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CHAPTER VII.

MORE WORD-PAINTING IN PROSPECTUSES.

“I extenuate nothing, naught set down in malice."

“ The proper study of mankind is man."

SOM

OME of us may recollect the vagaries of a company

which had acquired a certain patent for manufacturing, out of an Indian fruit with which we are all familiar from its frequent appearance in the shops of grocers, and its display on the barrows of London costermongers, an article which was to oust the ordinary Mocha coffee from its place in our tastes, and revolutionise the breakfasttables of our homes. The capital of this company was £40,000, in £ 5 shares, and for the first year of its existence little was heard of it in business circles. Suddenly, however, by dint of powerful advertising, and other manipulations best known to the initiated, an excitement was got up in the shares early in 1881, and on the announcement that patents had been taken out all over the world, and that sub-companies would presently be formed for France, Germany, Austria, Belgium, Spain, Russia, Sweden, and the United States, and that each of these would have to pay £ 50,000 (the half of its capital) to the parent company for the use of its patents, in other words, that more than the nominal capital of the original concern would be received from each, they gradually were forced up until the £5 shares were quoted at £35. To matter-of-fact onlookers, the whole story, as told at the time, seemed like a money-market romance; but now that everything has toned down, we can view it in a more sober fashion, and gather from its recital a knowledge of some of the kinds of ventures which are offered to a receptive public by men who are so disinterested in their endeavours to supply them with methods of investment. The French company was the first offshoot, and, to show the confidence the parent company had in it, the purchase price of £50,000 was fixed to be paid in cash, together with an allotment of ten founders' shares of £l each; and, mirabile dictu, “the " French company has the option at any time during the term of three years of purchasing the founders' shares

" for £5,000 per share.As the directors in the French company were practically the same as those guiding the parent, it was extremely easy to make such terms, as, when men are entrusted with money to buy something from themselves, and are in a position to fix their own price, it can be done without any objection being raised by those not round the board-room table. “ From the success attending the company formed for the working of the English patent, the directors feel justified in stating they confidently believe the profits of this company will be

more than sufficient to pay dividends of at least 50 per "cent. on the nominal capital, and will exceed those of the company working the English patent, which, having only “ been formed a little over twelve months, has entered into "a contract which will yield the return by way of annual “ dividends of a sum, equal to the whole paid-up capital of " that company, of £34,000.”

Again : “The superiority of the coffee over any other “ beverage of the kind is now a recognised fact, and the “ directors consider it unnecessary to refer in detail to the “ various testimonials and press notices they have re

ceived.” “Many things have happened since then," and to read these testimonials in the light of events is highly interesting, if not very instructive. If ever an industry had a chance to flourish by advertising, this had ; but, in spite of comments from the medical authorities referred to in the numerous pamphlets issued, and laudatory articles that appeared in Land and Water, the London Figaro, Fact, the Money Market Review, the Financier, the Medical Press and Circular Advertiser, and a vast number of London and provincial papers, the decoction seemed to fall flat on English and French palates. The Christian press was not to be left behind in puffing, and this is not an unfair sample of how their constituents are often sought to be attracted. It is from a paper dated 21st February, 1881 :

“We advised our readers to invest in this com"pany" (the real and original parent) “when it was first

brought out, and they could have obtained shares at par, " and those who did so have reason to be satisfied, as they

cannot now obtain shares under £2 per share premium ; “and with the prospects before them, we are of opinion " that the directors are not too sanguine in estimating that " the £5 shares will be worth £50 per share. We there“fore strongly advise an immediate investment in the "shares of the company, which has an excellent board of

directors, and the success and progress of which appear

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to be perfectly secured.” We presume this means the success of the directors, and the whole puff is only on a par with what we might expect to find on a sharebroker's circular, but not in a Christian journal. The eloquent chairman had always something startling to bring forward at all the meetings ; large contracts were made for more than could be supplied ; new inventions for other kindred products, that could be worked along with the coffee; and invariably a tale of success. His views were decidedly sanguine when he said : "I know in my own mind that “ before the end of a certain period I shall get some £ 300

per share upon my original holding in the parent com

pany.” The period is still uncertain. The German company was the second of the infants, as the French had been its firstborn; but as the terms of the prospectus differed from the other only in affirming that a contract had been all but arranged with a firm to take their whole manufacture for a sum that would admit of a 50 per cent. dividend on the £100,000 capital, the details need hardly be reiterated. It turned out on inquiry, however, that this child had been prematurely born ; at all events, £ 50,000 was to be handed over for a German patent, which had only been applied for, but had never been granted. The shares were all taken up greedily, and when the validity of the transaction was questioned, the directors endeavoured to foist a Swedish patent on the German company, so as to complete the transaction, although nominally this Swedish patent was to be thrown in as a present, and not to interfere with the possession also of that for Germany, when obtained.

At the meeting called for the purpose of confirming this arrangement, the absurdity of paying for something that was of no use was made apparent to the majority of shareholders present, who, on discussion, saw the transparency of the scheme. By a show of hands, the majority threw out the directors' resolution, but the deliberate voice of the meeting was upset by the directors being armed with the proxies of absent niembers, which often renders a meeting the veriest sham. The reason the chairman gave in his circular asking for proxies was, that he expected opposition to his proposals, and this should have been a strong argument for his not inviting proxies, as, if the proposals could not withstand the criticisms of the shareholders present, it could hardly be for their benefit that they ever were made. If a company is composed of many shareholders, and the chairman in flowery language solicits their proxies, a

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majority can readily be counted upon, who consider it so much easier to let the board think and act for them ; but when those who are in the habit of acting and thinking for themselves negative a resolution, and find that their opinions are “boycotted” by reason of the proxies in interested hands (given often with no definite purpose), the meeting may be considered merely a farce.

But, although this resolution was thus carried, a storm arose; the “Coffee Substitute craze began to be seen through, and the payment of the £50,000 was, on petition, stopped by the Court of Chancery. Before this, however, the community had been satiated with the beverage, and the Belgian company never got its full capital together, to judge, at least, by the fact that, long after its inception, the fully-paid shares were offered privately to the French company shareholders at half price. The promoters, though thoroughly successful for a time, have not yet succeeded, so far as we can learn, in disposing of all their numerous patents. The four companies, parent and children, are now buried in the mazes of the Chancery Court, and, as in life, so in death, they are to be found together; but not, let us hope, waiting a glorious resurrection.

As their money is presumably all spent, the shareholders must pocket, with what equanimity they can command, the loss of their capital, but somebody must have gained by their losses. In the French company the capital went with amazing rapidity, and we take leave of these projects by quoting from a letter published early in 1883 by an aggrieved shareholder, who summarises the position, and his closing paragraph runs as follows :-“In August, 1882, a circular was sent to the shareholders that if the sales went on as they were doing a dividend would be declared in September. No dividend ever came, but on the 13th October, or two months after the circular was printed, the shareholders were startled with another, that unless a paltry £2,000 was immediately subscribed by them, the lease of the works and all the property of the company would be sacrificed. The £2,000 was not forthcoming, and from inquiries I have made I find it is in liquidation. The German company is wound up, the Belgian ditto, and now the French. Here we have the same directors of three companies, who in less than two years have received no less a sum than very nearly £300,000. Ought they not to be made to tell where all this public money has gone to, and how much they have been able to put in their pockets ? ' The importance which at one time was attached to this

group of companies warranted a longer notice than their intrinsic deinerits would otherwise have deserved.

At the time when so many mining ventures were being floated in our Indian possessions, during the latter end of 1880 and the first half of 1881, an impetus seems to have been given to the promotion of companies of a similar kind in various other parts of the world, notably on the West Coast of Africa and the North-western States of North America. The metals they chiefly concerned themselves with were silver and gold, while “precious stones” were represented by a brief rush in DIAMOND mines in the neighbourhood of Kimberley, which at first commanded considerable premiums, but since have dwindled down to more modest pretensions. Strange it is, however, that so few of the “really promisingundertakings which the British investor is asked to subscribe to ever turn out satisfactory as investments. Oftener we find them to be void of promise altogether, but simply old mines which have been prospected and much money sunk in, and then come on our market to be purchased when they have exhausted the patience of those in their own neighbourhood. Or they may be new ventures, trading on the names of others in the district which have paid something. With singularly few exceptions our foreign well-wishers seem to retain the paying concerns for themselves; and, as an instance of this, it is noteworthy that very few of the Australian and New Zealand mining properties, which have combined capitals of several millions of pounds, are in the hands of purely British companies, but are taken up on the spot, leading to the inference that the real prizes are sufficiently appreciated by themselves, and stuck to accordingly. South America also has been coming again to the front, especially the Venezuelan portion of it, and, naturally, the El Callao has been taken as the peg on which to hang the appeals for money to start enterprises in that country. The “ Callao Bis” and “Potosi” mines, started with capitals of £130,000 and £350,000 respectively, have gone through several stages of formation and re-formation, the shares consequent on this, and also according to the prevailing rumours of the striking of lodes or the reverse, being sometimes at a good premium and again at as heavy a discount. The promises of these mines have not yet been fulfilled so far as dividends are concerned, and, however rich they may eventually turn out to be, their capitals, in the first instance, were almost swallowed up in payments for the ground, leaving, as usual, little margin for actual working, and

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