EL—25 b

Company No. 12 was a public company incorporated for the growing of tobacco. The promoter was a vendor of land to the company. He bought 540 acres for £3,562, and two days later sold to the company for £20,000. The original nominal capital was £25,000 in shares of £1. Of these, 13,500 were issued as fully paid up to the promoter as part payment for the land. The promoter was a director of the company. Company No. 13 is a flax company, incorporated in New South Wales. A prospectus promising enormous profits from the sale of bonds was issued inviting the public to subscribe for shares. This prospectus was marked " Confidential: For Private Circulation only." The promoters were two brothers, who were also promoters of four other flax companies, all of which have since gone into liquidation. One or other of them has also been interested in other unsuccessful land-utilization ventures. The original nominal capital was £20,000 in shares of £1 each. Of these, 19,180 shares were issued, 11,180 being for cash. The promoters were to receive 4,000 shares as part consideration for an option to purchase land and £3,800 in part payment for land. They were managing director and New Zealand director respectively, and they were to be permanent directors as long as they held 500 shares each. Another director was a member of the brokerage firm. Bond issues totalling £272,706 were provided for, the estimated profit being £63,420. We have no evidence of the amounts actually paid in brokerage, but the estimated cost of selling, management, and advertising was £5 per bond of £2l 10s., or 23 J per cent: Each bond represented one-third of an acre. The total amount received from the sale of bonds was £168,000, yet this amount was insufficient to prevent the company from going into liquidation. Even as late as June, 1934, the land was encumbered, and the trust funds were not intact. Bondholders were required to raise further capital to- clear the title. The representatives of the bondholders who appeared before us stated that the value of the assets was £18,000. Hence the loss to bondholders was £150,000. (6) Examples of Land Inflation. In order to obtain information relating to the land transactions of land-utilization companies, we arranged with the Registrar of Lands, Auckland District, to search the records covering the land transactions of fifty-eight companies. In many cases no adequate records were available, but the search-notes furnished to us afforded striking corroborative evidence of the loading of assets in land with a fictitious value. We give below a table setting out in summary form certain of the transactions of eighteen companies. The list is not a complete record of " inflationary " dealings. In some cases' we have been able to append notes showing the relationship of vendors to the company, but it must not be considered that no relationship exists where we have attached no note to that effect.

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