Daily new dominion. [volume] (Morgantown, W. Va.) 1897-1906, 1901-03-27
A HARD BLOW.
OHIO SUPREME COURT DECIDES
DEBENTURES ILLEGAL.
High tohio Court Entered judgment
Against Cincinnati Concern.
Companies Are Unlawful.

Columbus. March Pin the quo
warranto proceedings brought by the
attorney general against the Inter
state Investment company. of Gin
cinnati, the state supreme court en-
tered judgment of custer. The de-
cision is based upon the finding o.
the court that the methods employed
by the debenture companies are those
of lottery; that they are fraundu-
lent, contrary to public policy and I'M
lawful Five Of the six judges con-
cur 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 that in his belief the nine
debenture companies of Ohio will at
tempt to do no further business. APP
plication for receivers for most OF
them have already been made
The syllabus of the supreme court
in the case is as follows:
Contracts of Investment securi
ty, debentures or certificates. which,
by the device of a 'nnmeral apart
may be called and redeemed at any
cumulate a credit in the reserve fund
equal to the stipulated endowment
value, and otherwise giving unequal
advantages to the certificate holders,
contain the elements Of chance and
prize constituting lottery and are
unlawful.
Contracts of investment security
debentures or certificates, which can
not reasonably be expected to accu
mulate sufficient reserve fund to
equal the stipulated values within the
stated period without aid from lapses
or appropriation from premiums on
new business, are fraudulent, con
trary to public policy and unlawful.
A comprehensive review of the
courts reasons for reaching its con-
clusion that the business Of the de
benture companies is fraudulent is
presented in the opinion prepared by
Judge Davis. The court says:
The question here is not whether
the promoters of the defendant com
pany have Intentionally devised a
scheme to mislead and defraud, but
whether that is the effect of it, The
promoters and investors may be self
deluded or subject to take the
chances, but that does not alter the
character of the scheme. If the com
pany is misusing its incorporate priv
leges in such way as to be public
abuse the writ must issue, regardless
Of the intent.
"An inspection of the different
classes of 'accumulative endowment
certificates issued by the defendant
discloses that in none of them does a
certificate absolutely and certainly
mature within any fixed and definite
period yet the certificates are all 50
drawn as to create the expectation
and to make it appear that they will
mature in a period of 100 months.
With all the light which we have re-
ceived from the counsel and other
sources, we have been unable to per
suade ourselves that the credit to any
of these classes of certificates in the
reserve fund, or the reserve and Ton
tine funds will equal the endowment
value within the stipulated periods,
without the aid of lapses or the appor-
tionment of funds derived from new
business. Indeed, it is almost self
evident that with IS or so per cent of
the premiums received consumed in
expenses and monthly redemptions,
the reserve credits could not equal
the endowment value in several times
the periods stipulated. In other
words, 90 or rs per cent of the pre-
miums, with its interest earnings.
alone and unaided by lapses or the
appropriation of money from premi-
INNS received for new business will
not sufficiently accumulate to equal
the represented endowment value in
the stipulated periods. A scheme
which can succeed only by 1apses is
manifestly a scheme which will en-
rich some at the expense of Others
who embark in the same enterprise
The percentage of lapses varies with
different companies and at different
times with the same company. Shall
this fallacious and uncertain element.
which has thus been in so large
measure eliminated from legitimate
business methods, be encouraged to
reappear and to delude the inexperi.
fnced and the unwary2 We cannot
conceive it to be our duty to lend
such encouragement"