The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1901-03-27
MUST QUIT THE STATE
DECISION AGAINST sO-CALLED DE-
BENTURE COMPANIES.
Ohio Supreme Court of Opinion that
Their Business Is Fraudulent
Receiver for One.

COLUMBUS, o., March 26.-The Supreme
Court to-day dealt a death blow TO the So
called debenture business in Ohio. In the
quo warranto proceedings brought by the
attorney general against the Interstate In
vestment Company, of Cincinnati. the
court entered judgment of custer. The de-
cision is based on the finding of the cour.
that the methods employed by the deben-
ture companies are those of a lottery; that
they are fraudulent. contrary to public
policy and unlawful. Five of the six
judges concur in the judgment and the
sixth, Judge Shauck, does not dissent. As
sistant Attorney General Todd, who has
had charge of the case for the State. said
to-day that in his belief the nine deben-
ture companies of Ohio will attempt to do
no further business. Applications for re-
ceivers for most of them have already
been made. The companies aggregate de-
post In the state treasury now amounts to
about $4,000. According TO their own re-
ports the aggregate Liabilities to debenture
holders amount TO approximately s2,00O,0O0
The aggregate assets claimed by the cor
porations other than the deposits with the
state treasurer amount TO about s3O0.0O
The syllabus of the Supreme Court in the
case follows: Contracts of investment Sc
curity, debentures or certificates which by
the device of a 'numeral apart may be
called in and redeemed at any period before
they would regularly accumulate a credit
in the reserve fund equal to the stipulated
endowment value, and otherwise giving I'M
equal advantages to the certificate holders
contain the elements OF chance and prize
constituting a lottery and are unlawful.
Contracts of investment security, de-
bentures or certificates which cannot rea-
sonably be expected to m a suffi-
cient reserve fund to equal the stipulated
endowment values within the stated period
without aid from lapses or appropriation
from premiums on new business are 1raudu-
lent, contrary to public policy and unlaw-
full"
a comprehensive review of the courts
reasons for reaching it's conclusion that
the business of the debenture companies Is
fraudulent, is presented in the opinion pre-
pared by Judge Davis. The court says;
1.-The question here is not whether the pro-
moterS of the defendant company have IN
tentionally devised a scheme to mislead
and defraud, but whether that Is the ef-
feet of IL. The promoters and the investors
may be self-deluded or satisfied to take the
chance offered. but that does not alter the
character of the scheme. If the company is
misuSing its corporate privileges In such q
way as TO be a public abuse. the writ must
issue, regardless of the intent. An inspec-
ton of the different classes of 'accumu-
lative certificates issued by
the defendant, fdiSclOSeS that, In none OF
them, does a certificate absolutely and GER
tainly mature, within any fixed and def
mite period, yet the certificates are all so
drawn as TO create the expectation, and
to make ii appear that they Will mature in
a period of 10 months. With all the light
which We have received from counsel and
other sources, we have been un-
able to persuade ourselves that the
credit TO any of these classes of
certificates i'm the reserve fund or in the
reserve and tontine funds, Will equal the
endowment value within the stipulated
periods without the aid of lapses or the
apportionment of funds derived from new
business. Indeed, it is almost self-evident
that, with 70 or SO per cent. of the prem
iums received consumed in expenses and
monthly redemptions, the reserve credits
could not equal the endowment value in
several times the periods stipulated. In 9TH
er words, 20 or 25 per cent. of the premium,
with it's interest earnings, alone and un-
aided by lapses or the appropriation OF
money from proclamations received for new
business, will not sufficiently accumulate
to equal the represented value
In the stipulated periods. A scheme which
can succeed only by lapses is manifestly
a scheme which will enrich some at the
expense of others who embark in the same
enterprise. A percentage of lapses varies
with different companies and at different
times with the same company. Shall this
fallacious and uncertain element, which has
been in so large a measure eliminated from
legitimate business methods. be encouraged
to reappear and to delude the inexperienced
and the unwary? We cannot conceive II to
be our duty to lend such encouragement