Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-08-02
Trial of Lord Kylsant
Stirred Britain Deeply
BY A. G. GARDINER.

LONDON, August Mo case in re.
cent years has stirred this country so
profoundly as that which ended Thurs
day evening in the sentencing Of Lord
Kylsant to years Imprisonment. This
was due both to personal and public
considerations.
The fall of Lord Kylsant was like the
fall of one Of the central pillars Of the
London financial districts structure.
lips, sons Of Welsh clergyman, all
famous physically for their extraordi.
nary height and publicly for the emf
hence they have achieved in the hnan-
ciar world. Each had taken a com.
mercial empire for his own and each
had accumulated vast fortune and had
been honored with titles.
The eldest, Lord ST. David is chiefly
concerned with railway Developments
in South America. Lord Kylsant, as
the head of the Royal Mail Steam
Packet Co.. became a spectacular ig-
ure in British shipping, and before the
war waged struggle with Albert Bal
lin Of Hamburg for the supremacy OF
the worlds mercantile marine. The
Royal Mail became the center of vast
system of shipping companies. of which
Lord Kylsant obtained control and be
came chairman. He recovered control
of the White Star Line from America
and his last great deal was the pur-
chase of the Australian Line from the
commonwealth government. He was
reputed to control more tonnage than
any other owner in the world. and his
prestige in the city was unsurpassed.
During the war the Royal Mail &C"
cumulated vast reserves, which were
largely employed in new developments
and the building Of ships at a time
when the costs of construction were
vastly inflated by war finance. Then
came the catastrophe world slump in
dividends, not from current proflts, but
from hidden reserves.
y y X
In 1928 Lord Kylsant issued an invi-
tation to the public to subscribe to de-
bentures, stating the annual balances
over period of years were SUFFICIENT
to cover the interest several times. In
the original draft the word used was
profits" but balances" was substituted
in the published prospectus.
Lord Kylsants brother, Lord st.
David, who was a trustee Of the orig
inal debunture holders Of the Royal
est of his own clients and took action
which led to the public disclosure Of
the gravity of the affairs Of the Royal
Mail and allied companies. The result
was the sensational collapse OF the
whole structure. Shares in the Royal
Mail, which once stood over $500
share, became practically worthless. 1t
was estimated that the losses were in
the neighborhood of ESQ, 600, 900 sterling.
and during the past year committee
representing the government and banks,
dnnrlV iYUn1Und
In salvaging the wreck.
\
After a prolonged examination of the
facts, the government initiated the
prosecution of Lord Kylsant on two
counts: First, issuing annual reports
in . form intended to deceive share
holders, and second, issuing a pro-
spectuS which he knew to be false, with
intent to deceive investors.
The first count raised the most criti-
cal issue. For q fortnight the battle
ragged between expert witnesses as to
the right Of directors to conceal from
we're being paid from hidden reserves
instead of profits. It was admitted
that this was frequently done, and it
was defended on the grounds that the
purpose of hidden reserves was to aver
age prosperous with unproSperous years,
and because Of the undssirability In
the interests of the shareholders 10
disclose to competitors facts which it
was to their advantage to know On
this count the judge made strong COM
ments on the relations of directors to
shareholders and the duties of auditors
to companies. He held that, shArehold-
ers as owners were entitled to know
the real facts and that the hidden re-
serve was entirely proper, but should
not be used to conceal essential truths
about the company's position. On this
count the jury, after three-hour de-
bate, acquitted Lord Kylsant, but found
him guilty of issuing a prospectus with
intent to deceive investors.
The trial created deep disquiet in the
commercial and financial world. It is
agreed that the law in regard to the
relations of directors and shareholders
provides adequate protection for the
latter, but q widespread practice Of con-
cealing essential facts in reports Of bal.
anee sheets has been disclosed.
(copyright. asa1.I >