to the reports and prospectuses and said, "Ah, we have you here." Mr. O'Leary said the answer to that charge was the action of the authorities in preventing McArthur from putting his policy into effect.

His Honour said that, concerning the last prospectus mentioned in the charges, he would tell the jury thathe did not think in law that they could hold the accused responsible for the figures at the end of it. The accused himself had admitted he was a party to the original part of the prospectus, but he could not be held responsible for the figures, as he was out of New Zealand at the time. "McARTHUR A SCAPEGOAT." Mr. O'Leary continued that the Crown was endeavouring to interpret ordinary business secrecy as criminal concealment, and he submitted that the evidence had disclosed no criminal intent. He warned .the jury that the complexity of McArthur's operations did not mean dishonesty, and he asked for an acquittal. In these proceedings, he said, the Crown had ■ got to justify the drastic action it took nearly three years ago. McArthur, he suggested, was being made the scapegoat, while others who had taken some part in the issue of the papers on which he was charged were not proceeded against. Mr. O'Leary's address lasted for seventy-five minutes, and at its conclusion the luncheon adjournment was taken. . I ADDRESS FOR THE CROWN. 1 In opening his address to the jury Mr. Meredith said he was glad to Know that the accused was represented by able counsel and they had listened to the able, earnest, and forcible address made by Mr. O'Leary. He ■wished, however, to make 'one small comment on that address. It seemed to him that Mr. O'Leary put it to the jury that the case was in the nature of a head-hunt and that McArthur was put in the position of a persecuted man. Reference had been made to mysterious financial interests at work, but it did seem strange that the activities of McArthur should have been the cause of criticism in financial journals ajjjl that both the New Zea-, land and new South Wales Governments should have seen fit to take legislative authority to put a stop to his activities. That being so, it seemed somewhat idle to suggest that McArthur was being persecuted by individual persons.

' Mr. Meredith said he was quite sure the jury would not be deflected from their duty and that they would approach their consideration of the evidence calmly and dispassionately, always remembering that their duty was twofold: First to the accused to see that no verdict hostile to him was found —no verdict that was not definitely proved by the evidence, and their other duty was to the community. " . '

Mr. Meredith then brought before the notice of the jury certain observations based on the evidence which he said might be of some assistance -to them in coming to the correct verdict.

The offences with which McArthur was charged, said Mr. Meredith, were offences against the law and against the public. It was not a question-of considering the particular debenture holders in the case.

Mr. Meredith pointed out that falsity in. connection with 'company documents could be twofold. There could be statements which were false on their face which were comparatively simple to deal with. And there might be concealment of necessary facts, or there might be a combination of the two kinds, which was suggested in this case. If all the material facts had been put before the public they would have affected their judgment to such an extent that no man of reasonable common sense would have invested money. -

The Crown's- suggestion was that so far from investing the money subscribed in diversified.assets there had been set up a chain of companies associated with the I.E.T. o£_ which McArthur was the ruling spirit, and money was being received from the public and manipulated through these companies for the purpose of speculation by McArthur and for the use of a lot of it for his own personal enterprises. Mr. Meredith asked what was the object of the associated companies. The 1.E.T., he said, could quite well have carried on its business alone, and he took the responsibility of suggesting that the associated companies were formed not for the benefit of I.E.T. debenture holders, but for the benefit of McArthur and his associates. ASSOCIATED COMPANIES. Mr. Meredith continued his examination of various transactions. What was the object of the formation of the associated companies? he asked. "Were they formed in any way for the benefit of the debenture holders, or were they not formed for the purpose when the debenture money came in of being used as a vehicle whereby access to the moneys could be had by McArthur and his associates? Counsel next dealt with the Pacific Exploration Company, and the purchase of the yacht Morewa. He suggested to the jury that it was absurd that such a beautiful vessel would be acquired for such mythical exploration work as suggested by McArthur. There had been criticism of the production of photographs of the vessel but unless they had been exhibited it might have been thought that the yacht was not the beautiful vessel she was but an ordinary island schooner. (Proceeding.)