McARTHUR TRIAL

Evening Post, Volume CXXII, Issue 33, 7 August 1936, Page 6

McARTHUR TRIAL

TRUST CO. ACTIVITIES

CASE FOR THE CROWN

FORMER DIRECTOR'S

EVIDENCE

When the adjournment of the Supremo Court for the day was taken at 4.30 p.m. yesterday, the evidence for the Crown in the trial of John William Shaw McArthur was nearing completion. There was only one more witness to call, and ; his evidence was not expected to take very long today. McArthur, a company director, formerly oi Auckland, is on trial on six charges relating to the issue of allegedly false prospectuses and reports of the Investment Executive Trust of New- Zealand, Ltd. The Acting Chief Justice (Sir John Reed) is presiding. Mr. V. R. Meredith and Mr. C. tvans-Scott are prosecuting, and McArthur is represented by Mr. H. F. O'Leary, K.C., with whom is Mr. R. E. Tripe. Assisting the defence is Dr. F. Louat, a Sydney barrister. After "The Post" went to press yesterday, formal evidence relating to banking transactions at Auckland, in which the names of the Selwyn Company, the Sterling Company, the Pacific Company, and the Investment Executive Trust were mentioned, was given by James Douglas Fairgray, a clerk in the security department of the Bank of New Zealand at Auckland, Hector Bishop Gauntlett, a clerk in the Commercial Bank at Auckland, and John. Leslie, Guinness, a clerk in the National Bank of New Zealand at Auckland. Mr. O'Leary did not cross-examine them. Owen Morley Hope, a consulting engineer, of Hamilton, said he had been appointed a director of the Investment 'Executive Trust of New Zealand, Ltd. _He was present at a meeting of the company on April 21, 1931, that being the first meeting he attended. About a year before that he had been introduced to McArthur, and the company had been mentioned then. Witness was asked if he would become a member of the board of directors, reference being made to engineering work in connection with the company. He was told the company was to^ be an investment company. Witness said he knew nothing about finance, but McArthur said that witness would know as much as the aver■age .man and that it would be all right. Witness agreed to become a member/of the board. He remained a^ member of the board from March, ! 1931, to July, 1933, when he resigned. ! During the whole of that time he was not; consulted as to the investments of the company.. • McArthur as far as he knew controlled the operations of the company. Witness had nothing to do 1 with, the preparation of the two prospectuses, whiclr.he had signed. Various reports were sent out; he was not consulted' in respect of their preparation. INQUIRIES IN AUCKLAND. 1 As a result of seeing an article in a I certain journal, witness continued, he went to Auckland to make inquiries. Witness asked McArthur whether any of the Investment Executive Trust capital was invested in the Sterling Investments .Company, and McArthur, over the/telephone, assured him there was no debenture capital invested there. In a.'subsequent conversation McArthur told him he had no further connection Tvith the Sterling Company. Mc 4 Arthur appeared to know very little about that company. Witness did not know McArthur had been the attorney of that company or had operated on one of its bank accounts. At a meeting on May 29, 1933, witness asked for a complete list of the Investment Executive Trust investments. The chairman of the meeting thereupon proposed a resolution that no director of the 'Trust should give any information to anyone but a fel-low-director relating to the internal workings and investments of the Trust, unless authorised by a resolution of the directors to do • so. Witness refrained from voting, and the resolution visas'.declared carried. The meeting adjourned until the evening, and witness in the interval consulted his solicitor. In the evening a list of the company's investments was read out, and in the list were the British Na-' tional Investment Trust and the British- National Trust. Before his resignation he had disagreed with McArthur over the revenue from debenture investments. ; Cross-examined by Mr. O'Leary, Hope said that one of the reasons for the issue of a new prospectus was some income tax difficulty, and it was a^so intended to.extend.the ambit of the investments to anywhere in the ■w.orld. He did'not'know whether any of the company's legal advisers took a;hand in the settling of the form of the prospectus. ."You know that McArthur is charged wjth a'criminal offence in respect of this document?" asked Mr. O'Leary, referring to the prospectus of April, 1933. ' . 'The witness replied.in the affirmative. ■ Arid' you have also.signed it?— Yes. 'Apparently that prospectus was considered by you and others at a meeting a week before it was signed. Is that not. so?—lf the minutes say so it is correct. And I suppose, Mr. Hope, you would feel like knocking anyone down if they suggested you had committed a criminal offence in respect of that document?—lt was quite unintentional if I did. His Honour pointed out that the question of intent entered into a criminal charge. "You can see the position you might have been in?" continued Mr. O'Leary to the witness. "You might have been in the dock with McArthur with the burden thrown on you of satisfying a jury you were innocent.1' "If I had been 'responsible for the lettering. I suppose so," replied Hope. "Yes, but here's your signature. You're an. educated man." 'Counsel explained that he.was not suggesting for a momentthat the witness had committed any oflence. OTHER FINANCIAL INTERESTS. After having. read- certain portions of the prospectus, .Mr. O'Leary asked witness whether in. Ms mind he thought anything more than a policy had been adopted at this stage. "No, certainly not," replied witness. Mr. O'Leary: Policy and plans for when the capital came in?—lt was really a continuation of the policy that was adopted in respect of the first issue of debentures. In reply to further questions witness said he wanted his solicitor to be present at the meeting on.May 29, 1933. He did not think* it wag in -connection with the investments. He thought it was the extra 5 per cent, to Mclnnes and Co., the brokers, that led up to the request. Mr. O'Leary: . Whatever, the reason that prompted you McArthur objected? —Yes. Didn't he say he was concerned! about big financial interests in'Auck-j land getting knowledge' of the Invest- j ment Executive Trust?—-Yes; ho ccr-1 tainly mentioned that.

Arid the purpose of this resolution was to guard as far as he could against

information going out" to people outside?— That was what was stated.

How did he describe these interests? Did he say who it was?—He didn't mention anyone specifically. Apparently, Mr. Hope, you didn't ask or seek to peruse the investments of the Trust until a day or two before that meeting on May 29?— It was all within a week or so. Was it at the meeting on May 29 that the list of investments was ■ read?—lt! was read when the meeting resumed that evening. • . ■ You were invited to check up the investments next day with the secre-' tary and you did so?— Yes. Mr. Evans-Scott: The prospectus of April 8, 1933, is shown as actually having been signed at the meeting of January 26, 1933?— That is correct. At that time did you have any knowledge whatever that substantial sums of money had been invested in subsidiary companies?— Not in January. ; His Honour: Apparently you first got to know about it in May?— That is SO..'-. _."' ;■■ ' :';.■■ . ;" . ....•::• AUDITOR WHO RESIGNED. John Anderson, a public accountant, of Auckland, said'that he was auditor, of the Investment Executive Trust in 1931, arid 1932. He resigned from the position on May 29,. 1933. The audit of the accounts for the year ended December, 1932, was completed by him. in March, 1933. During the course Of the audit he was handed a balancesheet which showed investments totalling £243,675.: He discovered that there was over £36,000 invested in the Sterling Company and over £52,000 in: the British National Investment Trust, which sums together amounted to approximately one-third of the total investments. The witness conferred with the managing director (McArthur) and the late-chairman of the board (Mr. Pilkington). ;Both were of the opinion that the two companies were not in any way associated with the Trust, but witness/held the opposite opinion. Mr: Hope was not at that meeting. In the prospectus was a clause limiting the investment in any; one security to 10 per cent. McArthur and Pilkington argued that that, applied only to the completion of the series. They then instructed witness to seek from, the company's solicitors an opinion on various points.' WiU ness completed the balance-sheet and attached his certificate and report to shareholders. That report referred inter alia to the large investments; in the two companies and their apparent connection with the; Trust. Of-! ficials of the Trust took the. stand ! that he as auditor was interfering i with the policy of the company, to which he replied that his duty was! clear arid that he would: not alter his, report. He sent in his resignation the following morning. The balance-sheet that he audited and certified, subject to his report, was ;to his knowledge never published. Later he saw another balance-sheet for the eighteenmonths period fended June, 1933, including the twelve-months he had audited.. :.'.[ '. : ; ■:'. . , , Cross-examined, witness said that it was not compulsory to separate the investments in associated companies in the balance-sheet. He did not agree that in the Old Country it was-the' practice not to show the different investments. He knew that to some1 extent the issue of the' hew. prospectus, was to, get over an income tax difficulty." ..■■' ',-, :; ; -.-•■■■ .■-•;•:■ '•■; ■•■■■,

When the Court rose until today MeArthur's bail was renewed,