RASH SPECULATION.

New Zealand Herald, Volume XLIX, Issue 14929, 29 February 1912, Page 9

RASH SPECULATION.

THE LENNOX BANKRUPTCY.

TWO MONTHS' IMPRISONMENT

OVERSELLING OF SHARES

JUDGE CHAPMAN'S COMMENTS

TIME TO STOP THE PRACTICE.

The sittings of the. Supreme Court in its criminal jurisdiction were continued yesterday, Mr. Justice Chapman on the bench. The. first case called was the. charge against James Scott Lennox, that being a person adjudged bankrupt, he had, at Auckland, on August 9, 1911, by rash and hazardous speculation, brought about his bankruptcy. The accused appeared, looking somewhat worn and anxious. When asked how he. pleaded to the indictment, he replied guilty in a low tone. Mr. R. McVeigh intimated to His Honor that he appeared for the prisoner. Ho stated that for some years past Lenno* had been engaged in sharebroking in this city. He was a native of Auckland, and had lived hero all his life. It was quite a common practice in Auckland and in other cities of Now Zealand, and of other parts of the world, for sharebrokors to engage in "overselling." That practice, it appeared, meant that a sharejobber sold for delivery, at a future date, shares which ho had not actually possessed at the time of sale, but which he trusted to be able to acquire on or before the dato of delivery at a lower price than that at which he sold. Mr. McVeagh said he was instructed that this was quite a common practice in Auckland and elsewhere— • The Risks of Overselling. His Honor : It is a form of gambling in which a man is legally at liberty to indulgetaking the risksand this is one of the risks. Mr. McVeagh : That is so, sir. Tho prisoner, during all his business career, had lived in that atmosphere, and that form of gambling was continually going on all around him, and counsel thought it was not immaterial for His Honor to consider that the prisoner had temptation to engage in this practice. His chief losses were in the overselling of Talisman shares. They were high-priced stock, and he sold a number of these shares, which he did not possess. Contrary to his expectations tho prices rose, and he was unable to pay for the shares ho required to fulfill his engagements. There was another speculative transaction in Ngatiawa shares. In that case the prisoner was rather unfortunate, and his difficulties arose in this way : He was instructed by some person in Auckland to purchase largo lines of these shares on two different occasions, and to draw for the purchase money upon some resident of Melbourne. The first transaction turned out all right, for the draft was honoured. Rut on the second occasion the draft was dishonoured, and according to the rules of the Stock Exchange, Lennox was saddled with these shares. If it were necessary for His Honor's assistance, counsel said he could submit evidence as to the practice amongst stock jobbers in this regard. An Atmosphere of Speculation.

Included in the depositions placed before the Court, there was, said Mr. 'McVeagh, a comparative statement showing the relation of income earned by the prisoner to his turnover. It showed that during 1910, with an increased turnover, there was a reduced commission. That was entirely due to the circumstance that he was gambling in shares. In that year there was a demand for high-priced stock, and, according to the scale adopted by tha Stock Exchange, the rate of remuneration was less for high-priced stock than that which was payable- for lowpriced stock. This fact accounted for the difference between income and commission in 1910. The accused was living all the time in an atmosphere of speculation. He was not an ordinary trader who had nothing to do with shares. His daily business was in connection with dealings in shares, and, therefore, he was the moro disposed to engage in this practice. Already Punished. The prisoner, proceeded Mr. Mc Veagh, wan only a young man ; but his future business career in this city, or elsewhero for that matter, was gone. That was a punishment which would necessarily attach to him, and counsel thereforo asked His Honor to take that fact into consideration in passing sentence. Since his bankruptcy Lennox had been obliged to seek employment of quite another character, and had got work as a manual labourer at tho Ferro-concreto works, and had taken up the work of a pick and shovel man, earning from £2 7si to £2 9:; per week for the support of his wife and three-year-old child. This fact counsel mentioned to show that Lennox would not in future bo able to take up such employment as he had previously been engaged in, and to support his request that His Honor would tako lenient and merciful consideration of the case. The chargo had been hanging over the prisoner for somo time, and that fact in itself bad beer, a punishment quite in addition to any sentence which His Honor might think fit to impose. Perhaps greater than any punishment that might be imposed would he tho fact that his wife and child would be absolutely dependent upon tho charity of friends. Counsel asked His Honor that—after weighing all the circumstances— would deal as leniently with the prisoner ay ho could find it possible to do. Stock Exchange Customs.

His Honor pointed out that in the schedules presented to the Court the occupation of the creditors had not been set out. There were 15 of them, but it did not seem possible that they could all be members of the Stock Exchange. It would be better if this information were set out in the list. As to the. prisoner's speculating in shares it might be that tho smaller the amounts due to creditor. the harder it might be upon those creditors. Mr. Selwyn Mays (who appeared as Crown prosecutor) "said tho smaller creditors were outside the Stock Exchange. Mr. McVeagh said it was a question whether these amounts might not be regarded as loans to the prisoner. His Honor : In other words he has oversold to these people shares which ho was unable to buy. Mr. McVeagh: Yes; that is a fair statement of the matter. I propose, if your Honor thinks it necessary, to call 'some people to show that this custom is a common one. His Honor said it was not necessary, for he remembered the Overend and Carney Bank failure 45 years ago. and he knew the system had not changed much, consequently he knew exactly what the evidence of the gentlemen Mr. McVeagh proposed to call would be. So far as brokers were concerned they least normally--knew the kind of risk they were limning. But this was a question of an ordinary engagement. It might

have been an engagement to deliver bullocks or potatoes or anything else, money being taken and no delivery made, and the debtor had thorefore gone into a rash and hazardous speculation. No Trust Account. Mr. Selwyn Mays said there were one or two observations ho desired to make in connection with tho case. Tlio investigations made by the official assignee and himself (counsel) had disclosed the fact that sharcbrokers in Auckland did not keep trust accounts as auctioneers, solicitors, and other persons were compelled to do by law. Stockbrokers were not compelled by law to do so, and the prisoner, like other shareholders here, did not keep one. In 1910, tho prisoner did nearly lialf-a-million pounds' worth of business. And he had no trust account, although it was clear that trust moneys must have been dealt with, and these trust moneys were mixed up with his own moneys and those of other clients. On account, of the absence of such an account it was extremely difficult to arrive at an understanding of the debtor's position, and it bad taken counsel and the Official Assignee four months to place this ease before the court. If a lawyer or an auctioneer dealt with even £5 worth of trust moneys that matter must be shown in his books, and counsel suggested to His Honor that it was high time that sharebrokors should be brought into line with auctioneers, solicitors, and other business men in this regard. A Gloom Over the Stock Exchange. As to the question of "overselling," Mr. Mays said, it had become ' absolutely notorious, and at the present time the Auckland Stock Exchange simply reeked in the nostrils of the honest men of the community, many of whom had spoken to him about it. Since the prisoner's bankruptcy there had been another serious wave of overselling on the ' Auckland Stock Exchange. Ono man had gone out for so doing, and another sound man had been submerged, but had now got his head above water. While the punishment of the prisoner might do some good, and in some degree restore confidence, there was undoubtedly a gloom over the Auckland Stock Exchange at the present time, and until tho overselling practice was stopped it would not bo overcome. Honest brokers felt that there should be some pronouncement or legislation to clear the atmosphere. Mr. Mays added that he knew of no other case where a broker had oversold £17,000 of Talisman shares, and had used £3000 of his clients' money to fill tho gap and carry on with. It was astounding to think that in such a small market as that hero one man could oversell to the extent of £17,000 in highpriced stock. • In .some cases the prisoner had-taken money, and had never even attempted to buy the shares. Accused Sentenced. His Honor, in passing sentence, told the prisoner that we had in this country a very stringent bankruptcy law. which had enacted punishment for people who speculated recklessly and happened afterwards to become bankrupt, and that w'as exactly bis case. It might he that a good deal of this speculation was carried on to enable him to meet his liabilities, but that might nearly always be said in such cases. And the law had endeavoured to discourage that sort of thing by making it a penal offence punishable by imprison, ment. A fine was quite useless, and it bad bets recognised that when thero was a conviction imprisonnieiri r*wt follow. His Honor did not think it necessary to inflict a long sentence upon the prisoner, because he was not charged with a fraudulent offence, but with mere recklessness; and this charge having been hanging over him, had been a punishment. The shortness of the sentence would not, however, represent the degree of tho offence. It was about time somo steps were taken to stop the business practices which prisoner had been indulging in. His» Honor knew that reputable sharebrokers were endeavouring to discourage that sort of thing, and it was for them to represent to the Government what measures should be taken. The srrience of tho" Court would be two mojv»iis-' imprisonment, and as prisoner was i.t, charged with a fraudulent offeree I s . .- sentence would not be accompanied b, a direction that he should be given hard labour. The prisoner was at once removed.