They get a list of shareholders in a company, disseminate reports that there is a fraud in the prospectus, win over a a few of the shareholders, and circularise the remainder, sending them forms to fill up insisting on an investigation being made. Then they call meetings, and get promises to take legal proceedings against the directors, assuring shareholders of the return of the money subscribed, and that either no legal expenses will be incurred, or only, say, one shilling per share. Their action, of course, you are led to believe is entirely disinterested; but the whole object is that they may bring the company into liquidation, have the appointment of the liquidators, and, being generally solicitors, they thus succeed in creating business for themselves. Many companies have been ruined or brought to the verge of liquidation in defending themselves from the machinations of these wreckers, and, as shareholders cannot be got to pay their calls while lawsuits are pending, even if the suit goes in favour of the company, much support has been alienated, much valuable time and money wasted, which ought to have been applied to the pursuit of business.

Generally speaking, in cases of liquidation under the JointStock Companies Acts, the same thing happens as in other bankruptcies, from the want of interest taken in the winding up of the business by the creditors themselves, who look upon their money as lost, and do not also want to lose their time, the bulk of the assets are frittered away, and are swallowed up by expenses in court, the liquidation being kept carefully going by the accountants and solicitors, who have no special interest in settling things off-hand. The process of winding up is not unduly hurried by reason of its taking place in the Court of Chancery; so it goes on, perhaps for years, until there is nothing left to wind up, and, for want of further oil, the machinery of the legal clock comes to a standstill.

ΤΗ

CHAPTER V.

BAITS FOR THE UNWARY.

"Save us from our friends."

HE angler is not more painstaking in dressing his hooks with gaudily-coloured feathers, nor in selecting the form of bait best calculated to allure the unsuspecting fish he wishes to attract and ultimately capture, than is the director or promoter of a company, when seized with the desire of getting the monies of investors within his relentless grasp; and, although his lines are baited mainly to catch the minnows and sprats of the investing world, he does not disdain to land bigger fish when they are caught napping. His baits are many, and are specially adapted to entrap the savings of maiden ladies, widows, and clerks of slender means, who are dazzled by the brilliant promises held out, and through the medium of the press he dangles before their eyes the concealed hooks, spicily dressed in attractive language.

Not only are the allurements circulated, as a matter of form, in the papers specially devoted to monetary and trading enterprise, the readers of which are not so easily caught; but, by judicious selection of the leading London and Provincial journals, the whole country is appealed to. It can hardly be hoped, in these days of "freedom," that the advertisement editor should be his own "Censor of the Press," and exclude those advertisements which take up so much of his columns, and are so well paid for, although he does happen to know the hollowness of them. But it might, perhaps, be expected that the staff of our so-called Christian papers would read between the lines, and discriminate what they advertise. Not only do barefaced, impudent prospectuses appear in religious periodicals, but, showing what the price of a good advertisement will do, the editor occasionally calls attention in a special paragraph to the "eligible investment,"-save the mark,-which is offered. Their readers, who, as a class, are little skilled in commercial matters and the duplicity of promoters, being appealed to from such a quarter, stake their "little all," thinking the medium of communication sufficient guarantee of the soundness of the undertaking. Do the editors of our Church weeklies take the trouble to inquire

into the pros and cons of these schemes before they tacitly recommend them by allowing the advertisements to grace their pages, or is the onus left entirely to their unsuspecting readers?

Some are caught by the name of a well-known firm of bankers, who will receive subscriptions, and consider this some guarantee of the soundness of a concern. A moment's thought would show that the banker, being merely the channel through which the subscriptions flow, takes no risk in the matter, and, as he always keeps a balance in hand, it is immaterial to the bank whether the company sinks or swims, as in no case has it incurred any responsibility.

Another point is prominently stated, that so many "shares have been already applied for"; in other words, they are likely all to be taken up, and the public forestalled, unless immediate application be made, when, if the truth were known, no real applications have been received, or only false applications for shares that nothing has been paid upon nor is likely to be so. All shares advertised as applied for should be subscribed for in cash, and not by dummy shareholders or nominees with the object of inducing others to subscribe.

Again, "the vendors have so much confidence in the ultimate success of the undertaking that they have taken only £25,000 in cash and the remaining £25,000 of the purchase-money in shares"; but this is only a method of disguising the fact that it matters not to them whether their remuneration is to come out of a fixed cash amount stated in the prospectus, or to be appropriated out of the money actually subscribed.

Often, too, as soon as the company is advertised the shares are quoted at a premium, with the double object in view either of enticing people to subscribe for shares at par, or for the promoters to sell them at a premium, with the idea of buying back shortly afterwards for next to nothing. A, by arrangement, agrees to sell to B so many shares at a premium, and this is quoted in the papers as if it were an honest business transaction, which is not very reasonable, if any one takes the trouble to consider that the shares à priori can be had at par by applying for them in the usual way.

"No promotion money will be paid," and "all expenses up to allotment will be defrayed by vendors," are clauses that will hardly "hold water," seeing that the vendors or their nominees are generally the promoters, and all that is wanted is to make the sum fixed upon to be paid to them

out of capital big enough to reimburse those incidentals. This will always be found to include enough for both of these items.

Again, “interest at the rate of 10 per cent. per annum is guaranteed for one year until the machinery be erected and everything in working order." As this, if paid at all (which is not always certain), will be provided for in the sum that goes to the vendors, the so-termed dividend is paid actually out of the members' subscriptions, so this honest proviso in a prospectus is not entitled to much confidence. If the dividend be forthcoming, as it probably will be the only one, it ought to be cherished accordingly.

But as the whole reason for the existence of a true mercantile company hinges on the amounts of profits to be earned, so in the bogus schemes is this part of the prospectus made exceedingly palatable. There is absolutely no limit to the profits of some of these projects. The idea of a modest 10 per cent. is scouted, and by skilful arrangement of figures, it is shown to demonstration that, on the capital asked for, a clear profit of at least 20 per cent., and even 50 per cent. and 100 per cent. in extreme cases, may be confidently depended upon. Side by side with this statement is quoted all the enterprises of their particular class of operations which have proved successful, whose shares have risen to such premiums, and have paid such steady dividends for so many years, and "there is every reason to suppose that this will even surpass all their efforts." In home ventures there is, perhaps, a limit to this "tall talk," but the further abroad you are taken, and the less likelihood of your being able to ascertain a positive knowledge of the country, the greater range will the profits assume. Especially, as will be pointed out in succeeding chapters, is this the case with mining industries, which offer an opportunity not to be lightly passed by of this big method of estimating returns. It is certainly open to all to question the basis of their calculations; but the richness of the section of the earth immediately under the surface is so problematical that absolute contradiction cannot be given unless the test of experiment is actually carried out. The location is everything: the prospectus must state the proximity of the mine to some other well-known one which "has paid hundreds of thousands in dividends, and the £1 shares of which rose in one day to over £150." Then a few others, not necessarily in the same district, are submitted as proof of what the directors affirm. If the mines be abroad, it is enough if they are situated in the same region as some other paying mine, as distance is a great

leveller; and, on looking at the small-scale map which accompanies the prospectus, it is difficult to tell within fifty miles or so how far it is away from the one it is being compared with.

Another taking bait is that negotiations are now pending for the sale of part of the property at a price sufficient to give a heavy bonus to the shareholders, besides, "large dividends from actual working are looked for in the present year," i.e., the property being so extensive it can not only find ample ground to work upon itself, but can afford to sell part and to form sub-companies. Often, however, all their energies are exhausted in getting their own capital together, and the prospects of finding buyers for a portion of the estate, or of giving birth to a numerous offspring, grow dimmer and dimmer until finally they altogether melt away.

It is usual also to state that "after the allotment has taken place a Stock-Exchange settlement or quotation will be applied for," in other words, that the shares will be rendered marketable. But this is oftener applied for than granted, as the Stock Exchange generally exercises a wiser discretion in excluding spurious companies from their quotation lists than Government does in allowing them to be started. When a quotation is granted by the Stock Exchange, no matter how low the concern may go subsequently, the shares are generally worth something; but, although many bubble companies do worm their way into their lists, those that do not flourish, only for a very short period, and then come to be known as "not marketable."

Some companies end their prospectus by saying that "if no allotment of shares be made the amount paid on application will be returned in full; but, although in this event well-intentioned companies do return the money if the capital wanted is not all subscribed, the shady ones allot what shares are subscribed for, apply this as far as it will go in paying the promoters for something which, even if valuable, would get its value only by being used, and as in these circumstances it never can be used for want of public capital to work it, the only thing left to the company after paying the interested parties is to make a sham start and then as speedily collapse. This is another feature that Government ought to have some say in; for, when there is not enough capital left to ensure the undertaking being carried on with a reasonable prospect of success, no allotment should take place at all, but the money be forthwith returned. The onus of this at present entirely rests with the directors, and the shareholders, however careful, can