SERIOUS CHARGE AGAINST DIRECTORS.

New Zealand Herald, Volume XXVII, Issue 8263, 23 May 1890, Page 6

SERIOUS CHARGE AGAINST DIRECTORS.

ALLEGED CONSPIRACY TO DEFRAUD.

The Melbourne public were afforded a sensation on opening- their newspapers on Tuesday morning last week, and rinding it therein stated that on the previous day Colonel Templeton, the liquidator of the Premier Permanent Building Society, had sworn criminal informations against certain of the late directors of the Premier Permanent Building Society, and against others. Each charge alleges a conspiracy to defraud. In one case defendants are charged with having conspired to issue and allocate shares of the Society of the nominal value of £5 at a premium of £1 amongst themselves and others, and that they thus de* frauded the shareholders. The defendants

named in this information are Messrs. John

Ninmo, M.L.A. ; John L. Dow, M.L.A. ; John or Ebenezer Gourlay, John Stewart, Thomas Ferguson, and James Mirams. The second information is that Gourlay made a pretended sale of properties to certain persons, and that the defendants conspired together, by means of certain devices, to grant loans in excess of the value of the land to the parties to whom the land had been passed in pretended sale. The defendants named in this information are tho same as in tho first, with the addition of the names of Patrick John Murphy or Robert Murphy, and Philip Corkill. Subsequently informations were sworn against the auditors. Mr. Dow, who was Minister of Lands, at once handed in his resignation to the Premier, at the same time solemnly assuring the Cabinet that he was guiltless. He also wrote a letter to the press, in which he said : —" If there has been a conspiracy, I wish to say, by your permission, that I am wholly ignorant of it. I have not been a director of the society for upwards of a year, but I was at the datos given of the allogod conspiracy, and to that extent 1 am prepared to defend my share in the general transactions of the society ; but as for conspiring to defraud, or knowing of any conspiracy, or participating in any beneficial interest in any wrong way, I can only say most solemnly that I am guiltless. I must have boen absent from the meetings whore the alleged allotment of shares was made, as I have no knowledge of any such business having taken place, and certainly did not authorise any such allotment of shares to me, nor did I receive any. As to the second charge, of loaning the society's funds upon land conveyed by a pretended' sale from one of the directors to a dummy, if such has taken place I did not know it." His resignation was not at first accepted, but as he insisted, lie was eventually relieved of office. The arraignment of the directors was nob (says the Age) an entirely unexpected step. Indeed, the report presented to the directors by the official liquidator, Mr. J. M. Templeton, had prepared the public for oven more stringent action. When in his final communication to the shareholders Mr. Templeton produced that lamentable record of books not properly kept, often not kept at all, of thousands of pounds of loans granted without any evidence of proper authority, of entries erased, pasted over, or altogether neglected, tho only inference to be drawn was that a very grave charge was implied against the directorate. Under the head of improper transactions, it was pointed out that a sum of £175,000 had been borrowed from certain trust companies on the security of mortgages of tho borrowing memI hers, upon which the balances were re- | presented to be £373,000. Shortly after- ! wards, when further accommodation was ! required to keep the ship afloat, a lien was given to the bank over mortgages of borrowers, upon which over £150,000 was represented as the amount of unpaid balances. "The result," says Mr. Templeton, "is that between the trust companies and the bank tho association has deposited the bulk of its securities, and now that the substitution of other securities is disallowed by the trust companies as illegal under existing circumstances, the association is deprived of a considerable portion of its income." Then followed the history of a "questionable transaction," which may be taken as having a direct bearing upon the present cases :—

On the 14th August, 1888, a cheque was drawn for £32,400, as the first instalment of a loan of £87,800. This loan was previously mentioned as authorised in June 1888 lor £84,500, and I am unable to rind specific authority for £.3300 thus added to it. Tee j cheque was, I am informed, handed to the I solicitors, and was by them presented at the j bank, but payment was refused. The mortI gage could not be completed, and the soliciI tors returned the cheque to the association, I and it was cancelled apparently on the 13th I iSeptcmper, 1888. I am informed that Mr. ; Gourlay was the proprietor of the land proj posed to be mortgaged, and that at this very j time he was the mortgagor thereof to another institution. Although the association had no security whatever, further advances were j made to the extent of £13,000 between 31st j August and '2nd November, 1888. Soon after ; the latter date the solicitors of the associa- | tion, Messrs. Smith, Emmerton, and JohnI son, discovered that these advances had been i made, and insisted on the cancellation of the I loan and the returnof all the moneys advanced. Thus it appears that this loan was got rid of with a loss of interest to the association ; but ' I find that on 4th June, 1880, another loan | had been entered on the books of the associaj tion of £45,200, apparently without the ' authority of the committee, and two cheques were drawn for £15,896 and £10,000 respectively, or a total of £25,896. This amount was debited to the loan account in two items of £16,000 and £0000 respectively, and part of it credited to Mr. Gourlay's savings bank account in two items, £7437 and £8469 respectively. The cheques were paid into tho banking account, of the association, and were thus both debited and credited. Hie balance not credited to Mr. Gourlay's savings bank account, £10,000, was paid in cash, and was, so I am informed, used to pay off a mortgage of Mr. Gourlay's with another institution. On 19th July, 1888, the following appears on the minutes of the committee: —"The portions settled, amounting to 1800 feet in Ebden-street, and 251 in Glen Eira Road, be gone on with, subject to a deposit of £3000 being left as security by Mr. Gourlay." This motion, which does not specify any amount to bo advanced, is relied upon as sufficient authority for the loan of £45,200 previously entered in the books, and another loan of £10,500, which was entered on 22nd July, 1889, when a payment was made of £12,400 ; £4400 of which was credited to Mr. Gourlay's savings bank account, £5000 used to pay off a mortgage of Mr. Gourlay's to another institution, and the balance, £3000, given to Mr. Gourlay in the form of a fixed deposit receipt, in order, I presume, to enable him to comply with the latter part of the motion. The cheque drawn for £12,400 was paid into the banking account of the association, and thus debited and credited the same day. On 28th September, 1888, cheques were drawn for the following amounts: — £170,000, £20,000, £24,000, £71,000, £40,218: total, £325,218. And these cheques were paid into the bank to the credit of the association, and being thus debited and credited, they made no difference in the account except to swell the figures on both sides by £325,218. The entries made in the cash book in respect of these cheques did not represent any real transaction. Thus, the first four amounts were entered as payments of balances due on freehold property, and the fifth amount as the first payment on account of a loan, £108,501), authorised in the previous June. But no such payments were made. To square the cash the first four amounts were entered among the receipts as advances on freehold property. In other words, the association was represented as having borrowed £285,000 from, and paid £285,000 to, the same persons. The sole effect of these entries was to inflate the figures of the cash account. The entry of the fifth amount, £40,218, among the receipts was of a much more serious nature. It was represented as received from Mr. Gourlay as deposits in the savings bank branch, and the amount was divided and entered in the counter book as £15,536 and £24,682. The clerk who made the entries reports to me that to the best of his knowledge no cheque passed through his hands in connection therewith, and that he made the entries under instructions received from Mr. Doherty. In the course of my investigation of this matter I sent for Mr. Mirams, who was secretary of the association at th« time these entries were made, but he could not give me any explanation of them. I produced the five cheques dated September 28, 1888, amounting in all to £325,218. and asked him if the signatures " James Mirams" were his. He admitted that they were, but he knew nothing about the cheques or the entries. In answer to further questions, Mr. Mirams stated that he had often signed blstik cheques, sometimes as many as eighteen or twenty at a time, and left them with Mr. Doherty, whom he entrusted implicitly. I expressed my utter astonishment that he had ever adopted suoh a practice, and then asked whether he did not afterwards inquire what use had been made of cheques signed

by him in blank. He said he did not, and added that I should remember that in September, 1888, he was very much occupied with his own private affairs. I replied that I could not conceive any possible excuse for hie signing blank cheques as secretary to the association. I found Mr. Doherty had left the colony, so I could get no explanation from him of the matter. The £40,218 was credited to Mr. Gout-lay's savings bank account, and the whole amount was drawn out by him during the next six weeks. Thus the association parted with over £40,000, represented as part of a loan on mortgage ; but there was no mortgage, nor had the reputed borrower at that time any legal title to the land proposed to be given as security. The fact that the land was afterwards acquired, and a mortgage executed to the association, in my opinion does not alter the complexion of the transaction as a direct breach of rule 59. But even if a mortgage had been properly executed, £40,218 was altogether too large an amount to advance on a valuation by the survey committee of £40,245 —a value for the land which was itself far in excess of its true value. A notable circumstance in connection with this loan, whose ultimate amount was to be £106,500, is that the plans and specifications of the building cannot be found, although I have repeatedly asked for them. Altogether £83,323 has been advanced on the property, and not one of the buildings has been finished. They are now taken possession of by the association.

The charge implied in these statements was, to say the least, one of very gross mismanagement. It became evident, after the publication of Mr. Templeton's report, that the matter could not be allowed to rest. Meantime Mr. David Lumsden, the gentleman whose name figures prominently in the information, had made some startling statements in the Insolvency Court, having relation to certain land transactions between himself and one Bernard Murphy, and between Mr. Gourlay and the same person. It appeared from this evidence that Lumsden had sold land to Murphy, receiving payment in moneys apparently advanced by the Premier Permanent Society to the purchaser. To meet this difficulty, it was alleged, the loan was transferred from Murphy to one George Robins. Mr. Gourlay, one of the directors, had sold land to Murphy, and was apparently paid in the same way. The total advances to Murphy, ib was stated, amounted to £84,000, all of which had been lent without the certificate of the solicitors, and on a security which the witness had since found never existed. Burroughes got £38,350 and Corkill £106,500 on some vacant land at Elsternwick. in each case the buildings to be erected on the land had been designed in the usual speculative style, and thrown back uncompleted upon the hands of the Society. Mr. Lumsden left for England, and subsequently Doherty was proceeded against on a criminal summons charging him with the embezzlement of £1000, tiro crime, as it was alleged, having been committed so far back as 1887 by means of an adroit transaction in the new issue of £5 shares. Pending the decision of the authorities regarding the action to be taken against the directors the cape was allowed to stand over. That action has now been decided upon, and will, say« the Age, be publicly regarded not so much in the light of a direct charge against the directors concerned, but as a necessary step towards the investigation of the Society's affairs.