MCARTHUR TRIAL

Evening Post, Volume CXII, Issue 35, 10 August 1936, Page 11

MCARTHUR TRIAL

THE SECOND WEEK

TODAY'S PROCEEDINGS

ACCUSED'S EVIDENCE

GROSS-EXAMINATION BEGINS

The examination-in-chief of John William Shaw McArthur, company director, formerly of Auckland, was continued in the Supreme Court today, the hearing having been adjourned from Friday afternoon. McArthur, who is on his trial before the Acting Chief Justice (Sir John FLeed) and a jury, has six charges against him relating to the issue of allegedly false prospectuses and reports of the Investment E.xecutive Trust of New Zealand, Ltd. The trial opened last Monday.

Mr. V.-R. Meredith (Auckland) and Mr: C. Evans-Scott are conducting the prosecution. Mr. H. F. O'Leary, K.C., with him Mr. R. E. Tripe, is appearing for the defence.

McArthur dealt with evidence given by Hope and Dowdy.

The Pacific Company, he said, was formed chiefly lor exploring certain Pacific islands to seek timber, minerals, and phosphates. The yacht Morewa was started by the company for that purpose with money from share subscriptions from the Sterling Company. The latter company was the sole shareholder in the Pacific Company. The shareholders in the Sterling Company were the shareholders of the 1.E.T., and they were really Alcorn and himself. The exploratory project was abandoned in • its early stages because the growth of the Trust made it impossible for McArthur to go on with it. Money was owing by Pacific to Sterling for advances on the construction of the yacht. That amounted to about £ 10,000! He arranged to take over the yacht and assume the responsibility of payment to Sterling. The debt was cancelled when he cancelled his Sterling debentures. The yacht was thus paid for by him.

Prior to the legislation and about six weeks after the start of the Sydney Commission, continued McArthur, he had agreed to hand over full control to the debenture holders, so that they could take over the companies and appoint four out of the five directors. That offer was not accepted. The.McArthur Trust, formed since the Commission, was registered in Brisbane because the Queensland Government was one which stood out against the special legislation. The purpose of that trust was to take debentures from the two earlier trusts in exchange for shares, in an endeavour to recoup the losses suffered by debenture holders in the special legislation. Over £150,000 had already been subscribed from New Zealand to the McArthur Trust from the original debenture holders. ■

McArthur said he did not take any interest on the debentures held by him in the -Sterling Company or the" British National Trust.

MR. MEREDITH'S QUESTIONS

Cross-examined by Mr. Meredith, McArthur agreed that he brought the Investment Executive Trust into being really, and controlled its activities. In connection with the company he had toured New Zealand and meetings in various centres had been held. Prior to the formation of the company he was .mainly concerned in the Selwyn Timber ■ Company and Redwood Forests.. He was the chief ordinary shareholder of the Selwyn Timber Company.

Mr. Meredith: That company got into difficulties and went into liquidation in June, 1930?— Yes, I think that was.the date.

The. Investment Executive Trust hah. been formed in 1929?— Yes.

And there were heavy liabilities in connection with Selwyn, were there not?— There were substantial liabilities, but there were very substantial assets also.

Just about that time I think there was a judgment against you for £3000 in the State Forest Service?—lt was, I think, later than that—twelve month*' later, I think.

And that judgment you couldn' settle? —No.

And you wished to avoid pressure in respect of that debt?—No, I wished time in which to pay it Witness agreed that he was being threatened at the time with bankruptcy proceedings. \ And you wrote that letter with a view to obtaining relief?— Yes, with a view to getting time to. pay the debt.

LIABILITIES AND ASSETS.

McArthur identified a letter he- haci written to the Crown Solicitor in Auckland,' enclosed with which was a statement of his financial position. Mr. Meredith (referring to the letter): And you showed your liabilities to be £19,240?

The witness: That is correct. And your assets to be £405?— Yes.

So virtually you were showing a deficit of £ 19,000?— That is correct.

Was that letter true?— That letter was not strictly true, but under the circumstances it was fair.

What do you mean by strictly true? A thing is-either true or untrue.—-Be-cause it did not contain assets which had been transferred by me to the Sterling Company and held nominally in my son's name.

Then that letter \vas untrue?— The letter was strictly true because these assets were not in my name.

Is it a letter written with a view to creating a false impression?—l don't think I created any false impression to you, Mr. Meredith. The position wa? this: At this time I had my back against the wall. I was being pursued by powerful financial interests who wanted to make me bankrupt and would have paid £3000 to do it.

What assets did you conceal when you wrote that letter?

Witness said there were shares in the Edgecombe Company principally— 25,000 shares paid up to 6s. They were transferred to the Sterling Company for a £1250 consideration.

These were your shares?— Yes.

And what other assets did you conceal?—l think that was practically all the assets that were in it at that time.

Were those all the assets you had besides what you put in the letter?— That is practically the lot with the exception of 2500 ordinary shares in Selwyn.

As Selwyn couldn't pay its creditors they would be valueless? —They would be at that time.

Y6u; surely know what assets you had when you wrote that letter which you say was not strk'iiy true?— Well, I would like to give you all the parti-' culars.

I would like to get them, too. The Sterling books would show wouldn't they?— Yes. The Sterling minutes, I think, would show. If you showed me the Sterling minutes probably I could tell you something about it.

Mr. Meredith produced the minutes and McArthur said there were also shares in Redwood Forests. They were his shares in Modern Homes held by him. They were 7500 fully-paid'shares and the considpralion shown in the minutes was £1000.

1 think you will agree that at the 4«tc of the writing of the letter in connection with that 3000-odd pounds you were insolvent, badly insolvent?

—Well it depends. If I had been pressed I might have been.

But you were pressed. There was a bankruptcy notice out against you?— That is so.

And that bankruptcy notice was saved by the payment of £3000?— Yes.

Where did that £3000 come from?— That was paid by: Sterling and the Sterling Company then took over the Crown debt.

, And where did Sterling get the money from?— Sterling got these .funds from debentures which were subscribed by the I.E.T.

Then we have it that you paid £3000 over, to save you from bankruptcy. Sterling got that money from the Investment Executive Trust and the Investment Executive Trust got their money from the public?— Correct.

So one of the investments made in the early stages of the public money was a disposition to protect you from bankruptcy?— From being pressed, yes. There was a bankruptcy petition actually out against you?— Yes.

In connection with the Selwyn Timber Company, Mr. McArthur, you made personal drawings from that company did you not?— Yes.

And you owned property known as the Grey Street property and also one in Pamell?—Yes.

Immediately before Selwyn went into liquidation you discharged your personal liability to the Selwyn Company didn't you, in respect of these personal drawings?—l don't remember now.

I am going to put it to you that you transferred these properties to the company in discharge of your personal debt to the Selwyn Timber Co?— Well, I may have done.

One of the properties was transferred the day before the Selwyn Timber Company went into liquidation?— That may be so.

You and Alcorn bought the bank debenture over the Selwyn assets? —Yes,

Sterling found the money?— Yes. And Sterling got the money from the 1.E.T.?—1 think it got most of its funds from the I.E.T.

And the I.E.T. got it from the public?— Yes- ■

Mr. Meredith further questioned McArthur concerning the financial operations of the Sterling Company.

HELP FROM THE TRUST.

In that letter to the Crown Solicitor, you said that you were also managing director of the 1.E.T., that the company was only in its infancy, but was having a fair measure of success,' and if you could continue to direct its policy the success of the company would materially help you personally?— That is correct.

McArthur. agreed that the ' company helped him almost immediately in various ways, and helped him later in other ways.

From Sterling, McArthur agreed under continued cross-examination, that he had got £7130 in cash and £6000 was spent on his house at Hillsborough. Later, he wiped that out by the Wynwood transaction with B.N.T. debentures. He also acquired other assets from the Wynwood Company. He received the cash from Sterling before he had any B.N.T. debentures, and before he could have known he would get them. The same applied to the money spent on Hillsborough, but there were other assets.

Mr. Meredith directed his next questions to obtaining the names of the j directors and attorneys of the com- j panics associated with the trust. The accused agreed that he was either a director or attorney of every one of j the companies, and that Alcorn was also a director of practically all of them. BUILDING OF MOREWA. The Morewa and the Pacific Exploration Company were next dealt with by Mr. Meredith. He read from the memorandum of the company which said that its objects, inter alia, were to seek for and secure openings for the employment of capital in the Pacific or in any other part of the world, and to dispatch expeditions. . Mr. Meredith: What particular islands had you in view?— There were no special islands at all. You were to have the whole Pacific at your disposal? Was that the idea? —Everybody has, with a ship. ■ Mr. Meredith asked whether it was not a fact that in these modern times mail and passenger steamers went to most parts of the Pacific, to which the accused replied that there were several .islands not visited by such ships. There are trading schooners about the-islands, are there not?— There may be. . Now, you know there are? —Yss. I And they can be got to any of-the islands if you want to go there?— Yes. but there are islands in the Pacific j that no trading schooner goes to.. You could always hire one, couldn't ! you?— You could. This company had no money when it was formed?—lt would not require very much. ■ ( You put nothing into it?—No, except from Sterling. My assets were in Sterling. This company started to build, what shall we call it, a schooner or a yacht? —Call it either. With no particular part of the Pacific definitely to explore? There was no particular exploration in sight?— No. It was to be ready in case something turned up?— That is so. I was advised ,that there were possibilities. McArthur said that he had an idea of investigating mineral and phosphate possibilities. There were mineral possibilities in Fiji, said Mr. Meredith, but did the accused think Mr. Theodore had built a yacht or used the ordinary steamer? The sum of about £10,000 for- the yacht, continued the accused, came from a realisation of his own assets and from the ItE.T. It came from the funds of Sterling. He took the yacht over in December, 1933', before she was quite finished. "WELL FITTED OUT." She was fitted out for comfort?— She was very well fitted out. I think she had her own special silver?— Yes. What was the inscription on the silver?—lnscription? There was just a flag on it. I think the silver was about £500 worth?—l think it was less than that How much less?—l don't know. You have probably found out. '■ Everything on her was the best— Yes. ' . ' • McArthur, -under further questioning, said he- had once taken thu Morewa to Norfolk Island. The sails from England, after you had taken her over, were charged to Pacific?— They would have been and then charged to me through Pacific. Money was sent by Pacific from Sterling to London to buy things for her?— Yes. I suppose- you did not mention anything of this in those lectures of yours to debenture holders on the tour?— No. THE "TELEGRAPH" BUILDING. The purchase of the "Daily Telegraph" building in Sydney was the subject 'of Mr. Meredith's next questions. McArthur said that he and Alcorn decided to buy it, at a time when they had no available cash. The £50.000 needed was obtained from the I.E.T. He then formed the 8.N.1.T., which became the owner of the- building. He and Alcorn were the proprietors of the 8.N.1.T., and they increased its shareholding capital and themselves subscribed for more than 230,000 2s shares. They paid nothing for them. They could control the | I whole Ihing. They passed a rcsolu-j lion allotting to Alcorn 49.598 shares! and 190.000 to McArlhur, and a resolution that they should pay 10 per cent, of the cost within a month. That

amount was paid later. The position then was that the 8.N.1.T. owned the building and that he and Alcorn owned the shares in the 8.N.1.T. Then the B.N.T. was formed with one of its principal objects the taking over of 8.N.1.T. shares. There was a distinct advantage in transferring them at a price representing the equity in the building. That would establish the value in Australia. He and Alcorn sold the 8.N.1.T. shares to B.N.T. the same day that they got them for 23s a share, on which they had not paid sixpence. He and Alcorn then held paper amounting to over a quarter of a million, for which they had paid nothing. At that time nothing had been done to the building by way of improvement, and there was only the prospect that it had been well bought. It was bought, however, for much less than its value, so that B.N.T. had a real equity in it.

You and Alcorn had made your profit on paper?— Yes.

I That profit. I take it, really would! |be realised later when the building jwas sold or something was done with it? —Yes, or when it was revenue-pro-ducing. You got 222 debentures between you and . 65,000 shares in the company?— Yes. j And British National Investment Trust bought three of these debentures from British National Trust for £3000? —Yes. And £2400 of that was used to pay Alcorn's-and your calls on these shares? —Yes. And the balance of £600 in cash was picked up by you and Alcom?—l think that went to pay costs. You borrowed £50,000 from I.E.T. to buy the building, took up shares on which the calls amounted to £2400, j translated that into a paper profit of I over a quarter of a million, and got your calls paid out by B.N.T. deben-1 tures. In the whole of this transaction! you didn't put up sixpence?— That is I j correct. i | . With '60 of the 222 you got hold of the Sterling debentures?— Yes. 1.E.T., when advancing moneys to the Sterling Company, took debentures from it?— Yes. And as we know that Sterling money, some of it, £20,000, went to the Pacific Exploration Co., Ltd., and out of that this yacht was built?— Yes. PURPOSE OF THE YACHT. I _am going to put it to you that the "yacht was built for you and was intended for you from the moment! the order was given for it?—No, not { right at the beginning. | I am going to put it to you that the | [suggestion that this yacht was built I for the purposes of exploration is utter j rubbish?—l say that is nonsense. I

I am going to put it to you again that the yacht was built for you from the outset?—No, not right at the outset. Afterwards it was.

McArthur added that when the yacht was ' started it was for exploratory work, but when he decided to take it over he altered the internal arrangements. At that time the hull had been completed and the bulkheads had been put in.

Going back to the letter in which you stated your liabilities were £19,000 and your assets £400, how big a lie did you tell in connection with it?—l left out'in the statement assets which were held' in my son's name.

Mr.. Meredith suggested that during (he luncheon adjournment McArthur should make up a list showing what he had handed in to the Sterling Company.

McArthur said he would endeavour to comply with this request.

In reply to further questions. McArthur agreed that it was intended to house various organisations in which he was interested in the "Daily Telograph" building.

Mr. Meredith: So you were really going to occupy and not sell it?— Yes.

McArthur said that extensive alterations were required to make the building suitable, and about £115,000 was spent in this connection.

Mi-. Meredith: To get this money to improve the building, you went to the I.E.T.?—Yes.

You had in mind the getting of that money from them?— Yes, and from the South British National Trust, too.

At any stage did you notify the debenture holders that this was what you were doing with their money?— No.

Did anyone ever try to ask you questions about it?—No one asked any questions that I did not answer.

Mr. Meredith: I know that, Mr. M~ Arthur.

McArthur: And correctly. Mr. Meredith: We may join issue with .you on that.

Replying to further questions, McArthur said there were no minutes of any advances.

Mr. Meredith: You are dealing with very big figures. And you made no minute at all in the books? —That is so.

When you bought the building you had to pay £50,000.' I.E.T. .were not holding £50,000 in a lump?— They were holding either cash or investments much in excess of £50,000.

And you sold 'investments to get the £50,000?— Yes.

You took in from debenture holders either" cash or shares and you were careful about the class of shares you took in; you only took in good shares? —We tried to take in nothing but good shares. So that they would be good invest-1 ments for the Trust?— Yes. They would help diversification, would they not?—Yps. SELLING OF SHARES. As you hadn't got the £50,000 in hand you sold shares? —Yes. , So you sold these good shares you had been taking in from debenture holders to provide cash for this investment of yours and Alcorn's?—Yes, butj which was for the benefit largely of i debenture holders. / Mr. Meredith: I won't agree with you in that, but I think you will agree with mo in this, "And very largely for the j benefit of Mr. McArthur and Mr. Alcorn"? Yes, it was a mutually satisfactory arrangement. To his Honour McArthur snid it was a deal that was satisfactory for both parties. His Honour: The deal was between McAvthur on one side and McArthur on the other?— Yes, but the deal was a satisfactory one, I maintain, for the debenture holders and for McArthur. ! Mr. Meredith: So when you wanted j 1 this building investment; you actually | sold shares you had received from debenture holders and took them out of their character of shares to convert them into cash which you used for the purpose of buying the building?— Yes, for the purpose of buying the building, j Later on. when you wanted £115,000 ; for alterations, you converted more?— Yes. And you had it in n\nd all the time to do that?— Yes. Mr. Meredith asked whether it was not correct that of the total investments | held when McArthur's operations were I stopped £221,000 was in associated companies, and £140,000 in other forms of investment. McArthur said that that might be approximately correct. Mr. Meredith, shortly before the luncheon adjournment, was questioning McArthur closely on the contents of literature issued Vy him. He asked McArthur whether he suggested it was j quite reasonable' and justifiable to' divert huge sums of money from the i j various companies for the purpose of, ! purchasing (he building in Sydney. Me- j Arthur said that with the plans they had ' in mind he thought it. was. " i (Proceeding.)