SIDELIGHTS OF THE DREDGING BOOM.

Lake County Press, Issue 977, 29 August 1901, Page 7

SIDELIGHTS OF THE DREDGING BOOM.

WELLINGTON, August 23. The following evidence has been given during the past week before the Mines Committee in»connection with the petition of Mr H. E. Easton for the setting up of a Royal Commission to inquire into the flotation and past management of certain mining companies named by him : Herbert Ernest Easton, examined on -oath, said : I am the petitioner. In view of the grave nature of the charges I am about to make in support of my petition I ask permission to read my statement, in order to avoid errors and facilitate business. Before giving you my reasons for the action 1 Have taken I wish to explain how I come to be mixed up in what appears one of the greatest scandals in mining history of modern times. Last year I landed in New Zealand from the Old Country, commissioned by some influential and - wealthy friends to look into the dredging industry, prepared to invest for them a large sum of money, not, I mav tell you, for mere speculative purposes, but for in- ' vestment. To satisfy myself that the claims were genuine, I inspected a large number of the properties quoted on the iitock Exchange lists, and to facilitate my business dealt with a Mr W. R. Cook, a man who I thought could be relied on, seeing that he had been engaged as a liquidator to several very large estates; and the fact of such appointment having been made by the Supreme Court of New Zealand appeared to me, though a newcomer, sufficient guarantee to warrant my having thorough confidence in him and in his advice. An incident occurred, however, which created a suspicion in my mind that all was not as it should be. lat once went from Wellington, where I was living, to Dunedin, and asked to look over the share registers, which showed a deplorable state of affairs, and I found myself face to face with what appeared to be serious irregularities, which tended, if unchecked, to bring ruin to a very large number of investors in this colony, and which seem to me to be in open defiance of the spirit of the laws of the. country which Parliament has placed on the Statute Book, this being done by clauses being altered or struck out when framing the articles of association, the effect being, I am told, to render the Act absolutely valueless as a safeguard. If this is so, it is a most serious state of affairs, and one which I fear, if action is not taken, will seriously retard investments in the colony, and ruin what should be (if carried out on honest lines in the spirit of the Companies Act of 1882) one of the most profitable and popular industries of New Zealand. The industry itself is, in my opinion, a good one; the Acts alluded to provide safeguards for investors, but these Acts are worthless if men who trade and make a living on the credulity of the public are to be allowed to draw up contracts and articles of association in direct contravention of the spirit of these Acts. Happily, though to some extent implicated myself, I was in time to prevent any of my' friends’ money being swallowed up in the maelstrom. I then set about to try to right matters, and that my action in exposing these irregularities is meeting with approval is evident by the number of letters I have received and am receiving from all classes in all parts of the colony. But I found my task much harder than I anticipated,' owing to my inability to fully ventilate the subject in the Press on account of the newspaper proprietors being in fear of libel actions. Hitherto the subject does not appear to have been prominently under the notice of members of Parliament, and as I did not feel inclined to submit to what I thought was a great wrongdoing I determined to take action alone, and now eome before you voicing the views of holder* of thousands of shares, many of whom are struggling men and women. Of the latter I can, if required, give you as an illustration—a most sad case. I respectfully' ask you to take the matter up, and afford such redress as is possible to those now suffering from the state of affairs existing. The irregularities complained of are as follow: (1) I find in many companies, especially in those floated by Messrs Cook and Gray, the articles of association are so drawn as to override what may be classed as the safety clauses of the Act under which they are framed, thereby allowing a few holders of shares to* obtain almost absolute control of the companies. (2) Large blocks or parcels of shares have been allotted to office clerks, who are evidently unable to meet the liabilities, as they have, up to the present, paid next to nothing on them. In one company floated by' Cook and G-ay one-seventh *of the contributing capital was allotted to an office clerk in the employ of Mr W. R. Cook, the promoter, vendor, broker, and director of the company (another clerk was secretary),* and the registered office of the company alluded to was in Mr Cook’s office. And yet Mr Cook has obtained brokerage on the said shares, taken from money paid in by genuine or qualified shareholders. (5) Offices of companies are being registered in the same offices as promoters, these promoters acting as promoters, vendors, and directors, and their employes as secretaries. (4) Brokers are receiving brokerage on shares upon which no money has been paid. (5) Share registers in some cases improperly kept. (6) Improper auditing. (7) Directors have struck calls and invoked the law against defaulting shareholders at a time when they (the directors) are owing very large sums on their own shares. ... (8) Directors passing transfers at a time when money is owing to the company by the seller. (9) Vendors making a profit on liquidation upon shares which have cost them nothing. (10) Directors receiving fees whilst almost entirely neglecting the business of the companies. (11) The formation of secret rings for speculative purposes only by promoters and directors at a time when the public were being asked to subscribe money to be used for mining purposes. (12) That out of twelve companies, with an aggregate capital of £IOO,OOO, floated by Messrs Cook and Grayeleven must, in my opinion, go into liquidation. But for the action taken by the holders of vendors’ shares many of these companies would have been wound up long ago. It may interest you to know, if you are not already aware of the fact, that the total capital of the Otago and West Coast gold dredging companies is roughly speaking two and a-half millions sterling. Gentlemen, what I have stated will give you | some of my reasons for placing my petir tion before' Parliament. During the past six months, through the kindness of many newspaper proprietors, I have published in the Press of this colony letters, all over my own name and address, calling attention to the deplorable state of affairs in connection with the management of the dredging industry, and making the charges just alluded to, none of which, I may tell you, have, up to the present, been repudiated. In order that the suspicion and reflection which exist at the present time on the commercial morality of the colony, to the detriment of what should be a sound and profitable industry, should be removed, on behalf of a very large number of investors, who are suffering without much hope of relief unless from Parliament, I would urge you, in the interests of tho mining industry, in the interest of the progress of this colony, to pass immediate legislation to prevent

this blot on the commercial morality existing any longer, and to appoint n Royal Commission to investigate the grave charges which have been made in the Press for some time past. That is my statement. Can you give us any particulars of tiie companies mentioned in the petition?— Yes. I have prospectuses of some of them with me; the others I can produce later on. I would like to make some remarks on these prospectuses. We will be pleased to hear you now. 1 would like to refer to the No Town No. 2 Company. I find that it was floated by Messrs Cook and Gray, that Mr W. R. Cook acted as vendor and as broker, the registered office of the company being at Cook and Gray’s office, 17 High street, Dunedin. The secretary of the company, Mr W. Hoisted, was an employe of Air Cook’s, and Mr Cook was until recently a director of the company. Mr Cook had profits as vendor, salary as secietary, commission as broker, and fees as director. The prospectus of this company contains a long report signed by Air Howard Jackson, C.K. On Mr J. Howard Jackson’s name appearing on this prospectus there was a great rush for shares, and they were quoted at several shillings premium. . . . He has also repudiated having signed such report in the public Press of the colony. Now, directly the public read Air Jackson’s repudiation, and knew of the deception that had been practised on them, the shares fell to a considerable discount, and have since been unsaleable. At the time when Air Cook and his employes were owing money cn their shares, —hundreds of pounds sterling —small shareholders were being sued lor their arrears.

Can you tell us anything about the Lees Ferry Company?— The Lees Ferry Company was registered on the 9th of April, 1900, under the Companies Act of 1882. Ihe capital (£8.000) was made up of 2,000 vendors’ shares, allotted as follows:—C. T. A. Broad 120. Mr J. GUI 200, Mr 0. Kaye 120, Mr J. Taylor 520. Mr W. R. Cook 1,040. The contributing shares, allotted as per share register, were 5,575, unallotted 625, making a total of 8,000 shares. I understand that Mr Cook was the purchaser of this claim, and also vendor to the company. It was stated on the prospectus that there was a deed of sale from Josenh Taylor to Mr Cook, based upon the contracts filed at the registrar’s office. The deed of sale from Mr Cook to the company is dated 9th March, 1900, while the articles of association are dated Ist March, 1900. The dates on these deeds have been altered, but the alterations have not been initialled. I find that some of the persons who signed those articles cf association did not pay for the shares they took on signing those articles of association, nor do their names appear on the share register of the company. In connection with this company I find' that the register has been improperly kept; in some cases the addresses of shareholders have not been entered, and pencil notes have been made directing that in the case of a Mr and Mrs Farley all notices of calls due from them were to be sent direct to Mr Cook. Mr Cook was a promoter of this company, he was a broker, he was a director, his nominee (Mr W. Hoisted) was the secretary, and the registered office of the company was in Mr Cook’s own office. The share register on the 31st July, 1901, states that no money had been paid on 250 shares, that allotment money was owing on 1,600 shares, and that Mr Cook's late partner (William Gray) owed allotments «n 500 shares. Now, on all these shares Mr Cook has received per cent, brokerage out of moneys paid in by the genuine and qualified shareholders. I find also that Mr Cook received twenty guineas for attending as director only one meeting during the first year of the company’s existence. The prospectus states that this company cannot fail to get large returns of gold, and recommends the property as a good and safe investment for capital. This claim was tested at the expense of the qualified contributing shareholders by his (Mr Cook’s) own employe (Mr Chester), as a mining expert, and was condemned by him as absolutely valueless. After the report of Mr Chester, Mr Cook allowed another of his nominees. Mr Howes, on the 26th March, 1901, to use his (Mr Cook’s) proxy, and vote against the liquidation of Ihe company. After the investigations made in March, 1901, by the special Committee deputed by the Dunedin Stock Exchange, of which report you have heard, this company was immediately removed from the lists and quotations of the Exchange. Upon Mr Cook’s resignation from the Board I was selected in his place on 11th March, 1901. His employe, hoisted, then issued a notice for the first annual meeting, in which two out of the three directors were made to retire instead of one. On March 26, 1901, when the annual meeting came on, his other employe, Howes, nominated himself as director, and by using his employer's (Cook’s) proxies secured the seat on the Board and removed me. I went with my solicitor to inspect the deed of sale, which the prospectus stated could be inspected at the office of the interim secretary. Mr Hoisted said it was not in the registered office of the company, and gave a. written order to the company's solicitor to produce the document. This the solicitor declined to do. I find that in June last Mr Cook’s late partner, William Gray, and other large shareholders gave evidence on oath, in de fending payment in respect of shares, to the effect tliat Mr Cook, assured them that the liability of the shareholders in this company was only one shilling per share, and that Mr Cook had stated that this and other companies were entirely under his own control —that he had arranged for the other directors to be his nominees. AMr R. H. Abbott stated in sworn evidence that Mr Cook promised him, if a market existed for the shares, he would sell sufficient of the shares that Mr Abbott applied for to make the balance fully paid-up. At the last meeting of this company Mr Cook’s nominee and employe, Howes, stated that if a resolution to liquidate was carried the liquidation might be very expensive to the shareholders, as his employer, Mr Cook, might claim to receive a dividend from tlie contributing shareholders on his vendor’s shares. Questioned as to the Auckland Beach Back Lead Gold Dredghm Company, Limited, the witness said ; It was registered in August. 1900, the promoters being Messrs Cook and ,>ray, the interim secretary Mr W. R. Cook, the vendor to the company Mr W. R. Cook, and the capital £9,000 —2,500 fully paid-up shares being allotted to vendor as part payment, also £SOO in cash to the vendor, and the cost of flotation and registration. The prospectus states : “ Will yield excellent returns.” After two shillings per share had been paid by the contributing shareholders the claim was condemned by Mr Cook’s own employe and expert (Mr Chester) as valueless. This company was liquidated some months ago. but up to the present time no statement of accounts has been rendered.

As to the Tucker Flat Company, the witness said: Up to February 28 last £479 4s 9d of the shareholders’ money had been spent, and no attempt made to either lesign a dredge or build the pontoons. On July 15 an extract from the share register states that. £l2 10s was due on application money. £9O on allotment money, and £856 owing on the first and second calls. Included in these sums was £SO owing fiy Air Cook’s wife and £9O by Air W. K. Cook ; that was on the 15th July of this year, and at that date no dredge had been

ordered or contracts made. I find that the share register has been improperly kept, the shareholders’ addresses not given, and pencil notes directing, in some cases, ail notices of calls to be sent to .Mr Cook. 1 find, also, that certain shareholders have stated in sworn evidence that Mr Cook promised that only one shilling per share should be called up, and that his co - directors should be his nominees. During the time that I was a director I decked to pass a transfer of 250 shares which Mr Cook had by a bill taken over from a Mr L. S. Benjamin. On my removal from this Board this transfer was put through by Mr Howes, Mr Cook’s employe and nominee, who had got on the Board, and who is now, as I have stated, chairman of the company. He passed the transfer with £25 owing. On the 15th July, 1901, Mr Cook's bill to Mr Benjamin was dishonored. For what purpose, other than the promoter's benefit, is this company existing? The witness next referred at length to the Ross Day Dawn Gold Dredging Company, the circumstances in connection with which, he said, were much on the same lines. He alleged that at the time when very large sums were owing to the company by Mr Cook and his emploves, Mace and* Howes, otner smaller shareholders were being summoned and >. threatened with distress warrants.

With regard to the Ngahere Company, the witness alleged that Air Cook’s employe and clerk, Edward Mace, held no less than one thousand contributing shares, and up to the time that he (Easton) left Dunedin only £SO in respect of these shares, out of £IOO due, had been paid; and yet on the balance of those shares Alessrs Cook and Gray received 2£ percent. brokerage from the genuine or qualified shareholders. As to the Wicklow Company, registered on Alarch 3, 1900, the witness stated that on July 27 of this vear application money was owing on 250 shares, allotment money on 1,250 shares, and on all these shares Cook and Gray had received 2i per cent, brokerage from the moneys paid in by the qualified shareholders. Air Cook, who was elected a director on April 9, 1900, received twenty guineas for attending one directors’ meeting only during the year. Air Easton added ; I may mention, gentlemen, that I joined the Boards of these four companies for the express purpose of breaking up these rings of monopolists; and I had no other object, as I have stated over my name and address through the papers of the colony, than to smash the companies up and break up these rings of monopolists. Air W. R. Cook’s evidence was to the effect that grave charges had been made, and he wished an opportunity to look into them, in order to see how far they were true, though he knew a very great deal of what had been said was absolutely untrue. He would like to get all the documentary evidence for the Committee’s information. He had not been in Dunedin for more than three weeks during the past eighteen months. With a view of refuting or supporting Air Easton’s evidence he asked the Committee to order the production of the companies’ books and to summon the secretaries and directors. The witness then proceeded to make a statement, reserving the right to examine Mr Easton subsequently. He declared (so it is understood) that he was never at any meeting when the shares in the Cook and Gray companies were allotted, and personally had nothing to do with the allotment. Pos-ibly he might have been at one meeting when the allotment occurred. As to the statement that of the twelve companies floated by Cook and Gray eleven would go into liquidation, he was prepared to say that five of them were paying. The articles of association were prepared by Air Allan Holmes, solicitor. In every one of the twelve companies he (Air Cook) field at least 500 contributing shares, and Airs Cook had a like number. All calls had been paid on them. The statement that his wife owed £SO on the shares in the Tucker Flat Company was a surprise to him. If there was such a liability it was one call of 2s per share. He paid up 20s in the £ on the Ross Day Dawn shares on Alay 2. He held 900 contributing shares, and had paid £9OO on them. On April 19, the date of his alleged liability, he had been away from Dunedin for some months. Airs Cook and himself had to date paid £6OO on contributing shares in the No Town No. 2 Company. Both Air Jackson and Air John Don had reported favorably as to the No Town claim. The adjoining mile of creek had been visited by Mr Cutten, whose report appeared in the prospectus. In regard to all the other companies Air Don was sent to prospect and report, half of them he condemned, the prospectus disclosing a favorable report as to others. His report was printed without comment, and companies were floated thereon. He (Air Cook) had never sold a vendor’s share, though several went up to a premium, and now stood to lose more than anyone connected with the companies in question. He ridiculed the statement as to the directors being his own nominees; the articles of association were signed by seven shareholders, who nominated and elected the directors during his absence from Dunedin. After being elected a director on most of the companies he was asked to look after their interests on the West Coast. He did not know that his fees had been paid—they were paid into the office, and receipts given by the clerks. His services, for which the directors had made him an allowance, were inspecting matters on the Coast. Air Gray’s evidence about misrepresentation was probably the outcome of pique—a forced dissolution. When this evidence was given in court the magistrate declined to hear the witness, holding that there was no mi-representation. The Dunedin Stock Exchange meeting was a one-sided affair. The Auckland Beach Back Lead Company went into liquidation before shares were allotted, owing to Chester’s report. Airs Cook and himself each held 500 shares in that company, but they never had a vendor’s share. To that company he paid £SO in calls, and Mrs Cook paid £SO. There were not more than 600 shares sold outside of Hokitika—tho Hokitika people, Airs Cook, and witness bought the lot. Witness proceeded : What Air Easton had said about himself coming out here to look into dredging was absolutely untrue. On this point the witness said that he came out here on family affairs. I may say that he is, unfortunately, a connection of mine by marriage. He came to me and thrust himself upon me. saying that he wanted to go into the dredging industry, and asking me to advise him. This I refused to do, but after some pressure he went to the Coast, saw the claims there, and wanted me to sell him an interest in the companies —the Tucker Flat Company and others. 1 declined to do so, but told him that I knew a man who was carrying more shares than he wanted, and I would try to get these from him at par. Air Easton said : “If I can get in, and the Grey River turns up trumps, the others will jump.” The Grey River claim did not turn up trumps, as we anticipated, and Air Easton was left with his shares, the same as other people. No money has been spent in building dredges for any of the companies, and if they are wound up we shall lose our 2s a share, or something like that. Any misrepresentation on my part, or any malpractices in any respect whatever, I deny. There may have been mistakes made, the same as in everything else, but to all of

these charges I am sure that I can give a good reply. The witness denied that ttie auditors were ever employed at his office. The existing companies, whose legal office was at his place, were working satisfactorily. the shares were generally at premiums. and dividends were being paid. He urged that documentary evidence should i be ordered to be produced, and that Alessrs Howes and Hoisted and Air Allan Holmes be called. Were that done, he ventured to say that the whole aspect of these very grave charges which had been made against him would be altered. In answer to members of the Committee, Air Cook explained that he paid Air Howard Jackson £SO for his report on the No Town claim. Air Don- also reported ; both being favorable reports. There was no misrepresentation concerning the adjoining mile (which was to have been floated), as the prospectus would show. No one had voted I without paying the application money. During his absence the office was managed by ! Air Hoisted, the secretary to the Cook and Gray group. If a misrepresentation had been made by another man he objected to being saddled with the responsibility, though he was liable for any pecuniary loss. A slump had been struck, a lot of people were disappointed, and to get out of their liabilities they were making misstatements and distorting tho facts. Cook and Gray had floated some tiften or sixteen companies in all. Dredges Ijad been built for five of the companies, and were now working. Four more were being built. The Dobson No. 2 was an unfortunate claim, the dredge having been built with a short ladder. The various companies resolved that thev would not build a dredge until they saw how the Grey River dredge worked, thus getting the benefit of their experience. The dredge did not start working till September or October. Then Air Easton started his agitation, and the whole thing had been hung up since. If the companies went into liquidation, or were not successful, he stood to lose double as much as any other man in the place. He bad not dealt with any of his shares, either contributing or vendors'. Asked for an explanation of the serious allegations regarding brokerage charges, the witness said : We got 2j per cent, brokerage on the contributing shares—that is what everybody got, with the exception of those whogot an over-riding commission of Ij, per cent, and 2£ per cent., which most of the brokers did in Dunedin. If any brokerage was paid on shares that had not been paid for the auditor should have called attention to it. The onlv matter bearing on the point known to hjm—speaking from memory —was in the case of the Ngahere Company. He got a letter from the liquidator, addressed to Cook and Gray, asking for a refund of £5, being the application money on 100 shares not paid by a shareholder who had nothing at all to do with Cook and Gray. No brokerage was allowed on vendors’ shares, only on the contributing shares.

Further questioned, Air Cook said that he had taken the option of some of the claims from the people on the West Coast for the vendor, and acted as broker and a director. The shareholders appointed the directors, and the latter , made No. 17 High street, Dunedin, the office of the company. He did not know that there was anything wrong in a firm floating a company and acting as he had done Those of his employes who held shares in the companies mentioned did so as a private speculation, and not on his behalf to influence votes in his favor. The statement that any man ever held a share in trust for him was absolutely incorrect. Air Alace would get assistance and be able to pay his calls. Asked whether, in saying he. stood to lose double as much as anyone else, he had taken into consideration the moneys he received for the sale of claims to the companies, Air Cook replied that he never got a shilling in that way—none at all. Where there had been cash paid it had been paid to the original owners. He never had a shilling from any company that he floated. If any of tho companies went into liquidation he could not claim a penny as vendor. He could not understand how the auditor missed charging the brokerage back.

After the witness had concluded his evidence, Air Easton asked leave to repudiate Air Cook's statement that he was either a connection or a relation of his. He stated that he landed in the colony on January 17, 1900. and until April 23 following had never heard of that gentleman. What induced him to believe that Mr Cook was a man t( be trusted was the fact that he had been appointed by the Supreme Court as liquidator of several large estates.