MCARTHUR TRIAL

Greymouth Evening Star, 8 August 1936, Page 2

MCARTHUR TRIAL

z evidence by accused

DEALINGS OUTLINED

[per press association.]

WELLINGTON, August 7. The hearing of the six charges against John William Shaw McArthui was continued in the Supreme Court | this morning before the acting-Chief Justice (Hon. Sir John Reed). , Mr. V. R. Meredith, Crown Prosecutor at Auckland, and Mr. C. P. Evans-1 Scott are appearing for the Crown. Mr. H. F. O’Leary, K.C., with Mr. R. E. Tripe, appears for McArthur. Dr. F. Louat. of the New South Wales Bar, is assisting the defence. The last witness for the Crown was Kenneth Curtis Aekins, an Auckland solicitor, who acted for the Sterling Investments Company, and was its chairman of directors. He stated he knew nothing of the transfer of a large number of assets from the Sterling Company to the Wynwood Company and accused. Mr. O’Leary: The fact seems to be that you took no interest in or concern with this company at all? Witness: I’m afraid I did not. You were really more in it for the legal work than for anything else? —

That i» so. I was not being paid as a director. . You have given similar evidence to this on three charges of theft laid against McArthur in respect of Your company’s transactions? —That is quite correct. And you were in the court when the magistrate dismissed those charges?— I was not actually in the court, but I know the charges were dismissed. Opening for the defence, Mr. O’Leary said the Crown complicated the issue by bringing forward a mass of details resulting from investigations of various McArthur companies and by giving evidence of transactions connected with what he termed interlocking companies. The issue in the case was a. comparatively simple one, and it was unnecessary to clog it with the mass of details that the jury had heard. The acting-Chief Justice said it might be as 55’611 to say that he would tell the jury that the Crown was en-

titled to go into tnese nianeis iv nuuw svhat the intentions of accused were. Mr. O’Leary said he undersood that svas his Honor’s view, but he still submitted that he was entitled to place the view he had before the jury. His Honor replied that he thought it just as 55’e1l to tell Mr. O’Leary that he did not agree with him. “My Submission is that all this detail is brought fomvard to cloud the issue,” Mr. O’Leary continued, “and to get the jury into this frame of mind, ‘Oh, look at all these dealings; look at the speculation; look at the transfers: look at the money going out and the money coming in; there must have been something svrong.’ This is not the basis on which this case has to be decided. The charges against McArthur are these in general terms: that he made certain statements in reports and prospectuses which are alleged to be false, and that in these same documents he omitted to make certain statements which made the documents false. You will see that is a rather extraordinary charge.” The chief yvitness to be called would be McArthur, Mr. O’Leary said, and he svas entitled to say that the business of McArthur and the business of the McArthur companies had been during the last two years a matter of public property and notoriety. No transaction svhich had culminated in a criminal charge had received so much publicity as had the McArthur transactions and the McArthur investigation. One effect of it had been to make McArthur almost a public figure whose every ivord and every act had been reported, chronicled, commented on, and criticised in the Press throughout Australia and Nesv Zealand.

EVIDENCE FOR DEFENCE. Frank Louat, doctor of laws, practising at the Nesv South Wales Bar, was the first witness for the defence. He said he svas engaged as counsel for McArthur’s companies at the Sydney Royal Commission. He had given close attention to the diagram exhibited in court, and he considered it not to be fair and accurate. Dr. Louat left the witness-box and went to the diagram where he made his explanation. He said the diagram concealed a number of material facts and it was inaccurate in what it said. He proceeded to explain his contentions in detail. Mr. Meredith raised the question of whether witness was giving evidence or giving opinions on previous evidence.

His Honor remarked that witness was practically acting as counsel. Mr. O’Leary replied that the witness was open to cross-examination. That was the difference between him and counsel. The plan had been put in by the Crown before any proof was offered. His Honor: I told the jury to disregard the figures on it until they were proved. Mr. O’Leary: Can’t your Honor tell the jury that in this case? Counsel explained that witness was called in to give evidence before McArthur was, because the former was leaving for Sydney to-day. His Honor said that what witness was saying was not regular evidence. He did not want to balk the defence in any way, but he thought that what witness was doing was hardly admissible because there would be difficulty in cross-examining him. Mr. O’Leary said Crown witnesses had given similar evidence and he had cross-examined them, to which his Honor replied that they had had the use of the documents in the case. Mr. O’Leary said Dr. Louat had seen most of the documents. Mr. Meredit: Can you tell us where the books of the Sterling Company are? Witness: No. Did you ever see them in Sydney! No. They would be the key to the position, would they not?—You mean the old Sterling books? The old Sterling books—would not they provide the key to the questions of where the money came from and where it went to?—For some periods they would be of great assistance. McARTHUR IN BOX. McArthur, giving evidence, said that at the time the Acts of Parliament were passed stopping the company’s activities, about £415,000 in securities and money had been subscribed by the public, and the value of assets over which money was secured was £490,000. Without taking into consideration any increase in the value of assets, the appreciation was £35,000. To the time his operations had stopped, the debenture holders had received a total of 26 per cent, interest, spread over three years. In June, 1933, there was a conversion. The debenture hold-

ers in the first series sold their debentures to a shareholders’ trust, the J egal medium for conversion, and svith the proceeds they subscribed for the second series of debentures. That would mean a single amount of capital actually subscribed, though legally there were cash payments in each case. At the time of the legislation the investors were fully protected /’ y there were big prospects for farther remunerative business ahead of the company. The plan was amalgamate the Nesv Zealand and the Australian Trust Companies Their total debenture issues svere £0,000,000. At the time the business was smashed by the Government they were negotiating three important deals, ivhich ivould have meant an added profit °t n f ar * y £250,000 to the debenture holdeis of

these tivo companies. The value of a £1 debenture to-day would have been from 25/- to 30/-. . On the purchase and sale oi jne •■Daily Telegraph” building it was not true that he had made a profit of £287,000, continued accused. His pei-

sonal pront was xou.vw. - of income tax involving about £96,000 to be paid if the deal had been conducted by the trust prompted him to act the way he did m regaid to the building. He considered that he quite legallv and properly saved that income’tax, and he took that into consideration in taking his profit from the deal. The balance of the profit of £•-’7O 000 went to the shareholders account in the Investment Executive Trust and the Southern British Nation al Trust for the benefit of debenture holders. The greater proportion had already been transferred to the latter to meet establishment costs when the business tvas stopped. His position today was that he had nothing except ordinary shares in the McArthur Trust Company, ivhich he formed in Queensland to take over the Investment Executive Trust and the Southern British National Trust i]ebentuies to recoup if possible some of the loss due to the action of the Government in

“butchering” the business. His Honor: We don’t want to introduce politics into this case. Mr. O’Leary (to accused): You mean legislation? . McArthur: It was legislation designed to butcher our business. His Honor said he thought that required a protest. It appeared to him that the Governments here and in Australia could see that the public were being invited to surrender their perfectly good securities to take up shares in a company rightly or wrongly out for profit. Upon that the Governments here and in Australia acted. ihmiPht the less the court heard

about Governments “butchering business” the better. . McArthur: I maintain, with all due respect to Your Honor, that that was a subterfuge. McArthur said he took no responsibility for the loss personally. When the legislation was passed,. 37 policemen syere put into the building and all the books, documents, and letters of all the correspondence were thrown into a heap in one room. From that heap he and his associates had to spend several days in rearranging thebooks and documents svhich svere then in the possession of the police. They never came back into his (McArthur s) possession. From then on he had access, but Government officers had preference, and he had to ask them. The Wynwood Company had nothing to do with the trust companies. Its assets svere portion of those he took over from Sterling, and were chiefly originally his own assets, and he held practically the svhole of the shares and debentures. All the papers of that company svere taken with the rest.

STUDYING PRINCIPLE Before the creation of the Investment Executive Trust, said svitness, he s\’as in the Neiv Zealand timber business for 22 years. He svas originally a clerk in a timber office. In 1926 he registered the Investment Executive Trust, having particularly studied that type of operation in England and th United States. The principle he adopted vzas to issue first mortgage debentures over investments. The difference between those debentures and the usual ivas that the one he designed gave the investor 95 per cent, of the total profits, and 5 per cent, to the shareholders. The usual method was to give debentures a fixed losv rate of interest svith shareholders taking the balance of the profit. The trust actually commenced business in April, 1931. He was first apprised of the present charges when he svas arrested in Sydney in October of last year. He had been attending meetings of the commission throughout and there v/as no suggestion of a charge. He kneiv of allegations of falsity against him and he said that the charges svere entirely unfounded. His positive statements in the reports and prospectuses svere correct. He believed in diversification and svas carrying it out, but ivas not permitted to get to the stage ivhere he could absolutely carry it into effect. The business ivas destroyed when it was not one-fifth of the way through. For investment the trust took either cash or scrip for debentures, and immediately the scrip was taken over it became an investment of the company. Those investments were not always retained but in some cases they ivere sold to purchase other investments, usually at a profit. A large drop in the holdings toivards the end of his period of activity ivas explained by the fact that for six months or more before the Syduej’ Commission there ivas a fairly heavy expenditure on the building, and in addition there was a very heavy claim made by the Guardian Trust in connection with the transaction involving Miss Smith. To meet the claim and the cost of improvements to the building it was necessary to sell a portion of the investments. The amount returned to the Guardian Trust on behalf of Miss Smith was about £39,000 in cash and securities. The charges against him were entirely unfounded and baseless, said McArthur. He was not permitted to get to the stage when he could absolutely carry out his policy. In fact, his business was destroyed when he'was not one-fifth through the programme or plan made for investing. Thelnvestment Executive Trust made a profit of £7OOO on its £50,000 loan to Sterling Investments. He knew no more than anyone else of the whereabouts of the Sterling Investments books. It would be to his advantage if they were available.

VARIOUS NEGOTIATIONS Part of the plan was to take over the Primary Producers Bank, in liquidation, and revive it. The whole of the ground floor of the “Daily graph” building had been set apart for this purpose. Because of legislation, this phrt of the plan went by the board, said McArthur. An investment company subsequently bought the bank’s assets. He was also negotiating for the exchange of shares in the Union Investment Company of Melbourne, with £200,000 assets, for debentures in the South British National Trust. Another part of the plan concerned the Transport Mutual and General Insurance Company. This was really a subsidiary company because

40 per cent, of the shares ivere held by the Trustees, Executors and Agency Company, of Dunedin, and were acquired by it by cash. The 'money came from the Investment Executive Trust in exchange for shares in the Transport Mutual. The Investment Executive Trust owned the whole of the shares in the Transport Mutual. It paid £3/15/ —slightly above market price—for 40 per cent, of the total holding of Trustees Executors. These were sold back by the Public Trustee in February, 1936, to the company s directors under a special act at slightly less. There was strong objection to the sale by Investment Executive Trust debenture-holders, whose bQnefits were affected by the realisation. All his plans ivere stopped by legislation. C. G. Alcorn and he svere the main ordinary shareholders in the British National Investment Trust, which bought, the “Daily Telegraph building for £lOO,OOO-£50,000 advanced by the Investment Execute Trust and the balance on mortgage. It

was a. forced sale and the purchase was a “snip.” Debenture-holders ol he Investment Executive Trust and the Southern British actually got the greatest benefit from the transaction. He considered the building £425,000. Stanton and Company, Sydney, valuers for 30 years, confirmed this. McArthur proceeded that the Stock Exchange circularised all company shareholders in Neii' Zealand—his interests actually reeeis’ed 26 circulars —to instruct shareholders not to transfer their shares to anyone toi those of any other concern. The circular offered free advice from the Stock Exchange if required. As one result he found his transfers refused by various companies. The Stock Exchange s journal'also' attacked him several itimes. , , T The hearing svill proceed on Monday.