TRIAL OF J. W. S. McArthur

Southland Times, Issue 22962, 7 August 1936, Page 11

TRIAL OF J. W. S. McArthur

ACCOUNTANTS GIVE EVIDENCE INVESTIGATION UNDER ACT (United Press Association.) Wellington, August 6. The trial.of John William Shaw McArthur, a company director, on charges alleging the issue of false prospectuses and the publication of false reports to debenture-holders, was continued in the Supreme Court to-day before tho acting Chief Justice (Sir John Reed) and the jury. Continuing his evidence, John Leslie Griffin, a public accountant of Wellington, one of the four inspectors appointed pursuant to the Companies (Special Investigations) Act, 1934, dealt with the manner in which the Trust Building in Sydney was purchased in 1932 by the British National Investment Trust for £lOO,OOO and of the allotment of shares in this company to McArthur and C. G. Alcorn. Counsel for the defence (Mr H. F. O’Leary, K.C.): Had the Investment Executive Trust purchased the Trust Building for £lOO,OOO and subsequently sold it for £287,000 it would have.been liable for income tax on the profit of £187,000? Witness: I don’t know whether it would necessarily. It may have been. I think it is a debatable point. Mr O’Leary: There is no question about this, is there? The Trust Building was a very substantial asset to which the debenture-holders of the Investment Executive Trust would have to look for a return of their money if they wanted it?—Yes. It was one of their substantial assets. Taking it intrinsically, it was a substantial asset.

Mr O’Leary submitted a large photograph of the building to his Honour and the jury. “Yes. It is a very fine building,” said his Honour. Mr O’Leary (to witness): Isn’t it evident now that the £lOO,OOO paid for this building was tens, if not hundreds of thouands of pounds, below its true value?—l think it must have been a good deal below its value. You know that reputable valuers in Sydney placed a value on it, certainly after money had been expended on it, of over £400,000? —Yes, but Mr Justice Haise Rogers did not accept that. He suggested some figure between £300,000 and £400,000. Sale Price of Building. In reply to a question from his Honour relating to the reported sale of the building, Mr O’Leary said that what the building had been sold for had not been authenticated yet, but it would be available. To his Honour, Mr Griffin said that a long-term lease of the building to the British National Trust Ltd. would probably be detrimental in negotiating a sale. Mr O’Leary: Actually hasn’t the lease been cancelled by legislation? Witness said that he was not sure. Mr O’Leary: It could be subject to cancellation by mutual consent?—Yes. Mr C. Evans-Scott, for the prosecution, asked witness if the Investment Executive Trust at any time owned the Trust Building. “No,” replied witness. Mr Evans-Scott: If there had been a profitable sale of the Trust Building —if it had been turned over at a profit a few months after its purchase—who would have got the profit?—The profit then would have gone to the British National Trust. In answer to another question, witness said that the shares in the British National Trust were held principally by McArthur and C. G. Alcorn. Witness agreed with Mr Evans-Scott that if there had been sufficient profit out of the building to pay 23/- per share by way of a distribution to the shareholders of the British National Investment Trust, practically all this money would have passed to the British National Trust. This would have made each British National Trust debenture worth par, £lOOO. Me Evans-Scott: And the accused personally held 81 of these?—l think so, at that stage. Books Not Recovered. John McFarlane Elliffe, of Auckland a public accountant, and another of the four inspectors appointed to investigate the affairs of certain companies, said that he had specialized in the Sterling Pacific and Wynwood companies, and, to a certain extent, in. the Investment Executive Trust. The Sterling books to February 28, 1934, had not been recovered, in spite of a search made for them. They were of very considerable importance in the operations of the various companies. In fact, they could be regarded as the key to many of the transactions. The balance-sheet of the company to August 31, 1932, had been found, and with its assistance and that of other documents available, he had made a partial reconstruction of the Sterling .books, discussing it at times with McArthur.

Counsel for the prosecution (Mr V. R. Meredith) began to question witness

concerning a list the latter had prepared showing the assets taken over by McArthur personally and by the Wynwood Company from the Sterling Company. Mr O’Leary objected to the schedule as being irrelevant. He submitted that there was nothing in the schedule to indicate intent. “This is a striking resemblance to what we are charged with,” said Mr O’Leary. “That is, with part of the information being put forward and not the whole of it. Material which would put a different complexion on it is being suppressed.” His Honour: I don’t know where the suppression comes in at the present time. Mr O’Leary: The witness does not go back far enough. His Honour said that he saw no objection to the matter being dealt with, and Mr Meredith proceeded with his examination of the witness. “Do you know who made the declaration of the ownership of the Morewa? ation of the ownership of the Morewa?” asked Mr Meredith, and the witness replied that he did know. Mr O’Leary again objected. Public Trustee’s Claim. Referring to a claim for £lO,OOO made by the Public Trustee against McArthur, the hearing of which was to come on immediately after the present case, his Honour said that he thought the question necessary, and witness answered that McArthur made a declaration of ownership of the yacht on December 16, 1933, at Auckland. Owen Morley Hope, a consulting engineer of Hamilton, said that when asked to be a director of the Investment Executive Trust, Limited, he said it would be rather out of his scope, as he knew nothing of finance. McArthur said that if he knew as much as the average man it would be all right. He became a director in April 1931. He was never consulted as to the investments made by the trust. He signed the prospectus, but had nothing to do with its preparation. He was never consulted and took no part in the preparation of the reports published. Up to the time he read a financial article he was assured that no debenture capital was invested in the subsidiaries. At a directors’ meeting in May 1933, witness asked for a complete list of the Trust’s investments and a motion was carried that no director should give information to anyone but a fellow director relating to the Trust’s internal workings and investments, unless authorized by the directors. He consulted solicitors the same day and refused to be bound by the resolution. In July, 1933, he resigned. He disagreed with McArthur over the revenue from the investments. He expected the revenue from the investments to come back to the debenture-holders, but he understood it went to the shareholders of a subsidiary company. Cross-examined, he said that he knew McArthur was charged with a criminal offence in respect to the prospectus he had also signed. Anything he did was unintentional. Witness wished to take his solicitor to the meeting of directors before his resignation. McArthur would not agree, expressing concern about big financial interests in Auckland getting knowledge about the investments of the Investment Executive Trust.

Auditor’s Evidence. John Anderson, a public accountant of Auckland and auditor to the Investment Executive Trust for 1931-32, said that the balance-sheet handed to him for audit showed at cost investment in A series debentures £19,000 and B series £224,000. He discovered investments of £36,000 and £52,000 had been made in Sterling Investments and the British National Investment Trust. He conferred with McArthur about this and also an item of £31970 for establishment expenses, including £12,768 for the payment of five per cent, above brokerage to Mclnnes and Company, Ltd., organizing brokers, being set down as an asset. He was informed * that Sterling and British National Investments were not associated in any way with the Investment Executive Trust, but his view was that their membership connected them. It was also argued that the investment of not more than 10 per cent, of the debentures capital in any one security was to become effective only on completion of a series. He did not agree. He completed the balance-sheet in March 1933, and attached a report about the connection between the British National and the Investment Executive Trust. It also stated that the £12,768 should be transferred to a suspense account, until it was decided whether or not they were administration costs in terms of debentures. The stand taken against him was that he was interfering in the policy of the company. He replied that his duty was clear and would make no alteration. He resigned next day. His balance-sheet was never published. The next was for the 18 months ended June 30, 1933. There was no mention in it of the matters to which he had called attention. The hearing will proceed to-morrow.