GIGANTIC FRAUD

Wairarapa Times-Age, 3 June 1938, Page 7

GIGANTIC FRAUD

ALLEGED IN NEW YORK BIG INVESTMENT TRUSTS LOOTED. INDICTMENT OF LAWYERS AND OTHERS. NEW YORK, June 1. Mr Thomas Dewey, New York’s special prosecutor of the racket and vice investigation, has announced another spectacular attack on racketeering, with the indictment of six men, several of whom are lawyers of good standing. They are accused of looting seven investment trusts of 10,000,000 dollars. The manner in which the ring is said to have operated is an almost unbelievable miracle of high finance. They started with a five-dollar outlay, acquiring one share in a number of trusts, and then negotiated with other shareholders to obtain control of the latter’s holdings. They thereupon withdrew millions of dollars of securities from the trusts by loan arrangements. The securities were then sold, part of the proceeds being used to pay off shareholders. The remainder was pocketed by the alleged conspirators, who thereafter returned to the trusts the face value amounts of perfectly worthless securities.

Several lesser-known brokerage houses are involved in the scheme, which the authorities declare shows the vulnerability of many existing investment trusts having billions of assets.