Newspaper cuttings, mostly from the Daily News, cut out and pasted in for Karl Marx by his daughter Jenny Marx in the notebook “Trade and Finance 1868”, London, 1868-1869 (IISG, Amsterdam, Karl Marx and Friedrich Engels Papers, P 1). Text from MEGAdigital (MEGA² IV/19), without the editorial apparatus; words in square brackets are missing from the cuttings and supplied by the MEGA editors.1 Traducción al español
THE FRAUDS ON THE GREAT CENTRAL GAS COMPANY.
The Select Committee appointed to inquire into the matters affecting the Metropolitan Gas Companies resumed their sittings yesterday, at the House of Commons; Mr. MONK, M.P., in the chair.
Mr. Denison, Q. C., and Mr. Rickards appeared for the Great Central Gas Company, whose Bill was before the Committee; Mr. Hope Scott, Q. C., Mr. Serjeant Sargood, and Mr. Pope, on behalf of the Corporation, to oppose the Bill.
Mr. Denison, Q. C., in opening the case for the company, alluded to the purposes for which the company was authorised and established, and the manner in which they had up to the present time conducted their operations. The requirements of the company since its formation had necessitated the erection of additional works, and at the present date 36,000l. was owing under that head, and at the present date 36,000l. was owing under that head, and in order to provide for that sum and also for other extensions of works, &c., which would be needed, the company proposed to raise an additional capital of 100,000l. The company would have been enabled to have discharged the debt of 36,000l. to which he had alluded had it not been for the frauds of Mr. Higgs, the late secretary of the company, which were a matter of common notoriety, his defalcations having amounted to twice that sum, or something over 70,000l. Higgs had carried on his system of fraud since the year 1862, and the result had been the astounding deficiency named. It would be asked where was the system of audit under which such operations could have taken place. Higgs had been in the service of the company for 17 years, and the directors had considered that they could place great confidence in him; and, with reference to the auditing of the accounts, there was an Act of Parliament of 1851 which empowered the corporation to appoint auditors on their own behalf, such officials to be paid by the company. Directly the Act came into operation they appointed two gentleman, viz., Mr. Chatteris and Mr. Begbie, who were both members of eminent City firms, for the purpose, and those gentlemen had continued in that office ever since, so that the corporation were as much to blame in that matter as the directors. These frauds went on under a system of running audit and under the supervision of auditors appointed, not by the company, but by the corporation. He did not know how his learned friend would deal with this matter in opposing the Bill, as he declined to show him (Mr. Denison) his cards; but at the present, at any rate, he thought that the corporation of London did not come forward to oppose the Bill with cleaner hands than did the directors.
Mr. Harris, the engineer of the company, was first called, and gave evidence tending to show the necessity for the further extension of the company’s works, and the further capital which would consequently be required.
Mr. Henry Chatteris, examined by Mr. Rickards—I am member of the firm of Chatteris, Nicholls, and Chatteris, public announcements, and I was appointed an auditor of the Great Central Gas Company in 1851, in which office I continued till the end of 1860, being annually reappointed by the Common Council. At the end of 1860 I became an auditor of the company, appointed by the directors, and have continued so up till the present time. Mr. Begbie, of the firm of Begbie Robinson, and Hockley, was my colleague. He was appointed in the same manner as myself, and has continued so up till the present time. The corporation never appointed us after the year 1860. I knew Mr. Higgs, who was a clerk in the accountant’s office of the gas company. There were six or seven clerks in the office. I do not know whether he held a leading position. I believe he had been in the company’s employ for 16 or 17 years. It was one of the rules of the office that the accountant should receive from the company’s collectors their lists. The collector was to take the money he received direct to the bankers, and then take the list and receipt to be passed into the company’s books. I have ascertained since Higgs has absconded that that course was not pursued since 1862, but that Higgs persuaded the collectors to take the lists and money to him, and he would pay them into the bank. The accountant has told me he did not know of this proceeding. The late investigations show that Higgs was in the habit on some occasions of keeping the whole of the money, and in other cases making out smaller lists, and them paying in the smaller sums.
After some further evidence had been taken the Committee adjourned.
THE FRAUDS ON THE GREAT CENTRAL GAS COMPANY.
The directors of the Great Central Gas Consumers’ Company have prepared a report, which, so far as it relates to the absconding clerk, Benjamin Higgs, and his misdeeds, has considerable interest at present. They express their deep mortification in having to submit a statement of frauds of a startling character which, they say, have for series of years been carried on by him, and their regret at being obliged to add that the inquiries instituted had brought to light a total neglect of duty by others, from whom, as old and trusted officers, they had every right to expect faithful service. The result of a thorough investigation, they say, is that the large sum of 71,214l. odd has been stolen. That this could have been effected is astounding to them. Trusting, they say, to the “long-established rules of business in the outer office, by which a perfect system of check was prescribed,” they were not prepared for the falsification of the company’s cash-book, nor to find that the true statements of rental and arrears placed weekly before them were differently entered in those books of the company which did not come under their observations. At their weekly meetings directors had the bankers’ pass-book and the company’s cash-book produced and carefully called over, to see that all moneys paid to the company had been duly passed to their account at the bank. They had also produced to them a weekly statement of the rental due, with the sum collected and the amount of arrears, and the collectors were constantly called before the board and examined as to their collections and the reasons of accounts being in arrear. But while the directors were, as they say, thus carefully engaged in checking the books, it is now ascertained that the cash-book was falsely made up; that the system of check, as described by the auditors, was not carried out in the office; that the collectors had from time to time paid their money into the office instead of to the bankers; that the accountant—the superior of Higgs—whose duty it was to check the payments into the cash-book from the actual receipts, had contended himself with copying the bankers’ book, in which a portion only of the receipts of Higgs appeared, thus rendering the labours of the directors futile. Higgs had obtained entire supervision of the office, and being an able accountant and constant at his work, from nice o’clock in the morning frequently until late in the evening, had been allowed to control and conduct the whole business of the outer office. He had been in the company’s employment 17 years, and had served his articles with Mr. Jackson, an accountant, in Guildhall-buildings, coming to the company with the highest character, “which he had apparently deserved up to the time of his absconding.” His salary was originally 100l. a year, but was afterwards increased to its present amount—145l. The directors did not know, nor had they the slightest suspicion, that he was living otherwise than as befitted his position, and the accounts they had since received of his wicked extravagance had come upon them with the utmost surprise. The fact of his absconding was first notified to the chairman by the secretary on Sunday, the 7th of March, and it was then supposed that he had apprehended a small sum received by him for gas products. The accounts were then thoroughly investigated, with the deplorable results regret to add that, notwithstanding the efforts of the ablest detective officers, Higgs is still at large, but every exertion is being made to bring him to justice. The directors say, however, they are glad to be able to point to the solid prosperity of the company, and they propose in order to meet the defalcations, to appropriate 10,000l. a year out of money available for dividend. In conclusion, they express their deep regret at the necessity for such a report, after so many years of hardly-earned prosperity, and they assure the shareholders that they will lend their utmost efforts to recover the losses so unexpectedly made. The report of the auditors (Mr. G. C. Begbie and Mr. Henry Chatteris), which is appended, states that, in accordance with the instructions of the board, they had investigated the books and accounts with a view to ascertain the amount of Higgs’s defalcations, as well as the time when the frauds commenced, and the method by which they were effected. They had ascertained that the frauds amounted to 71,214l. 2s. 2d. They thought it right to mention the system of the company’s accounts, adopted with the intention of placing the funds beyond the control of the clerks who kept the books. As to the gas rents, the amount chargeable for gas at the end of each quarter was entered to the debit of the customer. In the rental for the particular district, there being four districts, to each of which a separate collector was appointed. The total amount of the quarter’s consumption was carried by means of a journal entry to the debit of the district in the general ledger. It was the duty of each collector to pay daily the amount received by him direct to the company’s bankers and to deliver at the company’s office the bankers’ slip of the amount received, and a list containing the names and residences of the consumers, and the amount received by him direct to company’s bankers and to deliver at the company’s office the bankers’ slip of the amount received, and a list containing the names and residences of the consumers, and the amount received from each, the total of which list would be the amount paid to the bankers. It then became the duty of the company’s accountant to see that the amounts so returned as received by the collectors’ list were entered from that list to the credit of the consumer in the rental, and also that the total amount of each list was credited to the company in the bankers’ pass book, entered in the cash book, and posted thence to the credit of the district in the general ledger. The chief accounts of the gas products were kept at the works, where the tickets for ready-money sales of coke and tar are entered numerically in a book called “Products’ cash-book.” The amounts received for ledger accounts were also entered therein, and the same rule as to paying the money to the bankers applied to that department as to receipts for gas rents. The money having been paid to the bankers, it was the duty of the company’s accountant to see, as in the case of the gas, rents, that the amount was credited in the bankers’ pass-book, to enter it in the cash-book, and to post it to the credit of gas products account in the general ledger. It would thus be seen that, by the rules, neither the company’s accountant nor any of the clerks had anything to do with the cash, and the collectors had no control over the books. The frauds, according to the auditors, appeared to have been committed in three different ways—namely, by abstracting money brought to the office by collectors, by abstracting money brought to the office by collectors, by abstracting part of the receipts for gas products, and by applying to his own use cheques given to him by the secretary to pay to creditors of the company. Instead of complying with the rule to pay all their all their receipts to the bankers, the collectors appeared in very numerous instances to have left both the money and lists at the company’s office and thus Higgs, having got possession of both, was enabled to and did appropriate to himself, in some instances, the whole and in others part of the amounts of such lists; in each case he entered, or caused to be entered, to the credit of the consumer in the rental the correct amount shown by the collectors’ list to have been received, and then, in both instances, he took away the list, substituting for the one of which he had kept only a portion of the amount a list made out to agree with the smaller amount paid to the bankers, so that the collectors’ lists remaining in the office went to vouch the receipts entered in the cash-book. Although a large number of the abstracted lists was found by the police at Higgs’s house, many lists are still missing. The frauds under this head amount to 65,624l. 11s. 1d.; they began in 1861 and continued down to the 4th of March last, when he absconded. In 1861 and 1862 this kind of defalcation amounted to 2,678l. 9s. 10d.; in 1863 to 863l. 17s. 6d.; in 1864 to 5,750l. 6s. 4d.; in 1865 to 8,534l. 10s. 11d.; in 1866 to 8,848l. 2s. 8d.; 1867 to 22,091l. 4s. 4d.; to June 30, 1868, 7,634l. 2s. 9d.; to December 31, 1868, 6,853l. 18s. 10d.; and March 4, 1869, 2,360l. 8s. 11d. As to the receipts for gas products, the frauds amounted to 4,561l. 4s. 6d., and were begun in June last; and 1,028l. 6s. 7d. was appropriated by him in addition, consisting of cheques given him by the secretary, to pay creditors. At the end of each year, and at the end of June, 1868, a revenue account and balance-sheet were prepared by the accountant and submitted to the auditors. Those accounts, after being finally adjusted, correctly represented the state of the company’s general ledger and the balance of the cashbook; but from the fact of the amounts of the collectors’ receipts which had been purloined having been posted to the credit of the consumers in the rentals, there was a great discrepancy between the ledger balance of the districts and the amounts shown in the rentals. The auditors state that they are unable to suggest any improvement in the system of the company’s accounts, and that the frauds could not by possibility have been committed had the very excellent rule of paying all money direct into the bank been strictly adhered to. If the company’s accountant had received the original rental or the bankers’ pass-book, the frauds must have been at once discovered. The debit side of the cash-book, and the object of the weekly examination of those books at each board was thus completely frustrated. No irregularity had been discovered in the debenture or share accounts. The company’s business say the auditors, was in a more prosperous state than might have been expected after so serious a loss.
BARNED’S BANKING COMPANY.—
The Liverpool Mercury publishes a further contribution to the history of Barned’s Banking Company, in the shape of a report drawn up by the creditors representatives—Messrs. A. Ashton, G. Bahr, and T. Cope. The document contains a number of interesting particulars. Of the 40,000 shares originally issued only 14,000 were taken by bona fide shareholders, the remaining 26,000 standing in “the names of adventures, speculators, and clerks without means or resources.” The 40l. call has produced 352,500l., but nothing whatever has yet been obtained in respect of 12,300 shares, representing 492,000l., the holders of which are stated to be mostly absentees or nominees. A statement of the liabilities and assets of Mr. L. B. Mozley shows that the former amounted to 340,728l., and the latter to 70l.; those of Mr. C. F. Mozley to 19,640l. and 132l. respectively; while the liabilities of Mr. Charles Mozley are put down at 230,304l., and the assets are estimated at 23,000l. The framers of the report complain that soon after the stoppage of the bank Messrs. Mozley and their friends were permitted to execute deeds, thus shifting investigation, and also notice the fact that on the very day that the bank stopped Messrs. Mozley appear in the cash book as having drawn 1,000l. “for their quarter’s services in the management of the bank.” With regard to the issue of the liquidation, it is stated that it was estimated the assets would realize 850,000l., but a sum of only about 160,000l. has yet been obtained.
THE FRAUDS ON THE GREAT CENTRAL GAS COMPANY.
PRELIMINARY MEETING OF SHAREHOLDERS.
A meeting of shareholders was held yesterday evening at the Guildhall Coffeehouse, “for the purpose of discussing the desirability of appointing a Committee of Investigation on behalf of the proprietors, of replacing the retiring directors by new ones, and of economising the revenue for the future by the reduction of the salaries of the directors, secretary, &c.” Mr. JOHN GOWER, of 64, Bread-street, Cheapside, a holder of 134 shares, was unanimously voted to the chair.
The Chairman said there was a strong feeling of dissatisfaction amongst the shareholders as to the character of the report which had been issued by the directors, showing the defalcations that had been going on for six or eight years, and they were met on that occasion for the purpose of devising some means whereby the good management of the company for the future might be secured. They were all anxious to conserve their property, but whilst there were matters that required to be thoroughly sifted, he begged of them not to pledge themselves to action that would involve the destruction of their property and lead them into wild agitation. (Hear, hear.) The directors had invited the holders of more than 100 shares to a conference on Monday last, and the result had not tended to diminish the belief which prevailed as to the grave neglects attachable to those gentlemen. Remarks were made with reference to the inner and outer offices which no one could understand, because if the directors had not control over the outer office, their positions was of no value. The directors called their attention to the fact that they could not be expected to prepare cash books. Such a task was perhaps not within their province, but it was their duty to see that the work was properly done. (Hear, hear.) During the past six or eight years no balance-sheet had been issued to the shareholders, and he and several others had ascertained from the directors that no balance-sheet had been before them during that time. (“Oh,” and “Shame.”) The directors had borrowed 45,000l., but that fact had never come under the cognisance of the shareholders, and he feared they would find that the interest paid on that sum had been covered in a false item in the statements submitted at the various meetings.
A shareholder asked when, and from whom, had the money been borrowed.
Another shareholder said Sir Thomas Gabriel had advanced it to his brother directors.
The Chairman replied that the money was borrowed from year to year as the defalcations went on. Another grave defect was this—that, whilst the Surrey Gas Consumers’ Company, doing a business similar in extent, had an outstanding claim of about 20,000l. against their customers, the directors of this company had allowed the arrears to run up to 65,000l. without being aware of the fact. (Shame.) The directors now sought to throw the blame upon the officers, but the shareholders would take care that the subordinates were not saddled with a responsibility which belonged to the executive. (Cheers.) He had distinctly told them that men of ordinary business qualifications. They had been paying their collectors by commission, and if that had been paid with the money received, they would have found they had paid commission on 10,000l. year, and in one case on 22,000l., which had not come into their coffers at all. (Oh, oh.) It was a question whether the fees received by the directors over 1,000l. a year were legal; and he would be amongst those shareholders who were ready to try and secure the return of that money, as well as of other sums, to the company.
A shareholder wished to know if the assertion that Sir Thomas Gabriel had lent the directors money was true.
The Chairman replied that part of the money had been borrowed from Sir Thomas Gabriel.
Dr. Hass (who was instrumental in calling the meeting) explained that any action taken at the present would not be binding, and that moral effect was the object sought to be attained. He moved “That a Shareholders’ Committee of investigation be appointed, to consist of six proprietors, with power to call in extra aid if necessary, and to be report to a future meeting of shareholders.”
Mr. ATRELL, in seconding the resolution, said he suspected something was wrong in 1860, and in that year he subjected the directors to an unexpected cross-examination with regard to the accounts. He was sure they subsequently found they had told him too much; for no balance sheet was issued afterwards. To that fact the defalcations of Benjamin Higgs were attributable. He had no hesitation in asserting that the directors were no longer worthy of the confidence of the shareholders. (Cheers.) The allusion that had been made to Sir Thomas Gabriel brought a curious coincidence to his recollection. When Redpath was being examined before the magistrates, Sir Peter Laurie, addressing the directors of the Great Northern said: “If you had kept your accounts as we do at the Union Bank, this would not have occurred.” However, the next offender of a similar class was a defaulter at the Union Bank. (Laughter.) At the trial of Overend, Gurney, and Co., Sir Thos. Gabriel said to the defendants, “You were the trustees of that property, and you should have looked after it.” He (Sir Thos. Gabriel) was a trustee of the property of the Central Gas Consumers’ Company, and why did he not look after it? (Cheers.) The speaker then proceeded to say that the shares were not worth 15s. 6d. in the pound, and that he was prepared to give proof, when there was no danger of their enemies making use of his figures.
Mr. HEAD dwelt upon the fact that while the arrears were 38,000l. the same item only stood at 1,200l. in the books of a company which had rental double theirs.
Mr. BATLEY did not see how their shares could be only worth 15s. 6d. in the pound when they were bought at 11l.
The resolution was then put, and carried unanimously.
Mr. CHARLES BASS moved—“That the four retiring directors having forfeited the confidence of the shareholders, their places be not filled up until the Committee of Investigation have made their report.”
Mr. WADDELL seconded the resolution, and said anything like a compromise with the directors could not be tolerated. In the course of his remarks he said that a salary of 140l. a-year was absurdly inadequate for a man like Higgs, who was believed to be one of the best accountants in the City.
The Chairman reminded the meeting that if they adopted the report at the meeting this evening, they would make themselves liable for the 45,000l. borrowed.
The resolution was then carried, as was the following:—“That the chairman of this meeting be requested to move at the general meeting to be holden to-morrow, that this meeting decline to receive or adopt the report of the directors, or render themselves liable for the 45,000l. irregularly borrowed, until they have had further information given them in the report of an independent committee of investigation.”
The Chairman said the directors had sent out proxies, and made a statement that they had a prospect of paying 5 per cent. in the next years. As they were not in a position to do anything of the kind their conduct involved an attempt to obtain proxies under false pretences. He hoped the shareholders would work harmoniously and unite in the endeavour to place their affairs under proper management.
A Cordial vote of thanks was then accorded to the Chairman, and the proceedings terminated.
TO THE EDITOR OF THE DAILY NEWS.
Sir,—I have read the report of the directors on the above frauds, which appears in your issue of to-day, with very great amazement. The directors report that the auditors state that they are unable to suggest any improvement in the system of the company’s accounts, and that the frauds could not by possibility have been committed had the very excellent rule of paying all money direct into the bank been strictly adhered to. This may be perfectly true, but it is only another way of saying that the accounts were not thoroughly audited either by the directors or by the auditors themselves. Of all the frauds that have been committed during the last ten or fifteen years—the only one for which, I think, neither directors nor auditors could be held responsible—was the simplest of all, and that was Pullinger’s. My reasons for this statement need not be given, for obvious considerations. The balance of a subsidiary book must agree with the balance in the general ledger; and I never made up a balance-sheet yet without comparing each subsidiary account, and seeing that it agreed with the ledger. This the auditors of the Central Gas Company never seem to have done, and hence the enormous loss.—I am, &c.,
AN OLD BOOKKEEPER. London, April 29.
THE DEFRAUDERS AND DEFRAUDED.
TO THE EDITOR OF THE DAILY NEWS.
SIR,—Who are the men most frequently cheated by trusted servants? Are they not such gentlemen as the somnolent board of the Central Gas Company, who, with a “complete system of check,” slumber in security, believing in the watchfulness and honesty of subordinates whom, in the course of 17 years, they reward with an increase of 2½ per cent. per annum for their unremitting attention from “9 o’clock in the morning until late at night.” The employer who sleeps himself always finds his servants sleep too; whilst he who wakefully watches his own interest and that of his men, by rewarding the diligent and discarding the slothful does not encourage dishonesty by disregarding it. Such en are not cheated. Of course Higgs is a rogue, and the directors are “unfortunates,” but can the man who robs awake and those who take their guineas and sleep? by force of example encouraging accountant, collectors, and other “old and trusted officers” to do likewise. If they reward activity with an advance of 45l. in 17 years, how did they pay the sluggards, including themselves?—I am, &c.,
E. G. Brixton, April 29.
MERCHANT BANKING COMPANY OF LONDON (LIMITED)
The sixth ordinary general meeting was held yesterday at the office in Canon-street, Mr. J. A. SMITH in the chair.
The report gives the profits, after making full provision for bad and doubtful debts, at 52,072l. 0s. 9d., to which adding balance from last account of 4,737l. 17s. 6d., there is the sum of 56,809l. 18s. 3d. for distribution, which the directors appropriate as follows, viz.:—to current expenses, 9,652l. 18s. 5d.; to directors’ remuneration, auditors’ fees, and income tax, 4,000l.; to rebate on bills not due, 1,939l. 12s. 4d.; dividend at the rate of 5 per cent. per annum, viz.:—Dividend, 30th June, 9,315l.; dividend now declared, 9,315l.; reserve fund, increasing it to 45,000l., 20,000l.; balance carried forward, 2,587l. 7s. 6d. Total, 56,809l. 18s. 3d. The dividend at the rate of 12s. 6d. per share will be payable on and after Wednesday, the 31st instant.
The Chairman referred to the satisfactory character of the accounts, which so thoroughly bore out the anticipations he ventured to indulge in last September, that the year 1868 would prove the best they had ever had. (Cheers.) Their profits had been larger, the losses less than in any previous year, while there had been a very considerable increase in the number of accounts opened, many of them of a valuable character. In pursuance of dividend, they had carried over as much as possible to the reserve, and there was this great advantage in making up the reserve to the full amount as soon as possible, that besides adding to the security of the bank, and consequently to the confidence of the public in it, it would enable them to divide up the entire of the profits. The amalgamation fund was reduced to 40,000l. nominally, but really to 35,000l., and there was reason to believe that within two years that account would be extinguished altogether. Indeed, should the business remain as good as it was, there could be no doubt on the subject. The current expenses were 1,000l. larger than last year, 700l. being caused by payment of a three years’ solicitor’s bill, 100l. a contribution to the South American Earthquake Relief Fund, and various other smaller charges. After expressing his confidence in the future and the past progress of the bank, he moved the adoption of the report.
Mr. PEACE seconded the motion.
Mr. GALSWORTHY expressed a doubt whether the flattering statement of the chairman was altogether justified, and a hope that on future occasions the acceptances should be stated separately. He asked what was the amount of the directors’ fees.
The Chairman—3,000l. per annum for the nine directors, and it was voted annually by the shareholders.
Mr. GALSWORTHY thought the sooner it was cut down to 1,500l. the better.
Mr. FITZGERALD thought the expenses too large, especially the remuneration to the directors, and that the staff was disproportionately large and extravagant. What could they want of two managers and a secretary? He moved that no vacancies in the board should be filled up till the number was reduced to six.
The Chairman explained that the deed of settlement fixed the minimum of the directors at eight and the maximum at 15. Considering the work to be done, a board of nine members was not by any means too large. It would be inexpedient to separate the securities from the acceptances.
Mr. MOTTLEY advocated the payment of a bonus at the rate of 2½ per cent. per annum, in addition to the interest, carrying over 15,000l. instead of 20,000l. to the reserve.
It was explained that the power of fixing the dividend was entirely in the hands of the directors; and the chairman added that their decision was a wise one, and would bring up the company when the amalgamation account was paid off to a 10 per cent. one.
One or two shareholders supported the view taken by the directors, and the motion adopting the report was carried unanimously. The dividend, at the rate of five per cent. per annum, was declared.
In reference to there-election of directors, the Chairman stated that he had received an intimation that a shareholder intended to nominate Mr. Whiteford, a barrister, in room of one of the retiring directors; and pointing out that the duties of a director of the Bank required special and practical, commercial, and financial knowledge and experience, he proceeded to move the re-election of Messrs. Stenhouse and Weston, the two members of the board retiring by rotation.
Mr. F. CLIFFORD claimed to move, first, the nomination of Mr. Whiteford, who, he said, had formerly been a merchant in Montreal, a man possessing all the requisite mercantile and commercial knowledge, and was backed by a requisition of shareholders holding no less than 500 votes, those requisitionists being some of the largest shareholders in the company.
Mr. GALSWORTHY was not disposed to throw over two men who had done well for the company in order to bring in a new one.
After a short discussion, the motion of the Chairman was carried, an amendment, mobbed by Mr. F. Clifford, to substitute Mr. Whiteford for Mr. Weston being negatived, Mr. Clifford thereupon demanded a poll, which was appointed for Thursday next.
The proceedings terminated with the usual complimentary votes.
THE SHAM ASSURANCE COMPANY.
George Edmund Reid (secretary), David Kiddle (manager), Henry Broomham, Walter Taylor, James Laing, and William Heather (directors), and William Winks and Edward Jones (collectors and agents of the National and Provincial Union Assurance and Loan Society), and Robert Bruce Reid, were summoned at Guildhall yesterday, before Mr. Alderman Causton, to answer a charge of conspiracy to defraud.
Robert Bruch Reid did not attend the summons.
Mr. Straight, instructed by Mr. Collett, prosecuted; Mr. R. C. Grain, barrister, appeared for Taylor; Mr. Harris, barrister, for Reid; Mr. Montagu Williams, barrister, for Broomham; Mr. Lewis, solicitor, of Great Marlborough-street, for Heather; and Mr. Parker, solicitor, for Winks, Kiddle, and Jones.
Mr. Straight having briefly opened the case, asked permission to withdraw the summonses against Broomham, Taylor, Laing, and Heather, as there was every reason to believe they had been the tools of others. This was acceded to, and it was understood that the persons mentioned would be put into the witnesses box.
Alfred Shingleton said that in 1861 he became possessed of a policy in the Friend in Need Life Assurance Company, and Sick Fund Friendly Society, as the nominee of Martha Lee, his wife’s aunt. The policy was for six guineas, for which he paid 2d. per week. On the 15th of April, 1867, he received a certificate of membership in the Provincial Union Assurance Company (Limited) from Mr. Cotton, which was an assurance for 6l. 6s. on the life of Martha Lee. He received it in substitution of the Friend in Need policy. He paid the 2d. per week until Martha Lee died on October 16, 1868. He had not been informed by Mr. Cotton or any one else that Provincial Union had been wound up in June, 1868. He paid up the 2d. per week till the 28th of September last. The latter payments he made at the office, and he there saw the defendant Reid and a person named Maskall. He went to the office three days after Mrs. Lee died, and told Reid that she was dead. He said, “Well, bring the necessary papers, and I will look into it.” He went away, and a few days after he went with the Friend in Need policy and the certificate of death. He left them with Maskall. About a week after that he went again and saw Reid, who said he had been in the country, and had not had time to attend to it, but he believed the money was ordered to be paid, and a collector should call on him. Not hearing from him in a week, he called again, and told Mr. Reid that it did not look well so many put-offs, and witness’s wife said that if it was not paid something should be done about it. Mr. Reid replied that they mush have their way of doing business as well as others. He called again some time afterwards, when Reid took him into the back office, and told him that he had no money for him, for they had only 2l. in the bank. He said that the committee would meet the next night, and would he come and see them? He went, and Reid said the committee had just stepped out, and they would be back presently. He waited till a gentleman came in, who represented himself to be a chairman of the committee. He said it was a hard case, but he (witness) had no claim on them. They had, however, talked the matter over, and would give him 30s. if he would take that and settle it, but he refused. He asked why it was that he had no claim, and Reid said the Provincial Union was wound up in June. He then said it was strange that they took his money after the society was wound up, and Reid said it was the collector’s fault, and they had a commission on all money they collected. From June, 1868, to October, he paid the 2d. per week, believing that the Provincial Union was still in existence, and he would not have paid it except under that belief.
Elizabeth Manley said she was the widow of the late Henry Manley, and lived at 6, Pepper-court, Pepper-street, Union-street, Borough. Her husband was insured in the Friend-in-Need, and that was changed to the Provincial Union Assurance in April, 1867. That policy she gave to an agent of the society. The amount of that policy was 20l. 4s., for which she paid 4d. per week to an agent named Synett. Her husband died on the 16th of December, 1868. She was never informed by anybody that the Provincial Union had been wound up, and paid the 4d. per week under the belief that it was in existence. She applied for payment, and was told to send in her papers and book, with a certificate of her husband’s death. She sent them, and called on the 19th of December, when she saw Mr. Reid. He said he was very sorry for her loss, but she had no claim upon them, for the Provincial Union was broken up in June, and that the agent in the September following had put her and her husband into their books, the National and Provincial Union Assurance and Loan Society. He said that she must be in it six months to receive half benefit and twelve months for whole benefit. He then told her that the committee had ordered her 4l., if she would take it. She told him that she could not write, and he wrote her name, to which she put her mark. She did not understand that that was a settlement in full, for Mr. Reid did not read to her the receipt. She asked Mr. Reid what Mr. Synett had done with the money he had received between June and September, and he replied that he supposed he had paid it to the other society.
Mr. Harris produced the receipt, which she read, and was a receipt for 4l. in full of all demands on the society. She did not read it when she signed it, nor did Mr. Reid read it to her.
By Mr. Parker—She did not know that Synett collected for another society with which Mr. Johnson was connected.
Ann Manley said that on the 16th of December she called at No. 4, Chatham-place, and told Mr. Reid that she had brought the certificate of her father’s death, the book, and the policy. He took them, and said the board would meet in the afternoon, and her mother was to call on the following Saturday. About ten weeks after her father’s death she called again at the office for the remainder of the burial money, and Reid said he knew nothing about it, but that he had given her mother 4l. out of charity. She said she knew her mother had had 4l., but she wanted the balance, as she had been told that she could claim it. He said she could not get it, and that she could do her best. She then asked for her book, and he said if Mrs. Manley would send bank the 4l. she should have her book and documents. She had not got her book and paper back.
Henry Broomham said he was in the service of Mrs. Verschoyle, of 116, Eaton-square, and had been so for ten years. About the 5th of November last Jones called on him and wanted him to sign a paper. He had known Jones as the collector of the Provincial Union Assurance Society. He had been a member of it for three years. He had paid 11¾d. per week for the sick fund, and 3d. per week for the burial fund. He paid from April 1866, until the 27th of January last those sums. He then heard there was something wrong about it, and ceased his payments. Jones collected the money, and in July last he told him that the society was changed into the National Provincial Union Assurance Society (Limited), and that if he liked to continue his payments he would be entitled to the same benefits, and it would be carried on upon the same principles as the other. On the 5th November last Jones came to him, and asked him to oblige him by signing a document which was enclosed, and he signed it without reading it. He put it into a directed and stamped envelope, and sent it to Mr. Reid. He never authorised any one to use his name as a director of the National Provincial Union Assurance and Loan Society (Limited). No one ever asked him to allow himself to be put forward as a director of that society. Nothing was said to him by Jones that he was to take five shares, and he did not know anything of their being put down to him in the articles of association. He never authorised any one to allot him five shares. He never attended any board meeting, and knew nothing of Kiddle or Winks; Reid he had seen once. He never saw a prospectus with his name on it as a director.
By Mr. Parker—Nobody was present when he signed the paper, and if Maskall’s name was put to it as an witnessing it, that would not be true.
Mr. Straight then applied for a remand, and the defendants were accordingly remanded.
Mr. Alderman Causton allowed Winks and Kiddle to go on their own recognizances in 100l., but refused to take bail for Reid or Jones.
VALUE OF PROPERTY IN REGENT-STREET.—
The old established promises known as Newman’s-yard, covering about a quarter of an acre, and held on crown leases for 54 years unexpired at about 200l. per annum, were yesterday sold by auction by Messrs. E. and H. Lumley, after a brisk competition, at the sum of 14,200l.
THE OVEREND AND GURNEY PROSECUTION.—
A paragraph has gone the rounds of the papers stating that Dr. Thom, the prosecutor in the case against the Overend and Gurney directors, intends to conduct the case himself at the trial; and the announcement has created some surprise, as well it might. It is monstrous enough that the investigation of such a case should be left to the energy of a private individual instead of being undertaken by a public officer. And the scandal would certainly be vastly increased if the conduct of the trial were to be left to unskilled hands. But we believe there is no real fear of such a result. Dr. Thom is no doubt the prosecutor in the case, as any other of her Majesty’s subjects might have been. But when once the grand jury has found a true bill against the accused, if they do so, the cause, like all criminal causes, will be one between the Queen and the prisoners. In the Court of Queen’s Bench, to which the case has been removed, no one is entitled to appear and conduct a cause but the parties to the cause, or their counsel. We are therefore at a loss to see how in a case, the practices to which will be her Majesty and the accused, Dr. Thom can possibly be entitled to open his lips, except as a witness.—Solicitors’ Journal.
THE SHAM ASSURANCE COMPANY.
George Edmund Reid, secretary to the National Provincial Assurance Society, and Edward Jones, a collector belonging to it, were placed at the bar at Guildhall; and David Kiddle, manager, and William Winks, clerk in the same office, surrendered in discharge of their recognizances before Mr. Alderman Causton to answer the charge of conspiring together, by various devices, to cheat and defraud certain persons of divers sums of money.
Mr. Straight, instructed by Mr. Collett, prosecuted; Mr. Harris appeared for Reid; and Mr. Parker for Jones, Kiddle, and Winks.
Henry Broomham was recalled, and the memorandum of association of the society was placed in his hand, and he said that he wrote the words “Henry Broomham, 116, Eator-square,” but the description “gentleman” was not written by him, nor the word “butler,” nor the figure “5” in the share column. He did not apply for five shares nor ever had them. The name “Henry Broomham” on the last sheet of the memorandum of association was in his handwriting, but the words “butler, 116, Eaton-square,” were not written by him, nor the figure “5” in the share column. That was the one he received from Jones while he was at Torquay, and at his request signed it where there was a cross put on it. The cross was still there opposite which he signed his name. When he signed his name he did not read the document. He could not say that the whole of the document produced was sent to him at Torquay. There were two stamps on it to carry it.
Mr. Richard Spyer, clerk in the Registration Office of Joint Stock Companies, produced the memorandum of association and articles of the National and Provincial Union Assurance and Loan Society. They required a description of the directors. He asked the person who brought the articles what was his name, and he gave the name of “Reid, 4, Chatham-place,” and witness wrote it down. That was in March last. When it was brought to the office inquiry was made as to who the directors were, and their descriptions being objected to, they were struck out and the proper descriptions put in. They thought “gentleman” no description at all, and insisted upon “butler” being put in its place. They did not consider gentleman a proper description for a butler. The address of the office had never been registered, and the society was liable to 2l. or 5l. a day penalty for the omission.
Walter Taylor said that he was butler to Mr. Antrobus, of 65, Eaton-square,” to the memorandum produced, were in his handwriting, but the figure “5” in the share column and the word “gentleman” were not. He never authorised any one to put him down for so many shares. The words “gentleman” and “butler” were not in his handwriting. On the last leaf of the memorandum of association he signed “Walter Taylor, 65, Eaton-square, butler.” He signed them because Jones asked him to do so, and said it would greatly oblige him. He was very busy at the time, and asked what it was about, and Jones replied, “Oh, sign it now and I will explain it to you another time.” He had no idea that he was constituting himself a director of a company by signing his name to the document. He would not have signed it if he had known the nature of it.
William Heather said he was housekeeper at 5, Bolton-street, Piccadilly. He had known Jones about three or four years. The two signatures, William Heather, estate agent, 5, Bolton-street, to the articles of association were not in his handwriting. In the beginning of February last Jones called upon him and asked him if he might use his name, as they wanted a few names to register a society at Somerset-house. He said there would be no responsibility or liability, and he gave his permission to his name being used. He gave no authority to any one to write his name. Jones never told him that he had written his name for five shares. About the middle of February a person called on him and showed him the prospectus, and asked him if he was a director in the society, and he said he was not. Witness at once wrote to the office, protesting against his name being used. Jones called on him the same evening, and told him that his name should be withdrawn. He was then perfectly satisfied.
Mr. Straight said he should have to ask for a remand, but before he did so he wished to state that inquiries had been made with regard to Winks, and he believed that he was an innocent agent in the matter. He would therefore, with the permission of the court, withdraw the summons against him.
Mr. Parker asked if he could make the case any stronger against Kiddle?
Mr. Straight said he could not.
Mr. Alderman Causton said that under these circumstances Winks and Kiddle were both discharged, but Reid and Jones he should remand, and would not accept bail for them.
Reid and Jones were then remanded.
ARREST OF A BANK MANAGER.—IMPORTANT INQUIRY.
Mr. Samuel Greenaway Finney, of Queensbury Lodge, Elstree, Hertfordshire, aged 55, was brought up at the Mansion-house, yesterday, before the Lord Mayor, upon a warrant, by Sergeant Spittle, of the City defective police, charged for that he, during the month of December, 1865, in the City of London, then being manager of a certain public company called the English Joint Stock Bank (Limited), unlawfully and with intent to defraud, did make and concur in making divers false entries, and did omit certain particulars in certain books of account belonging to the company, with the like intent to defraud.
The defendant was apprehended at the above address by Sergeant Spittle on Saturday evening. He expressed his astonishment at the charge, but stated that he was ready to meet it; and as there were no public conveyances in that neighbourhood, the defendant had a horse put to a carriage, and himself drove the officer to London, accompanied by his groom, and he was then detained at the Bishopsgate police-station until yesterday morning.
Mr. G. Lewis conducted the prosecution; Mr. Straight, the barrister, appeared for the defendant.
Mr. G. Lewis, in opening the case, said he appeared on behalf of Mr. Lambert, one of the shareholders of the English Joint Stock Bank (Limited), who had lost a sum of 4,000l. by that company, to prosecute the defendant for defrauding the shareholders, by means of false statements respecting the affairs of the the bank, and he thought it right to state that it was believed that the directors of the company were quite as much to blame as the defendant, and he intended to apply for warrants against the whole of those gentleman. The bank was started with a capital of 100,000l., in 25l. shares, and the defendant was appointed manager at a salary of 1,200l., to be raised to 1,600l. when a dividend of six per cent. was declared. Among the directors were Mr. Abbiss, who was formerly an alderman of the City of London, Mr. Mangles, the chairman of the London and South Western Railway Company, and several other gentlemen. The false statements that were the subject of inquiry were that the bank in the year 1864 had 24 branches opened, whereas in fact they had only 21, and the difference in the amount alleged to have been expended in reference to these 21 branches was employed in the payment of a dividend of six per cent. He said he should also prove that at the time this six per cent. dividend was declared a loss was incurred at one of the branches which would have swallowed up the amount expended in the payment of the dividend. The bank only published three balance-sheets, and the case for the prosecution was that every one of those balance-sheets contained false and incorrect particulars, and that they were published for the purpose of deceiving and defrauding the public. He said that he used this expression advisedly, and he believed that these balance-sheets were nothing more nor less than a fraud. Another portion of the case was that the defendant, Captain Mangles, and Mr. Alderman Abbiss, had entered into a most fraudulent arrangement with a stockbroking firm to borrow the sum of 10,000l., which was to be expended in purchasing the shares of this bank, and “rigging the market” with a view to deceive the bona fide shareholders. In the year 1864 the English Joint Stock Bank purchased the goodwill of the bank of Rogers, Olding, and Co. for 100,000l., and as the English Joint Stock Company had not got the money, they borrowed 50,000l. of the Imperial Mercantile Company, and this fact was entirely omitted from the balance-sheet that was published in 1865, and this was a portion of the fraud that he charged against the defendants and the directors. A large sum of money was also borrowed from another mercantile firm, but the transaction with Messrs. Rogers, Olding, and Co., and this, were also omitted from the balance-sheet. He went on to say that it was an easy matter for bank directors and managers to pay large dividends when large sums like these were dealt with fraudulently, and money that ought to have been charged to profit and loss account being transferred to the capital account. Mr. Lewis then proceeded to state that in November, 1865, an arrangement was come to by which the defendant Capitan Mangles, Alderman Abbiss, and other directors were to purchase a number of shares in the company, and the whole of the money had come out of the coffers of the English Joint Stock Bank to pay for these charges.
Mr. Straight here interposed, and said that all these matters had been admitted and explained in the course of the proceedings in Chancery.
Mr. Lewis said he was aware that this matter had been referred to, but he denied that any explanation had been given of it. The transaction relation to these shares was not contained in the books, but there were merely some fictitious items in the books which no one could understand. A sum of 898l. paid to Captain Mangles on account of these shares was entered as “T.” and it was impossible for any one to know the real nature of the transaction, and the shareholders were kept in entire ignorance of the proceeding. Mr. Lewis, in conclusion, stated that the result of the operations of the company was a loss of nearly a quarter of a million of money belonging to the shareholders, and it was due to the administration of justice that the persons who had been the cause of this serious loss should be punished.
Mr. Lambert, the prosecutor, who is blind, was then examined. He said he was the holder of 200 shares in January, 1866, and paid 10l. upon each share. The bank stopped payment on the 10th of May, 1866, and at this time he had a balance of 1,500l. in the hands of the bank. He had since paid 1,600l. for calls on his shares, so that his loss altogether by the shares was 3,600l. he had only recently discovered the facts that had led his instituting the present prosecution.
Mr. Straight declined to cross-examine this witness.
Mr. Kemp, accountant, and who was one of the auditors of the bank from its commencement, said the defendant was the manager from the same period. The witness was then examined briefly with regard to some of the matters referred to by Mr. Lewis in his opening address, and the witness stated that the sums referred to by Mr. Lewis as having been expended for the purchase of shares had all been recovered from the directors.
Mr. Lewis said this was as far as he could carry the case to-day.
Mr. Littler, who appeared with Mr. Straight for the defence, submitted that there was no evidence upon which to grant a remand, and asked that the defendant be discharged.
Mr. Lewis replied, and
The Lord Mayor expressed an opinion that there was sufficient evidence on which to proceed.
The case was then adjourned till this day week, and
The Lord Mayor said he would admit the defendant to bail—two sureties in 1,000l. each and himself in 2,000l.
Mr. Allan, a brewer, offered himself in lieu of two sureties of 1,000l. each, the defendant entered into his recognisances, and was liberated.
EQUITY COURTS.—MAY 5.
(Before Vice-Chancellor Sir John Stuart.)
EX PARTE THE LONDON, CHATHAM, AND DOVER RAILWAY COMPANY, IN RE THE LONDON, CHATHAM, AND DOVER RAILWAY COMPANY’S ARRANGEMENT ACT, 1867.
In this matter an application was made to the court, on Thursday last, for an order that the directors of the company, appointed under the above Act, should pay into a sum of 150,000l., and for other relief. It appeared that by the Act of 1867, two funds were to be realised, as therein mentioned; one to be called the Capital Fund of the Company, the other the Income Fund. There was no capital fund; but the directors had raised an income fund under the Act. They had, however, improperly applied a portion of that fund to the purposes of the capital one, and they now had in their hands a sum of 150,000l., representing the income fund. This application was therefore made by Mr. Dickinson, Q. C., and Mr. Martinean, for the shareholders in, and the creditors of the company, who asked for the order.
Mr. Kekewich appeared for the directors, and opposed the application.
The matter having stood over for further consideration,
The Vice-Chancellor now said that when the application was before him on Thursday last, he thought it was for the benefit of the applicants themselves that the matter should be disposed of by the Court of Appeal in the first instance, and he accordingly then proposed to make an interim order restraining the directors from disposing of the funds in question. But the great importance of the case had induced him to reserve it, and state further the grounds of his decision. The propriety of the order now asked for had been well considered in chambers, and it was one that he thought should be made. Still the directors who opposed it had a perfect right to have the matter argued by counsel, and decided by the court. There would, to a certainty, be an appeal from the decision, and there was every good reason why, if possible, two hearings of the case should be prevented. It had for some time past been the practice of the Court of Appeal, when matters of difficulty and importance arose in administration suits, to entertain such matters in the first instance. The present matter was eminently one of administration; and, moreover, the Arrangement Act of 1867, under which the rights, interests, and the assets of this company, its shareholders, and its creditors were being administered by this court, gave the parties an option to proceed, if they chose, before the Court of Appeal in the first instance. That being so, he had thought, and still was of opinion, that this application should be now made to that branch of the court instead of to this. The state of things in which this matter stood was this: In the course of these proceedings several decrees and orders had been pronounced, with the view of ascertaining and settling the various rights and interests of the shareholders and creditors of this great company, and of properly distributing its assets. Under the ordinary and legitimate jurisdiction of this court, and its improved practice, all that was necessary might have been accomplished by this court, by this time, but for the various applications which had in the meantime been made to Parliament, in order to get some measures passed there which should have the effect of altering the rights and remedies of the contending parties; and that, too, while those rights and remedies were being dealt with by this court, which was quite competent to determine them. The application to Parliament had been the main cause of the great delay which had arisen in the matter. Other delays had, indeed been interposed, by the efforts of the directors to get rid of the orders pronounced by this court in July, 1866. Those delays protracted the matter till February, 1867. But since that time the struggles of the parties to get the Acts of Parliament, to place one class of shareholders above the others, had caused the still further, and the great delay in the proceedings. It was true, however, that those struggles had hitherto been fruitless as against the honest creditors of the company. Then, again, the Arrangement Act of 1867 did not itself receive the royal assent till August, 1867; and although passed with the view of facilitating the winding up of the affairs of the company, had wholly failed in its object. The purpose for which the money was to be raised under it had not been successful. Parliament had been told that, unless the Act was passed, no money could be raised; and accordingly the body of directors named in it was appointed; and the property of the company, which was being administered by this court, was removed from it. The contests in Parliament had really placed the affairs of this company in the position in which they now were. The powers of this court were in themselves fully sufficient to deal with the rights and interests of all the parties before it. If, however, those parties who were clearly entitled to come to this, the proper tribunal for them, were to be interfered with by the contests in Parliament, the arm of standing, however, all the obstructions that had been offered to the proceedings in this court, the inquiries directed by it had been nearly concluded; and the chief clerk’s certificate thereon would shortly be made. The contests, indeed, to which he had referred were still going on; and it had come to the knowledge of the court that the present object of them was to withdraw the subject matter of the litigation here from this court, and submit the whole matters in issue to the decision of an arbitrator. That was a course of proceeding to which the shareholders and other who had succeeded in establishing their respective case here naturally objected. But if the parties gained their end—what would be the result? The most honest arbitrator would find himself unable fully to deal with the matters referred to him. He would have to go again over all the work of the last two years which this court had done. He would have to deal with matters with which this court and its chief clerk were familiar, but of which he would be ignorant. He would feel himself embarrassed by inquiries and arguments, the purport of which he would have great difficulty in mastering. He would have to do the work of both the judge and the chief clerk without the authority of either, and would inevitably find his best efforts baffled by the superior skill and ingenuity of the parties before him. The expenses, too, of such a tribunal, if chose, would be greater than those of this court, while in the meantime the honest creditors of the company would be still further prevented from obtaining their rights. For the chance, however, of succeeding before an arbitrator, those who had failed here were ready to run any risks. The court had heard that the shorthand notes of what he (the Vice-Chancellor) had said on one occasion had been laid before the Parliament, in order to persuade the House that this court had not really power to deal with the questions here involved. But if any words of his had been so understood, they had been misunderstood: for, in saying that this application ought to be disposed of by the Court of Appeal in the first instance he meant, not that this branch of the Court of Chancery could not satisfactorily and completely determine the questions, but that the Appeal Court would save expense to all parties if it would hear the case in the first instance. He felt that the honest shareholders and creditors of the company had a right to know the views which he entertained of their position. In 1867 he made a representation upon the subject to the then President of the Board of Trade, the object of which was to restrain, if possible, the repeated applications to Parliament pending the decision of the matters by this court, but without success. His opinion, however, still remained uncharged; and he thought that some steps should be taken to stop these parliamentary struggles while the affairs of the company were being administered by this court. No doubt the conduct of the directors was impeached by this application, and it remained to be shown whether they should continue to govern this company as they were now doing. It was to be remembered, too, that any Bill which they might bring into Parliament having the effect of making any bargains, or obtaining any benefit for one class of shareholders over or in preference to others, or the creditors of the company, would be a breach of their duties to the honest creditors and shareholders of it. All that the court could now do on this application was to direct the order on it to be drawn up, restraining the directors from applying the 150,000l. for any purpose until further order; and that subject thereto, the application must stand, and be dealt with by the Court of Appeal as it should think of it.
THE ENGLISH JOINT-STOCK BANK PROSECUTION.
CHARGE AGAINT THE DIRECTORS.
Yesterday, at the justice-room of the Mansion-house, Captain Charles Edward Mangles, the chairman; Mr. James Abbiss, and Mr. Thomas Bradshaw, directors; and Mr. Samuel Greenaway Finney, general manager of the English Joint-Stock Bank (Limited), appeared before the Lord Mayor to answer a summons charging them with a conspiracy to make false entries and omissions in the books, with intent to defraud the shareholders.
Mr. George Lewis, jun., solicitor, appeared for the prosecution; Mr. Poland was counsel for Captain Mangles; Mr. Metcalfe for Mr. Bradshaw; Mr. Littler for Mr. Finney; and Mr. Mullens, solicitor, represented Mr. Abbiss.
Mr. Lewis, addressing the bench, said the charge was one of a most serious nature, and if it were proved against the defendants they had been guilty of most scandalous behaviour. The three gentlemen who were now for the first time before the bench had been directors of the bank from its commencement, and it would also be shown that they were adepts in the directorship of companies, and had considerable experience in managing the affairs of shareholders. The bank had an existence of eighteen months, and stopped in May, 1866. The defendants would be charged with a conspiracy to issue false reports and false balance-sheets, and with unlawfully buying shares out of the moneys of the company. In the balance-sheet immediately preceding the stoppage, and dated in Dec., 1865, it was stated that the bank was in a most prosperous condition, that it had made large profits, and that it was proposed to set apart a considerable sum to pay a 6 per cent. dividend, which was accordingly done. He (Mr. Lewis) would be in a position to show that those statements were false, and false to the knowledge of the defendants, and that various omissions and false entries were made in the books to obtain the favourable results in the report and balance-sheet, including immense transactions with regard to loans by the City Bank, the Imperial Credit Association, and other companies, none of which appeared in the profit and loss account, as they should have been, to the extent of upwards of 20,000l. Every statement that would have thrown any light upon those affairs was concealed from the minute books, and he thought that alone was sufficient to criminate the defendants. On the contrary, all those questionable transactions were carried to an account for the purchase of bank, and made to appear in the books as assets. It might be said that the company had an auditor to correct any faults in the accounts; but he should prove that it was so contrived by the defendants that it was absolutely impossible for any gentleman holding that position to have ascertained anything at all about them. Again, the acceptances of the bank were discounted by the Imperial Credit Association to the extent of 50,000l. at the usurious rate of 3,500l., and that sum was placed in the bank books as an amount on deposit, thus completely deceiving the auditors. The rebate on bills was treated as an amount earned by discount, and went to swell the profits of the bank. The bank bought Messrs. Olding and Co.’s business for 100,000l.—66,000l. for the goodwill and 34,000l. for the premises—being 9¼ years’ purchase of the business; but they entirely concealed the terms of the sale from the shareholders in the balance-sheets. In November, 1865, contrary to the articles of association, the defendants entered into a most scandalous, illegal, and fraudulent arrangement with a firm of stock-brokers to purchase the shares of the company out of its own money, and for the purpose of giving them a false value in the market. That transaction was wholly concealed from the minutes of the company, and from the reports and balance-sheets, thus deceiving both the auditors and shareholders. Such a transaction with the shares of the company was most clearly declared fraudulent by Lord Champbell in the case of the Royal British Bank; and his observations entirely met the circumstances of the present charge. The defendants had also issued new shares at a premium, in order to give them a fraudulent and fictitious value in the market, and having their names to them, the shareholders were easily led into the transaction. Mr. Finney, the manager, knowing the trick, got rid of his 70 shares at a premium, and put them on the public as best he could. It might be said that the bank had sustained no loss by the transactions, but that was not the question, and that fortunate ultimate result was more due to the skill of the solicitor of the liquidators than to the care taken their colleagues. Messrs. Mangles and Abbiss bought shares in their own names in the company and paid for them out of the bank’s money, and a fictitious account was made out in the books, utterly concealing the real nature of the transactions. The defendants had an account with the bank; but the matter was omitted from their pass-books and the bank ledger. He submitted that if he proved the facts he had outlined the defendants had been deceived and defrauded.
The depositions taken when Mr. Finney was alone before the court were read over to the various witnesses, and made evidence against each of the defendants.
Mr. Lambert, the prosecutor, in answer to Mr. Metcalfe and Mr. Poland, said he had not heard the liquidator say that there was no ground for criminal proceedings against the defendants. The liquidator ought to have been in his position that day. There had been Chancery proceedings against the directors, and the defendants had made answers to bills filed against them. He paid 2,000l. for his shares, having bought them at par. Witness had been instrumental in getting up a committee of shareholders to prosecute the defendants, and investigate the affairs. There were only six members, but they had written to all the shareholders asking them to belong. Mr. Lemon, a barrister, was the chairman of the committee, and was also a member of the legal committee of shareholders appointed at a general meeting.
Re-examined—He did not apply to the liquidators to institute the prosecution, the expenses of which he was paying out of his private purse. Mr. Kemp, one of the liquidators, was also an auditor of the company.
Mr. Wm. Evan Blakeway, a stockbroker, added to his evidence that the nominee for the shares was Mr. R. I. E. Short, a clerk in his employ, who was certainly not in a condition to have paid the calls. He was the nominee of witness’s firm in the transactions, and the bank would have been liable for the calls. Witness had known Mr. Finney for many years, and had always considered him a man of the highest honour and integrity. Captain Mangles had told him that there was a considerable hostility in the market against the shares of the bank, and he was given to understand that Mr. Laurie, a former director, was one of the parties who was showing that hostility by throwing his shares and those of his friends on the market. Mr. Laurie was a director of the City Bank, which was the London agency of the English Joint Stock Bank before they bought the business of Roger, Olding, and Co. It was to prevent or counteract this hostility that witness’s firm were to buy the shares thus thrown on the market, and to prevent the undue depression which would naturally ensue, and which might cause alarm among the shareholders, and tend to a run on the bank. Neither Captain Mangles nor Mr. Finney had ever applied to him to keep the matter secret after the stoppage. He had been for very many years broker to Capitan Mangles, and still had the highest opinion of his honour and integrity. In 1864 he sold ten shares for Captain Mangles, but with that exception had not sold any, but, on the contrary, purchased them for him. He had purchased 70 for him in 1865 also, to repress the hostility in the market. As far as Captain Mangles was concerned, the witness’s firm had been held harmless in the matter.
Re-examined—Captain Mangles and Mr. Finney told him the company had power to purchase its own shares, and he believed them. He considered them still to be persons of the highest honour, and integrity, and strictest truth.
Mr. Henry Dodson, biscuit manufacturer, residing at Penge, a shareholder of the bank, was then examined by Mr. Lewis, and said—In December, 1865, I saw Mr. Finney, and asked him about the position of the bank, as I was anxious to purchase shares for myself and two relatives. He said it was in a prosperous state. I then purchased 90 shares at about 2 premium. Seeing the shares afterwards receding, I called upon Mr. Finney, and asked him the cause. He said there really was no cause, that there might be a little depression, but the bank was able to pay the dividend twice over. The dividend that had been paid was 6 per cent. He accompanied me to Mr. Olding, the managing director, and Mr. Olding confirmed what Mr. Finney had said. I then purchased 20 more shares, also another lot of 50, making in all 160. Some of these shares were for my cousins, Mr. Southgate and Mr. Orpe.
Another shareholder was called, and said he held 100 shares in the bank, some of which he bought at 2½ premium.
Mr. Oswald Howell, accountant, who had examined the books of the bank for the purposes of the prosecution, was then sworn, but after some discussion his examination was deferred till the next hearing, and it being now nearly four o’clock, it was agreed that the case should be adjourned.
The Lord Mayor adjourned the inquiry till Monday week. The same bail was accepted for Mr. Finney as before—namely, himself in 2,000l., and one security in 2,000l., and the other defendants were liberated on their personal recognizances to the amount of 2,000l. each.
THE CHARGE AGAINST THE DIRECTORS OF THE ENGLISH JOINT STOCK BANK.
At the Justice-room of the Mansion-house yesterday, before the Lord Mayor, Captain Charles Edward Mangles, Mr. James Abbiss, and Mr. Thomas Bradshaw, three of the directors, and Mr. Samuel Greenway Finney, the manager of the English Joint Stock Bank, surrendered to answer the charge of having conspired to cheat and defraud the shareholders by issuing false reports and balance-sheets, and making improper entries in the books of the company.
Mr. George Lewis conducted the prosecution; Mr. Poland and Mr. Ormerod appeared for Captain Mangles; Mr. Metcalfe for Mr. Bradshaw; Mr. Montagu Williams for Mr. Abbiss; and Mr. Straight for Mr. Finney.
Mr. Lewis, at the commencement of the proceedings, said he desired to correct an error that he had made in his opening statement. In making that statement he accused Mr. Bradshaw of appropriating 1,250l. He had since ascertained that that was not the fact, and he now expressed his regret that his instructions had led him to make the mistake.
The evidence for the prosecution was then continued.
Mr. Charles Bradlaugh, financial agent, Palmerston-buildings, Old Broad-street, said—I have seen all the defendants in the course of my business. I was employed by the English Joint Stock Bank on several occasions. With regard to the purchase of the Nattingham Bank, I saw Mr. Finney, Captain Mangles, and Mr. Bradshaw. Ultimately I completed the purchase of that bank at the price of ?000l. I received from Mr. Finney 2,250l., and gave him a receipt for that amount.
Mr. Lewis—Did you give back any of that money?
Witness—I do not think you have any right to inquire what I did with my own money.
Mr. Lewis said the shareholders wanted to know.
Witness—I left 1,200l. in Mr. Finney’s hands. He had helped me before when I was making negotiations. There was no arrangement that I was to give him this money. He said nothing, and I said nothing. (Laughter.) I left him the money that he might act favourably to me in respect of other negotiations I had in hand. If I sued Mr. Finney he would have to repay it. He has never paid me any interest on it.
Mr. Metcalfe said, as the charge against Mr. Bradshaw in respect of this sum was abandoned, any statement regarding it could be no evidence of conspiracy.
Examination continued—At that time I was also trying to purchase the Norwich and other banks.
Mr. Lewis—Not Gurney’s bank?
Witness—Oh, no; a better one. (Laughter.) With reference to the payment of 2,250l., I do no think I communicated. About 4,000l. was returned by the vendors of the Nottingham Bank. The price was calculated on profits, but there was a mistake, and that was the reason why 4,000l. was returned. I was consulted several times about borrowing money for the bank. In November, 1865, I had a conversation with Capital Mangles as to obtaining a loan of 75,000l. for the bank. I agreed to borrow it. I forget what was the interest and commission agreed to be paid. As to my commission, I insisted for 1 or 1½ per cent., but the lender stipulated for 4,000l., and there was some dispute, as it was thought my commission should be included in the 4,000l. 25,000l., part of the 75,000l., was obtained through Mr. Sichel. I negotiated with Mr. Hillell for the whole of the loan, and knew he would get it through three different channels.
Mr. Hillell received 2,000l. commission, and I received 150l. This was a compromise, because the bank would not take the other 50,000l. None of the defendants received any of that 2,150l. We were very dissatisfied with what we got. (Laughter.) The amount was fixed by arbitration. I saw Mr. Bradshaw about the payment of the commission.
By Mr. Straight—I negotiated respecting the purchase of several banks, and had all the responsibility. The Nottingham Bank was a very good purchase.
Mr. Gustave Sichel, merchant and broker Bloomfield-street, said—In the autumn of 1865 I negotiated with the City Bank for 25,000l. as an advance to me on the security of a deposit note of the English Joint Stock Bank for a similar amount. The deposit note was made out in favour of the two joint managers of the City Bank, Mr. Kennedy and Mr. Duncan. Originally it was to have been my name, but this arrangement was altered at the suggestion of the City Bank. I handed 25,000l. in notes to Mr. Hillell, to take them over to the English Joint Stock Bank. I afterwards received 1,300l. for interest, commission, and brokerage. I saw Mr. Finney respecting the alteration of the deposit note.
Mr. Alfred Jakes, one of the managing clerks of the City Bank, deposed—On the 16th November, 1865, the City Bank handed to Mr. Gustave Sichel 25 notes of 1,000 each, numbered 44,001 to 44,005, and 43,531 to 43,550. The English Joint Stock Bank closed their account with us when they purchased Olding’s Bank.
By Mr. Metcalfe—It was not a loan; it was bills accepted.
By Mr. Poland—The City Bank at one time did all the London business of the English Joint Stock Bank. That was from its commercement until Olding’s Bank was purchased. The English Joint Stock Bank had several branches, but no London place of business. Mr. Andrew Laurie and Mr. Young were directors of the City Bank and the English Joint Stock Bank. We had 500l. a year commission, and, in addition, the profits from the banking; and I believe Mr. Laurie and Mr. Young left the direction of the English Joint Stock Bank when Olding’s Bank was purchased. There was never a director of the City Bank named Anderson.
Re-examined by Mr. Lewis—I was not aware the 25,000l. was a loan to the English Joint Stock Bank. Mr. Sichel was a customer of the bank at the time, and has been for years.
By Mr. Metcalfe—The manager might know it was going to the English Joint Stock Bank.
Mr. Henry Thomas Horn, a clerk in the Alliance Bank, deposed—The Discount Corporation (Limited) kept an account at our bank. On the 16th November, 1865, twenty-one notes of 1,000l. each were paid into our bank to the credit of the Discount Corporation. They were numbered 43,531 to 4,450 inclusive, and 44,005.
Mr. James Carstairs—I am cashier at the Charing-cross branch of the Union Bank. On the 17th November, 1865, I received two notes of 1,000l., numbered 44,001 and 44,002, to the credit of Mr. T. E. Weller, of 12, Lawrence Pountney-hill; 1,800l. was placed in a deposit account, and 200l. in a drawing account.
Mr. Sidney Walter Moore, a clerk in Messrs. Barclay and Bevan’s bank, said two bank notes of 1,000l. were placed to the credit of Messrs. Brightwen and Co. in January, 1866. They were numbered 44,003 and 44,004.
Mr. Richard Adye Bailey, a clerk in the Bank of England, produced the notes 44,003 and 44,004, and said they were paid into the Bank of England on the 2nd January, 1856, by Messrs. Barclay, Bevan, and Co.
Mr. Edwin Howard, solicitor, No. 7, Poultry, said—Of the defendants I only know Mr. Finney. I was applied to by a gentleman to effect the sake of the bank at Bideford, carried on by Messrs Harding and Co. I negotiated with the English Joint Stock Bank for the purchase of the business, and they purchased it for 12,000l. in June or July, 1865. I told Mr. Finney I declined to name my participants until I had a written guarantee that I should be paid my commission, which was fixed at 2,000l. Without saying to whom it was ultimately to go, it was suggested that part of the 2,000l. should be paid to Mr. Finney. I received 2,000l., and paid a third of it to Mr. Finney.
Mr. Oswald Howell, accountant, 39, King-street, Cheapside, was then examined, and said—I have been retained on behalf of Mr. Lambert, to examine the books of the English Joint Stock Bank, and I have been engaged in that investigation personally. Referring to the balance-sheet made up to the 31st Dec., 1865, I see it stated that the gross profits are 14,946l., and the net profits 4,800l. 6s. 3.
Mr. Lewis asked if such profits were earned.
Mr. Metcalfe objected to such a question, and said the books must be referred to.
Mr. Lewis said he proposed to ask the general question first, and then show how the books stood.
Mr. Metcalfe said he had a still further objection. The liquidator had thoroughly examined the books, and was acquainted with them, but he was put aside, and another gentleman, who was not acquainted with the books was brought forward.
The Lord Mayor overruled the objections.
Examination continued—No such profit was made as 14,946l. No profit whatever was made according to my calculations. I produce the general ledger relating to the purchase of old banks. Under date 31st December, 1865, the balance of that account is 140,897l. 3s. 1d., and that corresponds with the entry in the balance-sheet, “Purchase of old banks, &c.” The account was opened on the 31st December, 1864. The first entry is “Preliminary expenses, 22,258l. 3s. 4d.” That is a transfer from the preliminary expenses account. I find that sum of 22,000l. consisted of 12,500l. for the West Surrey Bank and 9,758l. 3s. 4d. for the Ramsgate Bank. Under date July 6 there is an entry of a payment of 12,000l. for the goodwill of the Bideford Bank. The next entry is “On account, Bideford, 2,000l.” I have traced the payment of that sum of 2,000l. to Mr. Howard, the gentleman who has just been called. There is no other information given with regard to the 2,000l., except the entry “on account, Bideford.” There is no minute authorising the payment. In the directors’ minute book there is a minute of meeting on 7th July, 1865, stating that the manager had been to Bideford, and that the purchase of the bank there had been arranged. There is another minute book called “The Committee Minute Book,” and the minute of 7th July there simply referred to the report from Bideford. The 2,000l. is included in the item 140,000l. on the credit side of the balance sheet. The next item in the purchase of old bank account is under date August 15, 1865, “Establishing Branches Account, 5,381l. 11s. 11d.,” which is a transfer entry, and in the account from which it is transferred there are six items making up the sum of 1,109l., purporting to be the expenses of branches at Poole, Bristol, Derby, Northampton, Notting-hill, and Rochester. There are different opinions as to where such expenses should be placed. I find that this sum of 1,109l. was carried to profit and loss at different times during the year 1855, and included in the 5,381l. is 903l. 10s. 11., being losses of branches at Blackheath, Dorking, &c., which I contend ought to have been debited to profit and loss. Originally they had been debited to profit and loss, but they were written bank. The next item—part of the 5,381l.—is 206l. 12s., “Pearce’s actions,” to which reference is made in the minute book saying that Pearce’s action had been settled for 200l. and 40s. costs. Pearce, I believe, was the manager of a branch bank. That 206l. 12s. was carried to the bank purchase account the next item is 18,000l., the price of the Nottingham Bank. The next entry is “Ditto 2,250l.,” which I have ascertained to be the amount paid to Mr. Bradlaugh. There is no minute of the board authorising that payment.
Mr. Buck, clerk in the employment of Messrs. Brightwen and Co., bill discounters, Fleet-lane, proved receiving the two notes for 1,000l. paid in to the credit of the firm to Messrs. Barclay and Bevan’s Bank. It was a deposit of Mr. Finney, and was balanced by a cheque of the firm for 2,000l. and interest.
At this stage the court adjourned for lunch.
Mr. Howell was then recalled, and said there was no other entry than that to which he had referred with regard to the payment of 2,250l. These two items of 2,000l. and 2,250l. were included in the balance sheet of 31st December, 1865. The next item in the bank purchase account was on 31st October, bank fittings, &c., 17599l. 6s. 6d., which was a transfer entry from the bank fittings account. The succeeding entry was on the same date, 1,915l. expenses of establishing branches. Of that item 1,475l. was the first year’s expenses of the head office. The next item was under date 9th November, 1865:—“On account, 5,500l.” That consists of a sum of 3,500l. agreed to be paid to the Imperial Mercantile Credit Association; commission for a loan of 50,000l.; and the other 2,000l. was an amount paid to the England and Foreign Credit Association, also for a loan. That 5,506l. is not carried to profit and loss where it ought to have appeared, in my opinion. In the balance-sheet it appears under the heading bank purchases, on the credit side. The Imperial Mercantile Credit Company made a rebate. I find in the discount account, general ledger, folio 8, under date, January 6, 1866, “Imperial Mercantile Credit Company, 174l.,” which is rebate, and goes in reduction of the 3,500l. That rebate is carried to profit and loss, and not to the bank purchase account. There is another sum of 34l. of rebate, which also appeared as discount earned by the bank. There is likewise another sum of 15l. 12s. 3d., which is carried to the credit of interest account. These items ought not to have been carried to the credit of profit and loss, because the 3,500l. was carried to the bank purchase account. The loan of 50,000l. on account. This was part of the purchase money Olding’s Bank. They paid 50,000l. to Messrs. Olding on that day. These is another entry on the 14th November, Olding and Co., 25l., which represents an amount paid for bill stamps, and ought to have been carried to profit and loss. The next item is 2,000l., on the 17th November. That represents the amount paid for the loan of 25,000l., from the City Bank. There is a minute of November 8, 1865, referring to this loan of 25,000l., stating that the letter of arrangement for advances was sealed, but, with the exception of that entry, there was no information on the minutes respecting the different loans. There was no minute authorising the payment of 2,000l. That sum should have been carried to profit and loss. It appears in the balance sheet on the credit side, and is included in the bank purchase account 140,000l. The next item is dated November 17, “Weller 4,000l.” I produce a receipt signed T. E. Weller for the payment of 4,000l., by the English Joint Stock Bank, in respect of the purchase of Olding’s Bank. In the waste book I find 25,000l. was received from the City Bank, and that that was disposed by the payment of 21,000l. to the Discount Corporation, and 4,000l. to Weller in the purchase of old bank’s account. There is no other entry whatever in respect of that payment of 4,000l., which is included in the balance-sheet in the sum of 140,000l. for purchases of old banks. On the 30th January, 1866, the sum of 1,800l. was placed to the credit of the bank purchase account. On the same day it was entered to the debit of the account and carried to the profit and loss account as a profit. I have not been able to find any minute respecting the credit of 10,000l. opened with Thomas and Co. for the purchase of shares.
At this stage, and before the examination of the witness was concluded, the inquiry was further adjourned to Friday, the 21st inst., Mr. Finney being liberated, as before, on bail, and the other defendants on their own recognizances.
THE ENGLISH AND [JOINT STOCK BANK.]
At the Justice-room of the Mansion-house yesterday, Mr. Charles Edward Mangles, Mr. James Abbiss, and Mr. Thomas Bradshaw, three of the late directors, together with Mr. Samuel Greenway Finney, the late manager of the English Joint Stock Bank (Limited), again surrendered before the Lord Mayor for further examination, on the charge of conspiring to cause false reports and balance-sheets, and make improper entries in the books of the Company with intent to defraud the shareholders.
Mr. George Lewis, solicitor, again conducted the prosecution; Mr. Mangles was defended by Mr. Montagu Williams; Mr. Bradshaw, by Mr. Metcalfe; and Mr. Finney, by Mr. Straight.
Mr. Howell, the accountant, was recalled, and stated in reply to Mr. Poland, that the gross amount received by the directors as fees during a year and ten months was 1,889l. Of this, Captain Mangles received 240l. 1s., Mr. Abbiss, 197l. 11s.; and Mr. Bradshaw, 238l. 11s.
By Mr. Straight—In the year 1865 Mr. Finney’s salary was 1,500l. the dividend declared did not at any time exceed 6 per cent.
By Mr. Williams—By the articles of association the directors were entitled to 3,000l. a year amongst them.
Mr. Charles Fitch Kemp, the liquidator of the bank, was then called, and said—I produced the manuscript balance-sheet for 1865. It is signed by myself and Mr. R. Smith, the other auditor. I have no subsidiary balance-sheet from which these total were made up. I believe this balance-sheet is in the handwriting of Maxwell a clerk in the bank. I had before me returns from the branches and extracts from the books when I was auditing it. I saw that the extracts corresponded with the totals in the books. During the time I was making the audit I saw Mr. Finney several times. I do not recollect seeing the other defendants. The balance-sheet was printed and circulated.
Mr. Lewis—Your certificate says—“We have examined the above balance sheet, and compared the various items it contains with the London books and the certified returns from the various branches, and find the same to be correct.” Did you examine the vouchers?
Witness—No, I did not. It was impossible. I framed the certificate so that the shareholders might see what kind of audit had been made. In the “Purchase of old banks account” I see an entry “Weller, 4,000l.” I did not look to the minute book to see if any authority had been given for the payment of that sum. I do not remember whether I saw the voucher for it. There is no folio to show where the item was posted from. I do not think I spoke to Mr. Finney or any of the directors about it. I did not know what it was; I took the books of the bank to be correct. I did not examine any other book to see what the 4,000l. meant. There is another entry, “July 6th, Goodwill, Bideford 12,000l.” In December, 1865, I did not see any voucher or reference to this payment, so far as I can remember. I took the books to be correct. I produce a copy of the agreement for the purchase of the Bideford Bank from Messrs. Harding and Co., bankers for 12,000l., and 4,000l. for the premises. Under the entry of 12,000l., there is another entry on July 8th of 2,000l., relating to the purchase of the Bideford Bank. I did not inquire what the 2,000l. was paid for. I did not know what it meant. There are ticks under the word “Goodwill, Bideford.” I did not kook to the banker’s book to see whether the 2,000l. had been paid. There is a further entry in September 2nd, “Nottingham Bank, 18,000l.” I produce copy of the agreement for the purchase of this bank. I did not at the time see a copy of the agreement in order to know whether the purchase had been made. There are ticks under the last entry, and opposite them the amount 2,250l. I did not look to the minute book to see the authority for its payment. I did not see any voucher for it. I took it to be correct. Since the winding-up of the bank I have found a receipt for the payment of the 2,250l. It is dated September, 1865, and is in the following terms:—“23. Great St. Helens. Received 2,250l., being the agreed commission on the purchase and transfer of Hart, Fellows, and Co.’s Bank, and in full of all my expenses and charges in reference to the same.—Charles Bradlaugh.” There were 23 branches to audit, and I could not trace all the items in the way you suggest. It would have taken six months to do so, and I would not have undertaken to do it. My certificate shows very clearly what was done. Under date Nov. 9, there is an entry, “On account, 5,500l.” I did not inquire what this entry meant. On November 9 the Imperial Bank appear as depositors for 50,000l. I had not the slightest idea it was a discount of the Company’s acceptances. It was not my duty to examine the books. I had only to compare the items contained in the balance-sheet with the books to see if they were correct. I dare say if I had inquired I might have learned that this 3,500l. was payment of interest on the 50,000l. I did not know at time what the remaining 2,000l. was for. I concluded it was a payment on account of the purchase of old banks. I find now it was interest on a loan from the British and Foreign Credit Company. I had no instructions as to my duties. I believe I was named auditor at the suggestion of Mr. White, the manager of the City Bank.
Mr. Lewis—The 115th clause says, “The auditors shall be supplied with statement of accounts intended to be submitted to the half-yearly meeting of shareholders at least fourteen days before the date of such meeting, and it shall be their duty to examine the same, with the accounts and vouchers relating thereto.” Did you examine the statement with the accounts and vouchers?
Witness—I did with the accounts, but not with the vouchers, because it was simply impossible.
Mr. Lewis—Was it impossible to compare these six items with the vouchers?
Witness—No; but if I had looked at these six I must have looked at thousands and thousands that passed through the bank in the course of the year. There is no entry in the balance-sheet of the 10,000l. due to Thomas and Co. I did not examine the books of the branches. I saw the “Suspense Share Account,” wherein various sums are entered opposite letters and figures. I objected to the heading. I knew the items were sums lent to the directors. Some names were mentioned to me, and I was satisfied with them. From looking at the accounts one could not tell what the entries meant. Mr. Finney told me they were advances to Mangles, Abbiss, and others. There is no reference showing from where the entries had been posted. I did not look to see whether the amounts were carried to the debit of the directors. I must explain that I said the heading implied a dealing in shares, and when Mr. Finney told me it was advances to the directors, I told him to enter it to them. The account was subsequently transferred to the names of “Jones and others.” They were directors. (Laughter.) I recovered the money. I have since traced out the items, and find some of them are entered in subsidiary books. There is no book in which the loans to Mr. Abbiss and Captain Mangles appear in their names. In the balance-sheet these loans appear in the item of amount due from customers. I commenced the audit about a week before the half-yearly meeting. I was there several days. Mr. Finney or Mr. Maxwell produced the accounts to me. The bank stopped payment on May 10, 1866, and a petition to wind it up was filled two days afterwards by the directors. At their suggestion I was nominated interim liquidator.
By the Lord Mayor—A comparison of a balance-sheet with the ledger is not a satisfactory audit. (Laughter.) Without a thorough examination of all the books and vouchers an audit must necessarily be imperfect; but in a bank like this such a process would have taken many months.
By Mr. Lewis—I did not make a calculation with reference to the item in the balance-sheet “Rebate 1,900l.” As to the item “cash in hand, I examined the banker’s pass book and ascertained the amount of cash in the tills. I check all the bills and securities. I compared the item “preliminary expenses” with the account in the ledger, but did not test any of the items. In ascertaining the profits I took the returns from the branches, and the London ledger as correct.
Mr. Lewis—What have been the costs of the liquidation?
Mr. Poland—Separate the law costs.
Mr. Lewis—So far as I have seen, the law costs have been extremely moderate.
Mr. Poland said he would take the opinion of the Lord Mayor whether this was evidence or not.
Mr. Lewis said he only wanted to put one question.
Witness—The costs of liquidating down to the present time have been 35,000l. for the London bank and 23 branches. The indebtedness of the bank when it stopped was 700,000l. I have made two calls, amounting together to 8l. per share, realising 31,000l. The paid-up capital was 200,000l., so that the loss to the shareholders is from 330,000l. to 340,000l. By the purchase of Olding’s bank the 66,000l. paid for goodwill has been lost. 18,000l. have been realised for the premises. The total loss on the 100,000l. paid is therefore 82,000l. The 12,000l. paid for the goodwill of the Bideford Bank has been lost. As to the premises, for which 4,000l. was paid, they have not yet been sold, but we have received an offer of 1,200l., which will be accepted. With reference to the Nottingham Bank, the 18,000l. paid for goodwill and the 2,250l. commission have been lost. The 16,000l. paid for the goodwill of the Guildford Bank (Captain Mangles’) has been lost, together with about 800l. in leaseholds that were taken over. The aggregate losses upon branches down to the present time on debts and bills receivable (irrespective of expenses) have been 17,000l. odd. The creditors have received 20s. in the pound, except myself and my colleague. We have made an advance of 5,000l. to obviate the necessity of another call. There will not be another call if we can avert it. Mr. Bradshaw owes the bank 1,160l.—300l. on his call account, and 860l. on his loan account. Mr. Lambert has paid his calls.
At this stage Mr. Howard, solicitor, who was employed to negotiate the purchase of the Bideford Bank, was recalled by Mr. Metcalfe, and said he did not communicate to any of the directors the fact that he had returned to Mr. Finney 666l. 13s. 4d. out of the 2,000l. he received as commission.
Mr. Kemp then, in answer to Mr. Lewis, said the report of 31st December, 1865, was in the following terms:—“The directors, in presenting their report for the past half-year, are happy to be able to express their confidence that the progress of the bank continues thoroughly satisfactory. At the last general meeting the importance and advantage of transacting our own London business was pressed upon us by the shareholders, and the directors, being fully convinced of the wisdom such a course, have acquired the old-established business of Messrs. Olding, Osborne, and Co. This step the directors are satisfied will realise for us all we desire, but the period since the transaction was completed being so short no special results can fairly be presented. The Bideford Bank (Messrs. Harding and Co.) was taken by us on the 1st July, and the Nottingham Bank (Messrs. Hart, Fellowes, and Co.) on the 1st September. The connection thus acquired has proved highly advantageous. The gross profit for the half-year (including the premium on new shares) is 46,437l. 7s. 3., and after deducting there from interest paid to customers on deposit and current accounts, current expenses, rebate on bills and providing for bad debts, the directors recommend the same dividend as heretofore, namely, at the rate of six per cent. per annum; that 3,688l. 2s. be written off preliminary expenses and cost of banks and new branches—being at [the rate of 10 per cent. per annum on these accounts—and that 5,000l. be added to reserve fund. This will leave 4,180l. 3s. 9d. to be carried forward to profit and loss new account, being rebate on bills 1,959l. 17s. 5d., and balance 2,220l. 6s. 4d. The directors retiring by rotation are James Abbiss, Esq., alderman; Sir Charles W. Blunt, Bart., and Thomas Bradshaw, Esq., who offer themselves for re-election. The auditors, C. F. Kemp, Esq., and Robert Smith, Esq., retire from office, and offer themselves for reappointment.”]
By Mr. Metcalfe—The retiring directors were re-elected at the meeting of shareholders.
By Mr. Straight—When the bank stopped there was a general crisis. Overend and Gurney failed on the same day. Since that time bank properly has depreciated. I knew Mr. Finney very well, and also Mr. Maxwell, the chief book-keeper, and saw them when I was making the audit. The head-office accepted the returns from the country branches as correct. An inspector was sent down from time to time. Persons differed on questions of bookkeeping. Mr. Howell and he differed very materially. (Laughter.) If I purchased a bank for 5,000l., and borrowed the 5,000l., I would include the interest in the amount of purchase money. The Nottingham Bank was a good business at the time it was purchased. Messrs. Hart, Fellowes, and Co. started again when the English Joint Stock Bank stopped. (Laughter.) They did not pay for any goodwill. (Renewed laughter.) The 4,000l. paid to Weller is entered in the waste-book, and posted to the ledger. In the customers’ ledger there are persons who had not drawing accounts with the bank. To have made a thorough audit a long time would have been required, and I am afraid 20 guineas would not have remunerated me. (Laughter.) The public have mistaken ideas as to what auditing is. (Renewed laughter.)
Mr. Lewis—They won’t have mistaken ideas after to-day, Mr. Kemp. (Laughter.) We have shown them what it is.
Cross-examination continued—I am aware that when banks are purchased persons are paid a commission for conducting the negotiations. It is a common thing.
By Mr. Williams—I would carry commission so paid to the account headed “Purchase of Old Bank.” I cannot say how many books I should have had to examine if I had gone into all the details. In the London office alone there are two hundred books kept. The shareholders voted me twenty guineas for what I did, and it was hardly earned money. (Laughter.) Mr. Olding was a managing director, with a salary; but in justice to him I may state that he had cognisance of the London business alone. He remained a director till the time the bank stopped.
By Mr. Poland—An auditor must rely very much upon what is told him by the officials and the accuracy of the books. If I had made an audit of all the items I should have had to go to all the branches. I audited this bank in the same way as I should audit any other bank in similar circumstances. Being called on only five or six days before the meeting it was impossible to do otherwise than take the entries in the ledger for granted. All the sums paid as commission are entered separately from the purchase-money of the banks. I have heard that the reason the advances to the directors were entered under the heading “Suspense Share Account” was because the transactions of the bank were known at the Stock Exchange immediately afterwards. There was a leakage at the office by which things crept out. (Laughter.) For a period of three months attempts were made to resuscitate the bank by a committee of shareholders, but they failed for want of capital. Both before and after the liquidation I received every assistance from the directors. During the time of my interim liquidatorship particularly they attended every day.
The inquiry was then further adjourned till Saturday, and it is probable that they will be the final examination.
Text from MEGAdigital (Berlin-Brandenburg Academy of Sciences and Humanities), MEGA² IV/19, licence CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0/); the editorial apparatus of the MEGA is not reproduced. ↩