McARTHUR PROSECUTION

Greymouth Evening Star, 2 July 1936, Page 2

McARTHUR PROSECUTION

EVIDENCE BY INVESTORS SPREADING THE RISK [FEB PBEBB ASSOCIATION.] WELLINGTON, July 1In the McArthur case, tbia noon, evidence was Edwin Redstone, o£ . t hat tired insurance agent. He sai during April, 1932, he received a call from a Mr Arthur Dunn, who showed him a prospectus, whi ch wa® first relating to the Investment Trust. He al»showed him a list coutsln.nK the names at various compames, 1 eluding Imperial Chemicals, Ltd. That list was supposed to i - vestments by the Investment Execu tive Trust. On April » vested in debentures of the Company. Before he took the investments he read parts of the prospectus The part that interested him was that more than 10 per cent, ofthe.total debentures capital coul i b ® l “ Ve in any one security. He also read some of the literature in other- documents he received. It seemed to him to be a very good and safe invest ment, because the investments wer <?o well distributed over so many securities. He invested further sums at later dates. He remembered that in November, he received what was described as a confidential letter from the Managing Director of Investment Executive Trust. The original of £! letter had been mislaid, but he had a copy, of it. Witness said that he received various reports from the company from time to time. Mr Evans Scott asked witness what he would have done had he known that approximately one-third of the capital of the company at Decembei 31, 1932, was invested in two subsidiary companies. Witness said that he would have made strong endeavours to get his money back. Mr O’Leary objected to this question, and, after argument, the Magistrate said that he would allow the question, but would note the objec-Cross-examined by Mr O Deary, witness said he had received dividends on his debentures at the rate of nine per cent, down, he thought, to six and a-half per cent. Those payments had. been made regularly up to the time that the Legislation stepped in. He followed the newspaper reports of the sittings on the Commission held in Sydney, and he understood from those, that the prospects of his getting his money back depended a good deal on the value of the Trust building in Sydney. He did not know that Robert Hill Charteres, the accountant assisting the Commission, had worked out that, if the Trust building was valued at £400,00u the debenture holders would get back 19/6 in the £. Harry Edwin Dowdy, public accountant, Wellington, said that he was approached by a man named Hollard, salesman for Mclnnes and Co., selling agents for the Investment Executive Trust. Certain documents, witness continued, had been given him, and as a result of these and of inquiries he-made, he made a substantial investment in Investment Executive Trust debentures. What had appealed to him in the documents were expert management and spreading of risk. In January, 1933, he was appointed one of the selling agents of Mclnnes and Co., Auckland, who supplied him with copies of the first prospectus, all reports to the debenture holders up to date, and other documents. Early in October, 1933, he saw the accused in Auckland. Witness had become perturbed by rumours in Wellington. In Auckland, he saw the auditor, and then McArthur. When he saw McArthur, he said it was rumoured in Wellington that the Trust had invested in some of the subsidiary companies, naming the Redwood Selwyn Timber Company, and Wynsel Timber Co., by way of debentures, and he asked McArthur if that was so. McArthur said “No.” Witness said: “If you haven’t invested by way of debentures, are there investments by way of shares or other holdings?” McArthur said: “No.” Witness insisted on getting a statement in writing to this effect. He also asked how much was actually invested in any subsidiary companies, and was given a statement that 18 per cent was. He did not ask what investments the Trust had in companies of which a Director of the Trust was attorney. His question was as to how much was in subsidiary companies. When the Companies Special Investigations Act, 1934, came into force, he ceased to act as salesman. Had he known that, approximately one-third of the total debenture capital of the Investment Executive Trust was invested in two subsidiary companies, he would not have made his original investment, or have, recommended anybody else to invest.

Mr O’Leary objected to this statement being admitted. As regards investments already taken by him, witness continued, he did not know, what he could have done, except’, perhaps to sell them at the best possible price. Mr Mosley: 1 can tell you what you could have done—consulted the best possible legal talent in Wellington, and have acted accordingly. TRUST BUILDING'S VALUE. Arthur Eric John Anderson, accountant at the Public Trust Office, Wellington, produced a statement prepared from an examination of the books of account of the Investment Executive. Trust, and gave lengthy evidence. Cross-examined by Mr O’Leary, witness said that the Trust Building had been put up for sale by the Public Trusted in Sydney, acting in a similar capacity to the Public Trustee in New Zealand. , ■

Mr O’Leary: Do you know that an order was made,, restraining the Public Trustee in Sydney from going ahead with the sale of the building?

Witness: No. I think there was an application for one, hut I don’t know whether it was granted. Mr Evans Scott: The sale-went on. An order could not have been granted. . Mr O’Leary: My instructions are that ah -order was granted. The sale did not go on! John Leslie Griffin, Accountant, of Wellington, said that, by warrant of

the Governor-General, dated August 8, 1935, and issued under the Companies Special Investigation Act, 1934, he Was appointed one of four Inspectors to investigate the affairs of certain companies. During his investigation, he Inspected the books of account and other records of the Investment Executive Trust, Sterling Investments Co. (N.Z.) Ltd., the British National Investment Trust, Limited, and the British National Trust Limited. Except that, he did not necessarily inspect all of the books and all of the records of all of those companies. As the result of his invest!-. gations, he found that the “Daily ■Telegraph” (building, Sydney, was purchased on November 1, 1932, by the British National Investment Trust, and the purchase price, was £lOO,OOO. The sale was completed in December of that year. The whole £lOO,OOO was paid in cash. The British National Investment Trust obtained £50,000 in cash from the Investment Executive Trust, and raised £50,000 on mortgage. . „ . Witness gave details of the allotment of shares and the part played in the purchase and transfer of shares and debentures between the accused, the British National Investment Trust and the British National Trust. At the conclusion of the crossexamination of the witness by Mr O’Leary, the Court adjourned till 9.30 a.m. to-morrow.

INSPECTOR’S EVIDENCE

TRANSACTIONS OUTLINED.

WELLINGTON, July 2. The McArthur case was continued to-day. John McArlane Elliffe, public accountant, Auckland, one of the four inspectors appointed to investigate the affairs of the companies mentioned in the companies Special Investigation Act, gave evidence that he specialised in a certain group of companies, viz., Sterling Investments Coy of N.Z. Ltd., Pacific Exploration Coy Ltd., and Wynwood Investments Ltd. He was also present at the sittings of the Royal Commission in Sydney. At the Royal Commission sittings* the books of the Sterling Company, prior to February 28, 1934, were not presented. They were stated by various officers of the company to be lost. The balance sheet of the company, as at August 31, 1932, was found amongst the papers of tne company, and afterwards produced to the Commission. During the adjournments of the Commission,. he had discussions with the accused, relating in the main to reconstruction of certain books, which he attempted to make with the object of arriving at the value of certain assets taken over by the Wynwood Company, and by McArthur personally, at February 28, 1934. The Sterling Company’s balance sheet, as at August 31, 1932, was always pro J duced, and at no time did McArthur suggest it was inaccurate. That balance sheet was the basis of his reconstructed books. In addition to the balance sheet, there were available cheque book butts on the Sterling ordinary account, from August 31, 1932, to February 28, 1934. Also there .were available, bank statements showing in many cases where the moneys had come from, and also a file for receipts and vouchers of the Sterling Company. As a result of his investigations he found £50,000, had been paid by the Investment Executive Trust to the Sterling Company, up to March 31, 1933. That figure was not entirely gained from the reconstructed books,* but was verified from the Investment Executive Trust books. The Investment Executive Trust received in return debentures from the Sterling Company, in denominations of £lOOO, which were purchased at £9OO. The debentures were charged upon all assets of the Sterling Company. In order to cover the total payments of £50,300, 55 debentures had been given by the Sterling Company. Subsequent to March 31, further moneys were paid by the Investment Executive Trust to the Sterling Company, and were recorded in the Investment Executive Company books, by the direct charge to the British National Trust Ltd. account. After March 31, 1930, no further Sterling company debentures were issued, but to cover any money advanced, not only to Sterling, but to other companie.s, the British National Trust debentures were issued, and payment were charged to the British National Trust account. Out of a total moneys paid by the Investment Executive Trust to the Sterling Company up to February 28, 1934, a total of approximately £60,000 was expended by the Sterling Company on the assets set forth in document, annexure three, at the Sydney commission, to be produced later. Included in that amount, were drawings by the accused himself, and moneys spent on his house at Hillsborough, Auckland. On February 28, 1934, assets in the document mentioned were transferred in part to the Wynwood Company, and in part to the accused. Accused held £9900 Qf the capital of the Wynwood Company at that date. The total value of debentures issued by the Wynwood Company at that date was £40,000, and the debentures were held by McArthur.

PAYMENTS AND DRAWINGS. Pursuing further transactions, witness said .that on February 28, 1934, McArthur held all the debentures issued by Sterling Company. In order to redeem these, Sterling Company paid McArthur a cheque for £60,000, which wa? paid in to the Wynwood Company, and the Wynwood Company paid the cheque to the Sterling Com-

pany for £60,025, in exchange for assets, which were then transferred, a list of which accused produced at the Sydney commission, and which, was always referred to as annexure three. He discussed with accused certain values which he had assessed from the reconstructed books. . Opposite each item, he placed what he considered from the investigations had been expended on the respective items. The total of those amounts was just over £90,000. In the Wyilwood Company books, accused entered the assets taken over frpm the Sterling Company at a certain" book value,

and the total of assets taken over as entered was £50,284/15/7. Referring to the item “all accounts due by J. W. S. McArthur,” witness said it represented payments or drawings to two different sources, firstly to the accused personally, and secondto .Hillsborough. As far as his investigations went in Sydney, he estimated that the accused had drawn personally £7897/3/2 from the Sterling Company, and that £6OOl/13/-, had been expended by the Sterling Company on Hillsborough. There Were receipts available signed by McArthur for most of the personal draw* 1 ings. He discussed these figures with ' accused in Sydney, arid McArthur t agreed they were approximately cor- i rect. < Witness said he had made some fur. -

ther investigation concerning the item £7897 since the Royal Commission, and giving McArthur the benefit of items which might be termed doubtful, he made the amount £7130 9/2. Referring to tile item “all accounts due by. the Pacific Company, he found that £20,689/14/-, had been paid by the Sterling Company to the Pacific Company up to February 28, 1934, out of moneys received by the Pacific Companv from Sterling Company to February 28, 1934, accused made personal drawings from the Pacific Company, amounting to £4165/10-. Out of the same money £8931/9/- was SPENT ON THE YACHT Morewa, which was registered in accused’s name. Mr O’Leary objected to all this evidence, which he said he could only think was being brought to prejudice McArthur. It had no relevancy, and he asked for the protection of the Court. Mr Evans Scott, in a passage that followed, said it was relevant in connection with concealment of investments with intent to deceive or defraud the debenture holders of the Investment Executive Trust. The Magistrate spoke to the effect that he realised the Crown Counsel’s position was difficult. He presumed the Crown had taken everything into consideration.

Mr O’Leary said his real objection was that the evidence to the effect that certain transfers were made to McArthur, was one-sided. There was another side. Valuable consideration was given for all these transfers. The Magistrate remarked that the preliminary hearing was always apt to look one-sided, when the case for the defence was not placed before the Court.

Mr O’Leary: And it may be very prejudicial to the accused.

Witness said the yacht was never registered in the name of the Pacific Company. Accused was neither a shareholder nor creditor of the Pacific Company. The next witness was Kenneth Curtis Aekins, solicitor, Auckland, who said he was appointed a director when the Sterling Company was incorporated, and was solicitor for the Company. He was appointed chairman of directors, and acted as such at directors’ and shareholders’ meetings. Witness went on to give evidence in regard to the

POWER OF ATTORNEY

given to McArthur, dated January 12, 1932. On December 5, 1932, a resolution was passed, that it be revoked, and a new one executed in favour of Charles Graham Alcorn. Shortly before the meeting of January 15, 1932, accused saw witness and requested that a separate bank account be opened with the National Bank of New Zealand at Auckland, in the name of Sterling Company Investments account, which was to be operated upon by the managing director of the Investment Executive Trust, in pursuance of the power o£ attorney granted. At that time, the Sterling Company’s ordinary account was with the Commercial Bank of Australia at Auckland. On January 15, 1932, a resolution was TSssed giving authority to McArthur to operate on the Investments account. Regarding various transactions carried out and resolutions passed by the directors of Sterling Company, witness said he got instructions from McArthur and Alcorn as to what was to be done. He was not aware that accused was making personal drawings from the Investments account of the Sterling Company. In cross-examination, witness said he was not aware there was at any time credit in the name of McArthur’s son in the Sterling account. He knew the son. He would be about 21 or 22, and was at that time working as an employee in the Investment Executive Trust. He knew of no dealings which would result in the son having a credit of £5OOO.

John Leslie Guinness, officer of the National Bank at Auckland, produced the original authority in connection with the Sterling account, and said it was to be operated upon by J. W. S. McArthur alone.

To Mr. O’Leary: The bank officials satisfied themselves of McArthur’s authority.

(Proceeding).