A FANTASY OF FINANCE

Otago Witness, Issue 3595, 6 February 1923, Page 47

A FANTASY OF FINANCE

THE BE VAN STORY. On December 5, Gerard Lee Bevan, a London financier, was sentenced at the Old Bailey to seven years’ penal servitude on nine counts and five years’ on other counts, the sentences to run concurrently. This means that he will serve only seven years. The charges against him.. were issuing false balance sheets, publishing a false prospectus, fraudulent conversion, and obtaining money by false pretences in connection with the City Equitable Fire Insurance Company and associated companies. There were sixteen counts, and the jury found him guilty on fifteen of them. Tlhe financier has always excited the imagination of mankind. To manoeuvre masses of money, whether honourably or dishonourably, is in itself a title to lame. Since the modern historian tells us that everything which has ever happened from the Trojan War to the Crusades and from the Crusades to the French Revolution was caused and directed by the financiers, this glory is no doubt justified. But it w til be found that peculiar honour is given by the voice of the people to the gentlemen whose daring, let us say, has been greater than their good fortune. When gossip speaks of financiers it is referring t° “King” Hudson or Baron Grant, to Jafcez Balfour or Whittaker Wright, or Horatio Bottomley. To those celebrated names will (says a writer in the' Daily Telegraph) now be joined that of Gerard Lee Bevan. Nor will he lack the tr'bute on which his spiritual predecessors could confidently rely, praise for a determination to believe himself blameless. Even the counsel who prosecuted him could scarce forbear to cheer his intellectual might. And, after all, to waste many hundreds of thousands of pounds is, it must be admitted almost as great an achievement as to make them Only genius can do it. Bevan, however, had advantages over these others. Ihey were the architects of their own fortunes. He was born in the aristocracy of finance. His way to opulence w as made smooth. When he left the university, to quote his own words in the witness-box, he “went as clerk in the autumn of 1892 into Barclay’s Bank. His family and the family c f Barclay were very close friends, and hud been associated tor many generations.” The association IS, of course, well known, and the two names stand out in the highest esteem, lhat a man of Bevan’s family should run such a course to such an end as his would seem among the impossibilities of life. here is no doubt that his name added irmch to his influence over men, and so to his opportunities for rashness and misuse of their confidence. He does not seem to have tiought that it imposed upon him responsibilities. To hold him up to any peculiar condemnation among unscrupulous financiers would be unjust. But, taking his own defence of his actions, that he was careless, that others deceived him and failed , m ’ ,^ e signed an agreement which vv as insanity, ’ that he “never dreamed of looking at a contract,” and so forth, the most charitable judgment must be that he had no sense of any obligation to maintain the standard of probity which all the world associates with the historic names of the City of London, A GREAT STOCKBROKER. After two years of banking experience Beyan joined the stockbroking firm of Ellis and Co. as a partner. He was then 24 Eighteen years later, in 1912, he became a senior partner. The advancement was rapid, and his position of high importance. Ellis and Co. had been in existence for more than a century, and the firm was one of the most respected on the Stock Exchange. Among their archives was treasured a Government charter of 1814 empowering the firm to negotiate a loan of £24,CC0,C00. The money was required to finance the last campaign of the longstruggle with Napoleon. In our time Ellis and Co. carried on the business of stockbrokers and money- brokers, and dealt with a great many issues either in part or whole.” Their business was, of course, on a large scale. The turnover was over £1.000,000 a month. In 1920, when Bevan had been some time “a senior partner, with four other men holding a deservedly high reputation in the city,” he owned £IOB.OOO out of a total capital of £200,000. His power in the firm was even greater than that controlling interest wou’d necessarily imply. He was the dominating force. “The business was really conducted by him, and almost,” as Sir Ernest Pollock put it, “by his brain alone.” Bevan told the court which tried him that the other partners went away early and left him to discuss business matters with a Mr Pirie, who “had been in the firm as clerk a great many years.” It. is. in fact, plain that, whether by merit or not, he made himself the autocrat of the large operations of Ellis and Co. Under his direction the firm “became involved in a large number of industrial securities.” When the crash came in February of this year the “deficiency of the firm, according to Bevan himself, was £1,151,000. Such' is his title to the name which a bank manager allowed him at the trial of “a very big stockbroker.” It is. of course, fair to keep clearly upon the record the fact that for the first twenty years of Bevan’s partnership in the firm all went well. Adventures seem to have begun soon after his rise to supreme power, but whether owing to that or to the disturbed conditions of war-time the public have no means of knowing. During the war, at any rate, and especially in its later years, Bevan turned his attention, to industrial securities. In 1916, when he was already engaged in such interests, he became chairman of the City Equitable Fire Insurance Company, in which he acquired a large holding. For some years all seems to have gone well. Under his guidance the Fire Company, like Ellis and Co., put their money into industrials. Such investments are not, as Bevan, by the the date of his trial, seems to have learnt to -recognise, in accordance with the principles which the public expects insurance companies to observe. His justification is that “every business man was asked to do wliat he could to contribute towards the repair of the wastage of .war, and this is what we were trying to do in some small measure ” It has to be added to this that the power to apply the funds of an insurance corepainy to lake up the industrial securities to which they had committed themselves was extremely useful to Ellis and Co. The dual position of chairman and govern-

Utg partner gave Bevan control of a very large and continually increasing amount of capital. Neither his acumen nor his probity proved equal to the strain. THE SLUMP The thesis of Bevan’s defence was that luck had been against him. As Becky Sharp would have found it easy to be honest oil £IO,OOO a year, so would Bevan if the market had gone the right way. Even the least financial of us knows that between 1919 and 1921 there was a quango in the value of industrials. It is not worth while to quote figures here. “1919,” said a bank manager at Bevan’s trial, “was an exceptionally good year for industrial securitie/S . . . somewhere about the middle of 1920 the bottom began to fall out. ’ Bevan held, as his counsel put it, that “even to the middle of 1921 a man would have been justified in buying industrials rather than buying smaller dividend producing securities.” He was backing. and of course with his private funds and the funds of the firm in which he had the controlling interest he was justified in backing his own financial judgment. But unfortunately he backed it also with the funds of the City Fire Insurance Company the chairman of which was not justified in putting its money into speculative investments* Still more unfortunately, his financial judgment, was not reliable. Afterwards, one of u S insurance directors complained Bevan, on his solo responsibility, had been pouring the company’s funds into 3 brazili an ranch concern, and. as he mildly put it. “demurred to this having been a suitable investment- for an insurance company.” Bevan replied that ‘‘it was just one of those things where it is easy t Q be wise after the event ” The innocent may think that it would also have been quite easy to be wise before. Bevan, according to Sir Ernest Pollockhad a remarkable brain for finance.” It. did not apparently provide him with a very sound judgment, but it certainly was lertiie in expedients. ’The City Eqviitable Fire Insurance Company, which had been a sounu business till Bevan joined the board, became under his guidance an instrument to prop up (he tottering fortunes of Ellis and Co. His “remarkable brain for finance” had brought Ellis and Co. into trouble by committing them to industrial securities for which there was no market The “remarkable brain” proceeded to rob Peter—the Fire Company—in order to save Paul. And as people of less remarkable brains might perhaps have expected, the robbery was much better executed than the salvation. The Fire Company, in fact, was pillaged thoroughly, but Ellis and Co. still tottered. As loans to a shaky stoekbroking firm could hardly be represented as assets in an insurance company’s accounts, the “remarkable brain” arranged to falsify the balance sheets. But that was not enough. He laid hands on another insurance company, and used its assets, and another and another. High-class securities were handed over to Bevan and Ellis and Co. in return tor nothing in particular. What Bevan did with the proceeds was left to his discretion. The First National Re-insurance Company let him have nearly £200.000, the Greater Britain Insurance Corporation gave him—the word is fair enough—some £400.000. And still Ellis and Co. tottered. Such was Bevan’s financial genius. THE DIRECTORS. The quality which he certainly did possess was a power of making people trust him. The Fire Company had a finance committee of its directors. Bevan proposed to this body investments. One of the directors'of the committee went into the witness box and was asked from the bench, "What is Willoughby Sumner?” The little conversation which followed is illuminating: Witness: I cannot recollect now, but I think it is a company in Canada, with buildings out there and a certain amount of carrying trade. Counsel: Did the company ever p-et anything out of Willoughby Sumner?—l do not know. Mr Justice Avory : But you were on the finance committee; did not you ever take an interest in the question whether the investments which were being made were producing dividends or not? Witness: I made no inquiries about this company. It was apparently -unusual to make, inquiries into any of Bevan’s proposals. Here is another example of the business methods of his directorates: . A board meeting was held, at which Mr Bevan was elected chairman. Witness was appointed on the finance committee, and Mansell became general manager. It was agreed that 60,000 National War Bonds, held by the company, be sold, and that the reinvestment and sale of them be left to the discretion of Mr Bevan, tne chairman. How were the proceeds of the sale dealt with? 1 never heard. I was never consulted about it. Mr Justice Avory: Had you any idea why you were put on the finance committee of these companies?—l have not really.—(Laughter.) If w-e are to believe Be van, indeed, his power of making men trust him was even surpassed by his power of trusting other men. That approached the superhuman. He signed without reading it. an agreement which, in his own criticism was “insanity,” because someone else said “he thought it was all right.” There was a letter certifying the possession of a trifle of £200,000 War Bonds which was not true. “Why did you sign an untrue document?” asked Sir Ernest Pollock. “Like other documents,” Bevan answered, “it was placed before me by a clerk and I signed it. I never dream of looking at a contract. I sign, and the clerk takes it away T rely on my officials to bring me true documents.” Such are the Napoleons of finance. They cannot be expected to verify petty cash transactions of £200,000, though to be sure Napoleon kept his eyes very keenly on the petty cash account. It is surprising that Bevan retained this faith in human nature, for his experience had not, according to his own account, been encouraging. There was a manager of the Fire Company who was authorised to borrow £15,000, and did borrow £96.000, ‘‘l was astonished, thunderstruck.” said Bevan. He was very much upset, indeed, so he naturally consulted a friend of the manager’s as to what to do about it. The result was an agreement to give the manager £SOOO a year plus commission, out. of which he was to repay the loan, an agreement equipped further with a wonderful clause providing, as the judge put it. that, it was only necessary for the company to go to pieces or the manager to misbehave himself for him to wipe off the whole debt.

Bevan may have been a bad servant, but who will say that he was not a good master ? THE CRASH. In June, 1921, Bevan was telling his shareholders about the “twin bastions of modern finance, banking and insurance, the “two main forts that guard that majestic citadel called credit. In February, 1922, his bastions went crashing down. J here had hcen nasty rumours goinp aliout the City. One of the directors of the Fire Company asked for explanations, and did not like what he got. lie demanded an independent investigation. Bevan talked about ‘ a stab in the back,'* but his directors had lost their simple faith. He was asked to leave the room, and when he came back was voted out of the chair. The game was up. On February 3 it was announced that the directors had filed a petition, on February 17 the failure of Ellis and Co. was announced. Meanwhile Bevan ran away. Tie had ceased to be a member of Ellises, the world was told, on February 10; it was said that he had been ordered abroad for his health, that he was coming back, that his friends had at any rate advised him to come back, and for some time people had no suspicion of Ins criminal responsibility. When it hecame clear that he had no intention of explaining himself there was a good deal of surprise. Nobody supposed that he had been worse than ‘foolish, or that he would be so extravagantly foolish / un aw'ay. Then a warrant was issued for his arrest. Strange stories of his wanderings came to London, and at last he was caught in disguise at Vienna. His advocate pleaded that “he was urged by someone to go away. I am not permitted to te.l vou who it was that asked him.” the matter was inevitably pait of the case against him. The consciousness ’of innocence was too obviously to seek. Consider a passage from his cross-examination: You had no misgivings as to your con-duot-—1 had »o misgivings as to my conduct at any stage. They why, asked counsel, sharply, did you fly the country on February B?—Because 1 was asked. Why did you adopt the disguise of Leon fVermer?—Because I waa asked to go Why did you disguise yourself by dyomg your hair and by having a black Deard?—l went away in responso to a strong request. . And remained concealed for six months :n response to that request. Certainly. I intended to do so. And yet you had no misgivings as to your own conduct?—None. And were not the least afraid to meet any question put to you ? Net the least. This is bold enough, but the boldness would have sounded better 10 months ago. The trial, indeed, could have onljfc one issue. The case was only difficult to elucidate by reason of its sheer mass of material, and the main charges, the publication of false statements by Bevan in order to command confidence and the use of other people's funds by Bevan for bis own purposes were plainly proved. f J here seems little to be s-iid in extenuation of the man’s offence, but that he lias paid for it and will pav heavily. He has not loused against him any general animosity, for the sufferers by his misdeeds are not, in the main, as has so often been the ease in similar crimes, a number of small investors. But he has failed to conciliate any sympathy. I’lain people feel little of the admiration for hi 3 ability of which wo have heard so much, and even less respect for the spirit in which he faced disaster. They are. rather inclined to draw dull, old-fashioned morals from the Bevan case, and remark that levity and superficiality in business and a lack of sincerity in distinguishing between the things a man can and cannot do are not the best.