H.—27.

The authorized terms of issue provided for a discount of 10 per cent., and, as interest was paid on the advances, the Investment Executive Trust as holder of the debentures stood to make a large, thoug fictitious profit out of the transactions extracted from funds provided wholly by itseit. The'"loss" of the books of the Sterling Co., and the fact that the books of Investment Executive Trust are in Sydney, have made it impracticable for us to trace the transactions fully, iTappLs that some at. least of the debenture, were token up ,t pa, the o» of the discount was compensated for by repayment being made at a premium. «apple this is afforded by a partial redemption of debentures made on 31st March,l933 On that date, Sterling Co. paid to the Investment Executive Trust a cheque for £54,875 to cover Repayment of part debenture capital .. •• •• " Premium .. • • ■ • • • • • • • " '' ' Interest .. • • • ■ • • • • '" " '' £54,875 On the same date the Investment Executive Trust paid £55,000 to the Sterling Co Though this seems to be merely an exchange of cheques, the effect is that the Investment Executive Trust was enabled to show a profit of £4,875 on the transaction which could be used to show profit enable additional interest to be paid to its own debenture-holders. , „ fi . » t Another example of the manner in which the Investment Executive Trust made a o of its association with the Sterling Co. is shown by the following account which was found on the fi of the Sterling Co. in Sydney Sterling Investment Co. (New Zealand), Ltd.; Auckland. Dr. to Investment Executive Trust of New Zealand, Ltd. £ s - d - To Interest on debentures to 31st December, 1931 (6 months) . • _ Commission re sale of debentures •• • ■ 2100 Our fees re investments • ■ • • • • • • •' 434 7 10 Less paid on account 10/2/32 .. • • • • ■ • T3 , A .. £334 7 10 Balance due • • • • • • ,===== E. & 0.E., 15th February, 1932. A cheque for £333 7s. lOd. in payment for this was paid on 15th February, 1932, the reduction of £1 being accounted for by an adjustment of interest. 11. REVIEW OF ACCOUNTS. A. Accounts Submitted. Balance-sheets of the Sterling Co. as at 31st August, 1932, and 28th *ebng, I l^'„^ amone the company's records in Sydney. Copies of these are appended as Exhibits B and O These balance-sheets are not certified and cannot be verified from the books, as these are not available, but both balance-sheets were produced to the Royal Commission m Sydney, and Mr. J W. S.' McArthur did not question their accuracy. <{ | Unu n i aTIPP ' A copv of a balance-sheet dated 30th June, 1934, is also appended. Exhibit A. This balancesheet was prepared by Mr. H. C. Glasson and other officers associated with him and was produced to the Royal Commission in Sydney. It has not been audited nor has it been signed by any officer of Te Company and we accept no 7 responsibility for its accuracy The Revenue Account attached to it shows that a loss of £2,514 15s. 7d. has been carried forward from the a profit of £601 7s. lid. was shown for the four-months period ended 30th June, 1934, reduced to £1,912 17s. Bd. as at that date. B. Review of Balance-sheet dated 30th June, 1934. Liabilities. (a) Paid-up Capital, £2,370 14s. The loss on Revenue Account, £1,912 17s. Bd., is deducted from this item, leaving a balance of £457 16s. 4d., representing shareholders' funds. (b) Commercial Bank of Australia, Ltd., Auckland. , 71n io kj rrj, e As at 30th June, 1934, the bank current account was shown as overdrawn £1,710 account was not actually overdrawn, as certain cheques had not been presente . (c) Sundry Creditors. .. 91,565 17 6 British National Trust .. •• •• ..28,557 10 10 J. W. S. McArthur .. .. •• ' A note is appended to the balance-sheet stating that Mr. J. W. S. McArthur has agreed that his r+ Kalnripp shall be transferred to the British National Trust, Ltd. If this is done the liability T the SterUng Co to the British National Trust, Ltd., would be correspondingly increased to £120,123 Bs. 4d.

54