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Gisborne Times, Volume LXXXIV, Issue 12903, 2 July 1936, Page 2

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CHARGES AGAINST MCARTHUR COMMENCE. INVESTMENT EXECUTIVE TRUST OF NEW ZEALAND, LTD. ALLEGED* FALSE REPORTS AND PROSPECTUSES. FOUR INFORMATIONS. ONLY ONE COM 1 MENCED. (Press Association). : WELLINGTON, July 1. ( The charges against C, W. S.. AlcArtliur were ' proceeded with to-day. The charges against the accused were as .follows: That oil April 8, 1933, at Wellington, being a director of a company called the Investment Executive Trust o‘ : New Zealand, Ltd., he published a. false prospectus inviting the public te subscribe to a second series of debentures. That on March 16, 1933, at Wellington, ho published a false report to dobenture-holders of the company. That on March 20, 1934, hoi pit hlished a false report to dobentureliolders. That on April 3, 1934, at Wellington, lie issued a false, prospectus of the same company, inviting the public to subscribe to a second series «.f debentures. * It is understood that the Crown proposes calling 12 witnesses, and it i.> expected that the hearing will occupy several days. .

Air E. D. Mosley, S.AL,.was on the bench. The prosecution was conducted by Mr Q. Evans-Scott, and the defence was in the hands of Air H. T'. O’Leary, K.C., with him Air R. Iff. Tripe. Air. Evans-Scott suggested that if the magistrate approved, the ‘ four charges could, very conveniently be taken together. Atr O’Leary at once objected to this course.

Air Evans-Scott expressed surprise, saying that the charges were very closely connected, and the evidence iu respect of each would be identical, except iu one small particular. If the charges were not taken together, : t meant that evidence that took two days to hear would have to be taken four times.

The magistrate remarked that lie was entirely in’ the hands of counsel iit these matters. In justice to the accused, if counsel raised the slightest objection he must uphold it, even if the case took a month.

Air O’Leary said he wanted to assure Air Evans-Scott that he did not raise the objection for the purpose of obstruction, but in the interests of his client. It need not necessarily follow that four sets of evidence would have to he taken. To start with, at any rate, ho asked that one information bo taken.

The magistrate indicated this was also his feeling. Then, if counsel consented, the other three probably could be taken together. It would be easier for him to confine bis. attention merely to one information, and, personally, ho would prefer counsel to take that course. All witnesses whose evidence might be subject to the test credibility were ordered to remain out of, court. Ale Arthur was allowed* to leave the dock and sit beside his counsel. SECOND CHARGE TAKEN FIRST. It was agreed to take the second charge first. Mr. Evans-Scott did not address the court on the facts, but said the evidence he proposed calling would prove, among other things, first of ail the publication of the report; secondly, the responsibility of the- accused for that publication; thirdly, that the statements in that reports were false; fourthly, that the accused knew’ they were false; fifthly, intent to • deceive or defraud debenture-hold-er.s; sixthly, that the accused hail a motive to deceive them; and., seven Hi ]v, the nature of investments in associated companies which were concealed.

* In order to assist the court, Mi*. Evans-Scotf, he had prepared a diagram showing' in perspective the tiansactions with associated companies up to February 28, 1934. The evidence, he said, coukl establish the various payments and transfers shown in the diagram, copies of which were supplied to the magistrate and Mr O’Leary. CAPITAL OF COMPANY. The first witness was John Henry McKay, assistant registrar of companies at Wellington, who produced documents relating to the Investment Executive Trust, showing its incorporation in 1929 'with a capital of £IO,OOO, a resolution of February 2, 19(13, increasing the capital to £109.000, divided into, 250,000' 2s • shares and 75,000 shares of £1 each, an issue of debentures dated May 9, 1931, and May 11, 1931, and the original filed .copies, of the prospectuses, issued by the company, the first of which was dated March 12, 1931. Mr. O’Leary objected to flip production of tho later documents, submitting that any subsequent to the date of the charge, March 13, 1933, were irrelevant. . y Mr; Evans-Scott' agreed, bu,t explained that ho intended to put all .the' documents in for convenience in marking the exhibit. The witness accordingly produced only a copy, of'tho. first prospectus and 'also the certificate of incqrpbnitiori o,f Sterling Irivestmeriis.. ...Z.V, Limited, incorporated on October 14, 1930, and a memorandum of satisfaction of the .last series 'of dolnjntufos. issued by that company. and dated February 2S,- 1934. lie produced the,,certificate, of Incorporation; of the Stock Exchange Corporation (N.Z.) V Liinied, dated November 2, 1921, the original capital being £lO,000. The name Avas charged to t,he .'British National, luvestinpht Trust, 1 Limit,ud, dated December. : i), 1932. .On .October 20, 1932, the capital was iricerased tb . £10,0,000 ; • at 150,000 10s Aharcs 'arid 250,000 2s »:*;■ V. 'A; ;■ .Vs;,',':* U ' v ". .

fIi'GISTR ATI ON OF .( ; DEBENTURES. \ J ■ - ■ : ' ~' The witness produced, the certificate nf incorporation of Wynivood Invest*

orients, Limited, August 6,, 1930,; the capital originally being £IQO, and increased'on April 11, 193&}, to £IIXIO. and -oris- Octpbter 26; (1933, to £IO,OOO, H,o produced a list of shareholders in that company. They* were Stanley Grange, 100; J. W. S. Ale Arthur, 9.900. Ho’ produced tile registration of a series. ol'.lOO £IOOO debentures by AVynwood Investments, dated December 11, 1933. - Air. O’Leary objected to tins subsequent date. , • Air. Mosley said he would take the evidence and- .note, the objection. The. witness produced the certificate of incorporation of the Pacific Exploration Company,; Limited, dated Alay •3, 1922, and said .that as, .far as the records showed, no debentures hail evejr been registered against the assets of the company, its capital was originally £IO,OOO. OBJECTION TO- EVIDENCE NOTED., Madge Gregory, a typist in the public Trust* Office, previously employ ed by Ale Arthur as a stenographer, said she did secretarial duties for him. When Air. Evans-Scott proceeded to ask in connection’ with the ineorpora'tion of the Investment Executive ■ Trust what procedure was followed to get into touch with .prospective subscribers, Air. O’Leary objected that the evidence as-not relevant. Air. Evans-Scott submitted that it was necessary to know, the 'class , ;pi investor and the manner of approach to them. He said lie would- call some of the debenture holders. Air. O’Leary; 1 will object t.o their evidence also..

Air. Alosley said he would allow the evidence' to .go in, but would note th - obj action. If might be that considering the question later on ho would have to eliminate altogether the evidence objected to, when he. got the gist of the case. “At present I don’t know much about it; I don’t know anything about it, as a matter of fact.”

/‘INCREASING YOUR INCOME.” Replying to the question ms to the method of approaching prospective subscribers, the witness said that lists of shareholders in the various companies were taken from the Stamp Duties Department and a card index was kept. She saw communications sent to some of these sharchold ers. They consisted of certain literature sent to a selected list of shareholders. Mr. Mosley: Quite a usual wav ot doing things. Mr. Evans-Scetl; In a certain class of companies, yes. The witness said a pamphlet called “Increasing Your Income,” was typed by her in draft form at the dictation of MsArthur. A booklet entitled, “Increasing Investments,” was partly typed by her, also at McArthur’s dictation. Witness remembered Mclnnes and Company being appointed brokers for the Investment Trust and. they continued till she left the company, about August, tQ34. She typed drafts of all reports sent to debenture holders by the Investment Trust. The report dated March 16. 1933, was one of them .She did it at McArthur’s dictation. The .witness identified .McArthur’s signature on au agreement of Fcbru. ary 28, 1931, appointing him managing director of the Investment Execu tiye> Trust, and on a letter dated September 25, 1931, from the, accused to Mr .V. R. Meredith, Crown Solicitor at Auckland. ill-. O’Leary objected, and the objection was noted. Further evidence on the same lines was : similarly objected to, the witness identifying the signature on various transfers of shares. “BETTER LAWYER THAN 1 AM.” In the coiinto of cross-examination witness said that whether the, 193 T prospectus was finally settled by the solicitors to the company she did not know. She said the. draft was. finally approved ,by McArthur before going to tile- printers. Certain statutory information in it was not settled by the solicitors to ,the company, because it was dictated to her by McArthur. Mr. o,’Leary : Do you mean that he would call you in and dictate to you the whole of the prospectus? The witness: Yes. Mr. O’Leary: Well, lie is a better lawyer than I am. INVESTOR’S EX PRETENCE. William Edwin Redstone, of AVe!iiugton, retried insurance agent, said that during April, 1932, lie received a call from, a- Mr. Arthur .Dunn, who showed him a prospectus which was .the first relating to the Investment Executive Trust. He also showed him a list containing names of various companies, including. Imperial Chemicals Ltd. That list was supposed to Represent investments by the inve'stm,ent Executive Trust. On April, 27, 1932, lie invested in. the debentures of the company. Before ho took the investments, lie read, parts of the ■ prospectus. The part that interested him was that not mb,A’©, tluip -10 per .cent., of the total debentures could be invested in any one security. He also read some of the literature in other documents he received. It - seemed to him to he a very good and • safe investment, because the investments were so well distributed oyer so many securities. Ho invested further sums at latnr, dates. He remembered in November that lie received what was described as a con- , fidential lettbr from the managing director of the Investment Executive Trust. The original of the letter had been mislaid, but lie had a copy ol it. Witness s,tijd lie received various reports from the company from time to time. ; • Mr. Evans Scott asked witness what tie Would have; done had lie. known that approximately one-third of' the capital of -the company at December 31, 1932, was invested in 'two. subsidiary, companies. Witness said ho Avould have made strong endeavours to. get liis money baclv -a;.. Mr. O’Leary objected to' the question, and after argument the Magistrate said .he would, allow tlie question, hut would note the objection. Cross-examined by Mr. O’Leary, witness Said ho had received dividends

on his debentures at the rate of 9 per cent down to,, he thought, G.J- per icenet. Those payments had been made regularly up to the time the legislature stepped in. Ho had followed the newspaper reports of tlie sittings of the commission held in Sydney, and lib understood from those that the prospects of his getting his ,"money back depended a good deal outlie value of the Trust Building in Sidney. Ho did liot know that Mr. Robert Hill, a chartered accountant assisting the commisison had worked out that if the building was valued at £400,000, the debenture holders would get back 19s 5d in, the £l.

SALESMAN PERTURBED BY RUMOURS. Harry Edwin Dowdy, public accountant, of Wellington, said lie was approached by a man named Hollard, a, salesman for Mclnnes and Co., selling agents for Investment Executive Trust. Certain documents, witness continued, had been given him, and as a - result of these and the inquiries he made, he made a substantial investment in the Investmenet Executive Trust debentures. AATiat appealed; to him in . the documents were the expert management and the spreading of the risk. In January, 1933, ho was appointed one of the selling agents of Mclnnes and Co., Auckland, who supplied him with copies of the first prospectus reports to debenture holders up to date, and other documents. Early in October, 1933, he saw accused in Auckland. ■ Witness had become perturbed by rumours in Wellington. In Auckland'ho saw an auditor and then Ale Arthur. >J

INVESTMENT IN SUBSI? ARY COMPANIES DENIED.

AVitness, continuing, said that when lie saw McArthur lie said it was rumoured in AVellington that tlie Trust had invested in some of tlie subsidiary companies, naming Rodwood Forests. Selw.vn Timber Gom- : paiiy, and AVynsel Timber Co. by way of debentures, and lie asked McArthur if that was so. McArthur said “No.” AATtness said: “If yon haven’t invested by way of debentures, are there investments by way of shares or other holders?” McArthur said “No.” AVitness 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 tlie Investments Trust had in companies of which a director of the trust was an attorney. His question was as to how much was in subsidiary companies. \\ 7 hen the. Companies Special Investigations Act 1934 came into force he ceased to act a> a salesman. Had he known that approximately one-third of the total debenturne capital of the Investment Executive Trust was invested in two subsidiary companies, he would not have made, his original investment, or recommended anybody else to invest. Mr. O’Leary objected. As regards the investment- already .taken by him, witness continued, he diu not know what ho could have done except perhaps to sell them at the best possible price. Air. Alosley: “I can tell you what you could have done. Y 7 ou should have consulted the best possible legal talent in AA r clliiigton and acted accordingly.” EVIDENCE BY ACCOUNTANTS. Arthur Eric John Andeerson, ac- : countant at the Public Trust Office, AVellington, produced a statement prepared from the examination of the books of account of the Investment Exiecutive Trust and gave lengthy evidence. Cross-examined by Air. O’Leary, witness said the Trust Building had been put tip for sale by the Public Trustee in Sydney, acting in a similar capacity to the Public Trustee ill New Zealand. Air. O’Leary: “Do you know that an ol der' was made restraining the Public Trustee in Sydney from going ahead with the salo of the building?” --“No, I think there was an application for one, but 1 don’t know whether. it was granted,” Air. Evans Scott: “The sale went on and the order could not have been granted.” Air. O’Leary: “Alv instructions are that tho order was granted and that the sale did not go on.” John Leslie Griffin, accountant, «.f Wellington, said that by warrant rf tho Governor-General dated August 8 1934, and issued under the Companies (Special Investigation) Act 1934 ho was appointed one of four inspectors to investigate the affairs of certain companies. During his investigation', ho inspected the books o! account and other records of the Investment Executive Trust, Sterling Investments Co.' (N.Z.) Ltd.. British National Investment Trust Ltd., and 'British National Trust Ltd., except that lie did not necessarily inspect all tho hooks and all the records of all those companies. As a result of lus •investigations, lie found that the “Daily Telegraph” building was purchased on November 1, 1932 by the British National Investment Trust and that the purchase price was £IOO,OOO. The sale was completed in December of that year. The whole £IOO,OOO was paid in cash. The British National Investment Trust obtained £50,000 in cash from the Investment Executive Trust and raised ■ £50,000 oil mortgage. He gave derails of the allotment of' shares and the part played in the purchase and transfer of the shares and debentures between, accused, the British National Investment Trust and the British (National Trust. At the conclusion of the crossexamination of witness by Mr. O’Leary, the court adjourned till next iday. ', Yv JaYY'v ,(jly