IV.

THE OVEREND-GURNEY PROSECUTION.

THIS was tried at Guildhall, in December, by the Lord Chief Justice of England and a special jury. Various charges of fraud had been preferred against the six directors of the late Company of Overend and Gurney, and at the beginning of the year they had been committed for trial by the Lord Mayor. The case was removed from the Old Bailey to the Court of Queen's Bench at Guildhall, and was watched with very great interest by the public.

The names of the defendants were Mr. John Henry Gurney, Mr. Henry Edmund Gurney, Mr. Robert Birkbeck, Mr. Henry Ford Barclay, Mr. Harry George Gordon, and Mr. William Rennie.

The indictment stated that certain persons-Samuel Gurney, Henry Edmund Gurney, David Ward Chapman, and Robert Birkbeck-carried on the business of bill-brokers and money-dealers under the firm of Overend and Co., and were unable to pay their creditors and meet their debts, and that the defendants were directors of a company called Overend, Gurney, and Company (Limited), and that they, well knowing the premises, with intent to induce persons-that is to say, all such persons as should be induced to do so by a belief in the truth of a statement and account mentioned-to become shareholders in the Company, did set forth and circulate the prospectus of the company, representing that it could not fail to ensure a highly remunerative return to the shareholders, which prospectus was, it was alleged, false in certain material particulars, as they, the defendants, well knew; that is, in these particulars-that the company did not intend to call up more than 157. per share; that the consideration—viz. 500,000l., one half paid in cash and the remainder in shares of the company, with 157. per share credited thereon, were terms which would not fail, in the opinion of the directors, to ensure a highly remunerative return; that the business would be handed over to the company, the defendants guaranteeing the company against any loss on the assets and liabilities transferred; whereas in truth and in fact it was not true that it was not intended to call up more than 157. per share, and the said call was not sufficient to meet the liabilities of the Company, which then amounted to 3,000,0007. over and above their assets, and the terms were not such as could ensure a highly remunerative return, inasmuch as in truth and in fact the payment of half the consideration, 250,000l., to the members of the old firm, in cash, and the issue of the shares for the rest of it, with 157. per share credited thereon, would have been a payment to them without valuable consideration, and would have been unremunerative to the shareholders, by reason of the want of such consideration, and in fact the vendors could not guarantee the Company against any loss on the assets and liabilities transferred, for in truth and in fact there was an existing loss on the assets and liabilities of the vendors to an amount exceeding 3,000,000l., and the deed tendered for the inspection of the shareholders was not the only deed of covenant relating to the transaction, but there was another, containing other covenants and stipulations adverse to the interests of the intended shareholders, as the defendants well knew. This was the effect of the first count in the indictment. There were, however, thirty

counts, the others varying the precise legal nature of the charge. The variations were chiefly in the statement of the intent. The second count stated it to have been to induce customers of the firm ignorant of the pecuniary condition of the firm and of the company, and others, to entrust moneys and property to the company. The third stated the intent to have been to induce customers and others to advance moneys and property to the company. Fourth, to induce customers and others to become shareholders. Fifth, to entrust money and property to the company, the charge being that the defendants concurred in the publication. Sixth, to induce customers and others to advance moneys and property. The seventh count was framed upon a charge of conspiracy. It is stated that the defendants and others, well knowing the premises (i. e. the facts as to the old firm and the company), unlawfully and wickedly, and with intent to deceive and defraud, did conspire and combine together to make and publish a false statement of the affairs of the company, with intent to induce persons-to wit, all such as should be induced to do so, by a belief in the truth of the statement and account -to become shareholders in the company, and that the defendants, in pursuance of the conspiracy, made and published the prospectus, which was discovered to have been wilfully false in the particulars already stated. The eighth count was similar to the last, except in alleging the intent to have been to induce customers and others to entrust moneys and property. The ninth alleged the intent to have been to induce customers and others to advance moneys and property. The tenth stated that the defendants conspired, as before, to publish the prospectus-wilfully false in the particulars stated-with intent to create in the public mind a belief that the company was carrying on a prosperous business, and that its pecuniary affairs were in a sound and prosperous condition; and to induce persons ignorant of its real condition to become shareholders, and that thereby they did induce Mr. Thom, the prosecutor, to become a shareholder and obtained money from him. The counts from the eleventh to the fourteenth were similar, but stating other persons as those induced to become shareholders. The fifteenth and sixteenth counts were also similar and only varied the names. The seventeenth count stated a conspiracy to publish a false prospectus, knowing it to be false in material particulars, with intent to deceive and defraud shareholders, and to induce persons to become shareholders. The eighteenth count stated a conspiracy by false pretences and by artful and subtle means and devices to obtain money from Mr. Thom, and to cheat and defraud him of the same. The nineteenth was similar, except that it did not mention the false pretences; and the counts from the nineteenth to the thirty-second were similar, only varying the names. The thirty-second count stated that the defendants were directors of a company who had contracted to purchase a business of no value from Samuel Gurney and others, who were unable to pay their debts; and that the defendants contriving to make it appear to persons willing to purchase shares that the pecuniary affairs of the company were prosperous and that the business of the firm was solvent and prosperous, and intending to deceive persons who should become shareholders, conspired to publish the prospectus, and with intent to deceive persons willing to become purchasers of shares, falsely pretended-as already in the first count stated--and did by the false prospectus and false pretences induce Mr. Thom and others to purchase shares. Such was the substance of the indictment, which it will be seen in every count alleged wilful falsehood and intention to defraud; and this was denied by the defendants in their plea of " Not Guilty." Dr Kenealy, Q.C., Mr. Macrae Moir, and Mr. Dawson Yelverton were for the

prosecution; the Solicitor-General, Sir J. Karslake, Mr. Hawkins, Mr. Mellish, Mr. Serjeant Ballantine, Mr. Serjeant Parry, Mr. Giffard, Mr. J. C. Mathew, Mr. M. Williams, Mr. Poland, Mr. Ledgard, and Mr. Bruce Gardyne were for the various defendants.

The trial lasted nine days. Dr. Kenealy opened the case for the prosecution, and it may be convenient to state succinctly the effect of the facts proved. The first thing to understand in the case is the nature of their business as bill-brokers and money-dealers, which consisted in the discount of bills or the advance of money on what are called convertible securities, such as bills of a certain value capable of being promptly realized and bringing in quick and ready returns, or, lastly, in the dealing with money of customers deposited with them. Their profit lay in the difference between the rates of interest at which they discounted or renewed deposits and the rates at which they realized or renewed; and as the accounts were small or separate transactions, most bills being only at short periods, say three months, the value of their business lay in its enormous amount and the immense number of these transactions. It was proved in evidence that for a series of years the amount of money "turned over" in a year was as much as 150, 160, or 170 millions; that the amount of bills discounted was from 50 to 60 or 70 millions per annum; upon which the annual profit, the net income derived, was 180,000l. or 190,000l. a year. Of course, the house had not capital of its own to carry on such an enormous amount of business, and it was well understood that it dealt with the bills and money of its customers—that is, that it rediscounted the bills discounted with them, and got them discounted by other bankers. This, which was explained in the course of the case, will render intelligible the reference to "rediscounted bills." For some years, however, previous to the time of the transfer, some members of the house who had been left in its management, while older and wiser members had virtually withdrawn from an active part in it, had embarked in a new line of business, completely foreign from the proper business of money-dealers and bill-brokers, and made enormous advances upon the security of property, not capable of being realized with promptness and certainty, and subject to sudden and disastrous depreciation. Thus, nearly 900,000l. were advanced to the Atlantic Steamship Company (connected with the Galway contract), nearly 400,000l. to an East India Steamship Company, and some 300,000l. to another steamship company-upon no better security than the ships engaged in these enterprises; all of which failed, and by their failure reduced the value of the vessels, so that they realized comparatively only a small portion of their nominal value. Then there were loans similarly large in amount to traders, upon the security of commercial documents liable to be defeated. Then there was an advance of 24,000l. to a firm of Kelson and Co., on the security of bills-of-lading, duplicates of which were retained by the debtors, who thus obtained the goods and afterwards became bankrupt. Then there were advances to the amount of 240,000l. to a railway contractor, on the security of shares, he becoming bankrupt, and the shares, of course, of very uncertain value. These may suffice as specimens, and the result was that in loans of this kind not less than four millions of money were invested on securities the estimated value of which was only one million. Such had been the state of things for some years, and since 1861 the firm had ceased to make profits; not that the proper business was less profitable than before, but that they were burdened with this heavy load of bad assets and locked-up capital. And then the year 1864 was a bad one, and it became manifest that fresh capital must in some way or another be imported

into the firm. The firm consisted chiefly of the two Messrs. Gurney and Mr. Birkbeck, and they formed the design of a joint-stock company-"Overend, Gurney, and Co. Limited "-to purchase and carry on the regular and proper business of the firm-that of money-dealers and bill-brokers. They obtained the consent and co-operation of three gentlemen of high repute in the city, Mr. Gordon, Mr. Rennie, and Mr. Barclay (with a fourth, Mr. Gibb, who had since died), and these gentlemen with them-that is, with the three members of the old firm-were to form the directors of the new company, which was to take the business of the firm and forthwith carry it on. At this time, be it observed, the position of affairs was this:-There was a good business worth 180,000l. a year or more. There was a certain amount of liability to depositors, and to meet this there was a certain amount of assets, of which 4,000,000l. consisted of the doubtful debts already described, the estimated value of which was only a million, leaving a deficiency of 3,000,000l., to meet which there were the private accounts of the partners, amounting to about a million, their private property, computed to be worth a million and a quarter, and the goodwill of the business, presumed to be worth several years' purchase, together with the value of the premises and other items, supposed altogether to make up the residue of the other million; so that thus, upon the supposition that the business was worth half a million, the members of the firm were to give their guarantee as security for any deficiency in the assets. Accordingly, on this basis, the four gentlemen, Messrs. Gordon, Rennie, Barclay, and Gibb, with the chief members of the old firm, the Messrs. Gurney and Mr. Birkbeck, agreed to form the new company, and effect the transfer of the business to it. Half a million was to be the price (a moiety to be taken in shares), and the members of the old firm were to guarantee with that and with their whole property the realization of the deficiency in assets. The terms having been agreed upon a prospectus was drawn up, embodying the plan for the company in accordance with it, and a solicitor of high character (whose firm had acted for the firm for forty years), instructed to take the necessary steps to carry it out, and he, in the ordinary course, had recourse to a conveyancer to prepare such deeds as might be required. He simply laid, he said, the prospectus before the conveyancer, and desired him to prepare such deeds as might be necessary, giving him, he said, no particular instructions. The conveyancer prepared a deed of transfer, and also a deed of covenant, between the firm and the directors of the new company to carry out a somewhat complicated arrangement as to the doubtful assets. These, as "excepted accounts," were to be carried to a separate account, called the Suspense and Guarantee Account, and as they were realized they were to be carried to its credit. Until after the lapse of three years and a half the old firm were to be liable to make good the amount remaining unrealized, whatever it might be. The draughts of the deeds when completed by the conveyancer of the firm had to be laid before the conveyancer of the new directors (who had independent advisers), and that gentleman, as to the second deed especially, exercised so severe a scrutiny that scarcely a line of the original draught remained. In the meanwhile time was running on, and the 12th of June was the day on which it was desired that the prospectus should appear. On the 11th, however, the deeds were not completed, and only the draught of the first-the deed of transfer-was ready. It was not thought necessary that there should be any longer delay, the main terms being all settled as to the transfer of the business, as contained in that deed, and the next day the prospectus appeared. The prospectus contained this passage:-"The vendors

guarantee the company against any loss on the assets and liabilities transferred." And the first deed referred to in the prospectus contained clauses to carry out the guarantee thus mentioned in the prospectus-that is, a guarantee against losses on assets. The prospectus, however, was issued disclosing that there was to be a guarantee against losses on the assets or liabilities. But the reputation of the great house of Overend, Gurney, and Co., at once, upon the publication of this prospectus, notwithstanding its allusion to losses, attracted an immense amount of public support, and before the 28th of July, the time for allotment of the shares, applications for 224,000 shares had been received, although only 83,000 could be allotted to the public. The members of the old firm were to have 16,666, representing, at 157. a share, 250,000l., the moiety of the price of the business, and the new directors took large numbers; Mr. Barclay 1000, Mr. Gibb 1000, Mr. Gordon 200, and Mr. Rennie 400-altogether 2600. It will be observed that although the prospectus stated that the deed was to be seen at the office, only between thirty and forty persons were at the trouble of going to see it. A copy of the draught of the deed-that is, the only deed then settled-was at the office of the attorney until after the allotment, when, the company being formed, the copy was taken to the company's office. The other deed, carrying out the complicated arrangements as to the realization of the assets of the old firm, was not completed before the allotment, and both deeds were executed early in August. In the meantime, just after the allotment, the prosecutor, Mr. Thom, purchased his shares, as he and others said, "generally on the faith of the prospectus, but especially on the reputation of the old house;" and he admitted that he did not take the trouble to go to the office of the company to see the deed which lay there. The company were to take the business from the 1st of August, and the accounts were accordingly made up to the 31st of July. In the balance-sheet thus made up appeared the amount of 4,213,8367., which, with some additions, was the sum of four millions of doubtful assets already alluded to, and it was entered in this way-"Cash, Suspense and Guarantee Account." This account, as already mentioned, was provided for by the second deed, under which, in pursuance of the provisions in the first, the old firm were to wind up the excepted accounts, as they were called, and carry any sums received to the credit of that account, which was called a "guarantee" account because they were to guarantee the amount, and it was called a suspense" account because until the amount was realized it was to be in suspense. The difference between the two deeds lay entirely in this —that the second provided for this arrangement. Such were the provisions of the two deeds, of which the second was not settled before the allotment, neither of them being actually executed until several days after the company had started; therefore of course the second deed could not be and was not seen by any of the subscribers; and, as already mentioned, very few of them took the trouble of looking even at the first, which lay for inspection at the office of the solicitor of the company. The prosecutor, Mr. Thom, avowed that he never took the trouble to look at it, and he and other shareholders confessed that if both deeds had been open for inspection they would, in all probability, have looked at neither. They avowed that they had taken their shares on the general effect of the prospectus and the reputation of the great house of Gurney. The company, however, started on the 1st of August, 1865, with the 157. per share paid up, and with no intention of calling up any further payments, insomuch that the share secretary was dismissed. Unhappily, however, the company started at an evil hour. As already mentioned, the business of money-dealers and bill-brokers depends greatly on