Mill CHARGES

Nelson Evening Mail, Volume LXX, 2 July 1936, Page 10

Mill CHARGES

HEARING AT WELLINGTON CASE FOII THE PROSECUTION (United Press Association) WELLINGTON, Ist July. The charges against W. S. McArthur were continued this afternoon in the Magistrate's Court before Mr Mosley, S.M. The prosecution is being conducted by Mr C. Evans-Scott. The defence is in the hands of Mr 11. F. O’Leary, K.C., with him, Mr R. E. Gripe. The first, charge taken was that, of on or about 16th March, 1933, at Wellington, publishing a report in writing to the debenture-holders of the investment Executive Trust of New Zealand. Limited for the year ending 31st December, 1932, which report was false.

William Edwin Redstone, of Wellington, retired insurance agent, said that during April, 1932, he 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 the names of various companies, including Imperial Chemicals, Ltd. Tht list was supposed to represent investments by the Investment Executive Trust. Dunn handed him a document, “Increasing Your Income.”" On 27th April, 1932, he invested'in debentures of the company. He took investments in both classes, A and: B, up to a a total of £650. Before he took the investments he read parts of the prospectus. The part that interested him, was that not more than 10 per cent, of the total debenture capital could be invested in any one security. He also read some of the literature in other documents he received. It seemed to him to be a verygood and safe investment because the investments were so well distributed over so many securities. The following month he was again approached to take shares in the company, and he took 100 £1 shares. In October, 1932, he was approached to take further debentures in the company, and he took up £2OO worth of B debentures payable in terms. He remembered in November he received what was described as a confidential letter from the, managing director of the Investment Executive Trust. The original of the letter had been mislaid, but he had a copy of it. The copy (produced) was a true one of the letter he received. Having received that letter he decided to pay up the balance remaining on the debentures he took up in October. He also took further debentures on 23rd December, 1932. His total investment in the company was £I3BO and that was. subscribed partly in investments he held and partly-in cash. He had handed over to the company Bank of New Zealand shares, Wellington Building and Investment Company shares, and also some from the Wellington Mortgage and Deposit Co. These shares were taken over from him by the Investment and Executive Trust at the ruling market price. Witness said he received various reports from the company from time 1o 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 31st December. 1932, was invested in two subsitliary companies. Witness said he would have madestrong endeavours to get his money back.

Mr O’Leary objected to the question. He referred to section 257 of the Crimes Act, 1908, and submitted that the constituent' parts of the charge were: The issuing of a statement—the Court had to hold that the report was a statement —but, assuming that it was, in the second place it had to be shown that it was false, that the accused knew it was false, and that it was issued with intent to deceive or defraud the members of the community.' At the time Mr Redstone received the report he was a creditor of the company. As a debenture-holder that was.

Mr Evans-Seott: And a shareholder! Mr O'Leary: Yes, he was a creditor and a shareholder. He had already acquired these capacities and now he is asked whether if certain things that were In this report had this meaning would he away back twelve 1 months ago have gone into it. Mr Evans-Scott: That is not my question.

Mr O’Leary: If, on the other hand, it is an endeavour to get Mr Redstone to interpret this document, whether it is false or not, then it is submitted that- is not his province in this court. Apparently the outstanding thing in connection with a charge of this kind is that no one need actually be deceived at all. With intent to deceive, the section states. If the purpose is to get Mr Redstone to interpret the document, then I say it is usurping the functions of the tribunal that is dealing at the moment or which may eventually deal with the charge against Mr McArthur. The Magistrate: Do you contend that if evidence is brought showing that in consequence of that memoraftdum a person was deceived that if is'not relevant? '1

Mr O’Leary: Thkt is not the purpose of the present question. I submit. The foundation for such a question tins not been made. 1

The Magistrate said he thought Mr Evans-Scott’s question was permissible but he would note Mr O’Leary’s objection. VALUE OF TRUST BUILDING

Cross-examined by Mr O’Leary, witness said he had had long experience in business and in investing. He had received dividends on his debentures at the rate of 9 per cent, down, he thought to Cf per cent: Those payments had been made regularly up to the time the Legislature stepped in. He followed the newspaper reports of the sittings of the Commission held in Sydney and he understood from those that the prospects of his getting his money back depended a good deal oh the value of the Trust Building in Sydney, of which various estimates of the value had been given. The Commissioner had said something to the fleet that he thought £300,000 was too low and £400,000 too high. He did not know that Mr Robert Hill, a chartered accountant assisting the Commission, had Worked out that if the building was valued at £400,000 debenture holders would get back 19s 5d in the £.

Harry Edwin Dowdy, public accountant, of Wellington, said that in October, 1932,- he was approached by a Mr Hallard,-who was late director of Woolworths, Ltd. At the time he approached him Hallard was a salesman for Mclnnes and Co., the selling agents for Investment Executive Trust.

Witness at this stage said he would like to say that he was present on sub poena by the Crown.

Certain documents, witness continued, had been given to him and as a result of these and inquiries he made I he made a substantial investment in Investment Executive Trust debentures. What appealed to' him in the documents were expert management and the spreading of risk. He handed investments over to the company at the market price. With one exception the stocks he handed over were over par and all were now worth considerably more than what he had sold them for to Investment Executive Trust. Possibly he could get 8s in the £ for his Investment Executive Trust shares now. In January. 1933, he was appointed one of the selling agents of Mclnnes and Co., Auckland, who supJ plied him with copies of the first prosi pectus, reports to debenture holders |up to date, and documents “Increasing Your Income” and “Ensuring Investments,” which he distributed among the prospective investors in the company. The letter (produced) with the exception of the first page was handed to him by Mclnnes and Co. The remaining pages of that letter set forth the names of various companies in which the letter stated Investment Executive Trust had investments. He thought - the letter was dated probably shortly after the date

of his appointment by Mclnnes and Co. As for the companies set forth in the letter one could say that there were no better securities in'the world. He showed the list to prospective investors. The chief advertising propaganda put forward was spread of risk both geographically and industrially. By “industrially” he meant, not only over industrial stock but also over a wide range of sound securities. At that time he had no knowledge of the amounts Investment Executive Trust had invested in these companies. Witness sold approximately £30,000 in debentures and some of his sales were effected on the first prospectus. As a debenture holder he received the report dated 16th March, 1933, and also a copy of a booklet. He was given extra copies of these and they were used in assisting to sell debentures to prospective,investors., ACCUSED INTERVIEWED

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 Mr McArthur. \\hen he saw McArthur he said ■it was rumoured in Wellington that the Trust, had invested in some of the subsidiary companies, naming Redwood Forests, Selwyn Timber Co., 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 byway of shares or other holdings” McArthur said “no.” Witness insisted on getting a statement in writing to this effect, i He. also asked how much was actually invested in any ■ subs^,iar|'-icoife#j(^s. and was given a cent. was. He did Mot ask- wn|s:v|hvestments the Trust'had 'in’ companies of which a director of the Tni§|?was j attorney. His question much was in subsidiary; . compknies. When the Companies Special investigations Act, 1934, came into’Ybrce he ceased to act as a salesman. .• He remembered seeing an article in “Accountancy, Commerce, and insurance” relating to the" Investment cutive Trust and the Sterling . Company. After h 9 had seen it'he; A was shown a letter dated 15th March, 1933. It was shown to all the Mclnnes salesmen by the Mclnnes organisation. It was. from the accused as managing director of the Investment Executive Trust, and referred to the articles Yin “Accountancy, Commerce and ’.lnsurance” and business between ...the, .Investment Executive . Trust, a‘n,d tiie Sterling Company. The witness' had read the report to debenture:: holders of 1933. 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 rei commended anybody else to invest. Mr O’Leary objected. As regards the investments already taken by him the witness continued that he did not know what he could have done except perhaps to sell them at the best possible price.

Mr Mosley: I can tell you what you could have done —consulted the best possible legal talent in Wellington and acted accordingly. QUESTION OF BAIL Mr Mosley said he would take • the luncheon adjournment. Mr O’Leary asked how long it was anticipated the various cases would take, to which Mr Evans-Scott replied that the present charge 'should be concluded to-morrow and that there were three others, each of which would take the same time if not a litj;le longer. There were also three theft charges which would be concluded in less than half a day. The question of bail, particularly during the luncheon adjournment, was raised by Mr O’Leary, who said he could give the Court his personal undertaking.

Mr Evans-Scott raised no objection.

The Magistrate said that the question of bail could be considered later and that for the adjournment he wmuld accept counsel’s assurance.