HC Deb 21 November 1938 vol 341 cc1371-426

Order for Second Reading read.

4.4 p.m.

The President of the Board of Trade (Mr. Oliver Stanley)

I beg to move, "That the Bill be now read a Second time."

Owing to the desire of the House to discuss later a Motion on an important subject, it has been arranged that this Debate shall be cut short. I shall certainly do my best to make the maximum of time available for other Members, and to explain as briefly as possible the main lines of the Bill whose Second Reading I have moved. I do not think it is a very difficult task to explain the main lines upon which this Bill is drafted. When it comes to examining the Bill line by line and Clause by Clause, then I admit there are many and necessary complications, but they are in the nature of Committee rather than of Second Reading points. I can certainly give the House the assurance that when the Bill receives a Second Reading and when we go into Committee, everyone upon that Committee will have one common object, and that is to make the Bill as effective as possible in dealing with the rogue, and to make it as little hampering as possible in dealing with the honest man. I shall certainly be prepared to accept any proposal coming from any quarter which tends to improve the Bill and to strengthen its effect.

I cannot help facing the House in rather an apologetic manner when introducing a Bill of this nature. We have been so accustomed in past weeks to dealing with matters of the greatest moment, matters vitally touching the life, and, indeed, the death of the peoples of this country and the world, that it is rather an anti-climax to come down this afternoon and to take part in what is always an invidious task—that of protecting the fool from his folly. Anyone who has made any study of the share-pushing activities and of the frauds which have resulted has been astounded, not so much at the intelligence of the criminal, though that is often great enough, but at the gullibility of the victim. If ever there was a class of people to whom this House might rightly say, "You have been warned," it is the class of person who suffers from the activities of the share-pusher. By notices in the Press, by pamphlets which have been distributed through the Post Office, by messages through the B.B.C., by questions put in Parliament by Members on all sides of the House, the advice has continually been given to people that before they buy or sell shares they should adopt the simple device of consulting a banker, a broker or a solicitor.

A right hon. Gentleman opposite says that is not saying much, but the right hon. Gentleman knows quite well that there has been no case where these activities have succeeded when that ordinary precaution of acting through an experienced professional has, in fact, been adopted. Yet despite that advice, time after time we find instances where these people have parted with their life's savings in circumstances which would make the smallest child, one would have thought, clutch more closely to its pocket money. Although it may be a case of protecting the foolish from their folly, the House cannot, and in past years has shown that it will not, sit and look on indifferently while these things go on. [Interruption.] I am sorry; I hope I am not interrupting the right hon. Gentleman opposite. Perhaps he is selling some shares to his right hon. Friend.

Mr. A. V. Alexander

The right hon. Gentleman must not say that. He knows that we do not sell shares in the Co-operative movement.

Mr. Stanley

During the proceedings of a committee which investigated recently these share-pushing activities, one witness gave evidence which may have been exaggerated but was formidable, to the effect that as much as £5,000,000 a year was lost through the activities of these gentlemen. From the point of view of this House what, of course, makes it all the worse is the type of victim and the character of the loss. If the victim were a rich man and if the loss meant to him only the loss of a luxury or comfort, I think the House would say that he must bear the responsibility. But, in fact, the victims of these activities are of quite a different character, usually the widow, the pensioner, the retired man living out the rest of his life on savings, or the spinster, and the loss which they suffer is not the loss of a luxury or comfort but very often the loss of the only barrier winch stands between them and destitution.

I think there is no one in the House who knows as much about the methods and the activities of these men as does the right hon. Gentleman the Member for Stirling and Clackmannan (Mr. Johnston). He knows as much about them as any police official does, and he is probably as much feared and hated by them as any police official in the country. The right hon. Gentleman will bear me out that our sense of the folly of the victims is overwhelmed by the pity that one feels at the tragic results of it. These are activities that all of us want to stop. But it is not always so easy to define and agree upon the actions that we are to take to stop them. The difference, after all, between share-pushing activities of this kind and ordinary legitimate share dealing lies not so much in the act that is done as in the intention of the doer. It is quite possible, in a legitimate, aboveboard share-dealing transaction, for the purchaser to lose his money.

Mr. Bellenger

Hear, hear.

Mr. Stanley

I am sorry that that statement seems to hit the hon. Gentleman on a sore point. But the difference is that in the share-pushing activities there is neither the belief, nor the intention nor the hope that the purchaser shall ever do anything else. It is really share-dealing only in name and is a confidence trick on another line, where the worthless share takes the place of the gold brick or the prisoner in Spain or the bank notes wrapped in a parcel or the other machinery of the confidence trick man. This is not the first time that the House has occupied itself with some attempt to curb the activities of these people. Hon. Members who were in the 1924 Parliament will recollect that during that period there was considerable attention given to this question. There was the Greene Committee, which in the years 1925 and 1926 was considering the whole question of company legislation. That Committee devoted a very considerable time to this aspect of share-dealing. Attention was concentrated largely on the question of the hawking of shares. The Committee felt that the remedy was to prevent the house-to-house canvass, by which the purchaser was induced to enter into an agreement.

In consequence the Companies Act, 1929, included a Section which was intended to prevent this practice. But in effect that Clause has been largely inoperative owing to the fact that while it prevented house-to-house personal calls it left the use of the telephone unrestricted and it was difficult to determine what was "house-to-house," and the share-pushing canvasser got round the Clause cleverly by going first to a house in one town and then to a house in another town, and then coming back to the first town again. There was the difficulty that it did not prevent calls on those who were not clients, and by the ease with which some ostensible honest transaction could be used as a ground bait, the share-pusher could gather these people as a clientele and then proceed to push his worthless shares. Owing to all those facts the Clause has had little effect in curbing these people.

Since that time we have seen some of the worst frauds of this character known in the history of this country. Nobody in this House is ignorant of the case of Jacob Factor, an American citizen, who came here, and, through the agency of Broad Street Press, was able in 18 months to return to America richer, it is estimated, by some £1,200,000. It is true that some of his associates were caught and sentenced, but he himself was able to leave the country before action was taken, and, unfortunately, since then every effort to enable him to be extradited in order to stand his trial has been unsuccessful. Since then—the right hon. Gentleman will know many more instances than I do—there have been such cases as Murdoch and Barr, Ward, Daw and Company and the Spiro fraud, and in the last few months my hon. and learned Friend the Solicitor-General has been prosecuting in the case of Tanfield. In these cases convictions have been obtained and heavy sentences have been inflicted, but in all these cases the damage has been done before prosecution has been undertaken and before the punishment has been given. Large sums of money have been extracted from the public, and it is little satisfaction to the victim of that loss that afterwards the person who has defrauded him or her should go to prison.

So much was the feeling of this House stirred, very largely I think by the action and questions of the right hon. Gentleman, that my predecessor in office, in December, 1936, appointed a committee under the chairmanship of Sir Archibald Bodkin. That committee produced a most valuable report which is the basis of this legislation, although, for reasons which I will explain to the House, we have in the course of drafting this Bill made considerable changes in the machinery that they suggested. I do not want to weary the House this afternoon with the minor recommendations of that committee any more than I would weary it with the minor points in the Bill which I am introducing, but the main lines of that committee's recommendations were, first of all, registration—the registration of all those who were going to carry on the business of dealing in stocks and shares; secondly, action to prevent circularisation for the purpose of getting people to enter into agreements to buy or sell participations; and, thirdly, the amendment of the Larceny Act under which prosecutions for this type of fraud are undertaken. In order to deal with the definition of false pretences, under the Larceny Act the false pretence you make must be a false pretence as to an existing fact. Many of these share-pushing persons—it may be the canvasser, the man who is pushing the shares—do not tell the public anything false about the existing facts; what they give them are dishonest promises and forecasts for the future. False pretences should cover not only statements as to existing facts but future promises as well.

Although, sometimes in a different form, all these three main recommendations will be found to be covered in the Bill, the principal one, of course, is the question of registration. It was the belief of the committee that if these people had to go through the process of registration which would enable some authority to keep track of them, it would reduce the opportunities for their activities very considerably. But the registration, as proposed by the Bodkin Committee, was to my mind and the mind of my advisers too rigid in its form really to be an effective obstacle to the activity of the share-pusher. Registration under their scheme would not be at the discretion of the Registrar; it would be automatic. If certain projected conditions as to sureties and as to lack of previous convictions were followed, whatever the situation and whatever the knowledge might be as to the person who desired to be registered, if he were able to fulfil these specific conditions, then automatically registration must proceed. Consequently, once he was on the register, there was no power to remove him from it except by application to the court, and the court could remove him only on certain specific grounds, such as a conviction, or, in some cases, as the result of a civil action.

That appeared to me to have certain difficulties. First of all, as I have said, there is no discrimination by the registering authority, and by skill and ingenuity the sharepusher might fulfil the conditions and the Registrar be in the invidious and absurd position, by registering him, of giving him full permission to carry on his nefarious work. Secondly, the process of removal from registration by application to the Court was a long one, and during that delay arising, not only might the public be losing more money, but the share-pusher might be putting himself out of the reach of the law. Thirdly, so stringent were the conditions laid down, upon which the Court could revoke the registration that though you might have in your possession evidence that was conclusive that in fact this man was running a share-pushing business, yet if those conditions were not fulfilled you would be unable to get the Court to revoke his registration. I do not believe that it is possible to deal effectively with these people upon those lines.

The essence of the treatment of this problem must be speed and lack of rigidity. If you lay down too closely the conditions which they must fulfil or the acts which they must or must not do, then, with their skill, they will soon find some way legally of avoiding what you have laid down. You must try to devise a system which itself is sufficiently flexible to deal with the different devices as they find them and as they occur. I came to the conclusion—and I believe it is the only effective means of dealing with this problem—that if we were to have some system of registration or other, it was better to go all out and definitely to have not a system of automatic registration, but a system of licensing by the Board of Trade, which would enable the exercise of discretion by the Board of Trade as to whether they did or did not license an individual, and would enable revocation of the licence by executive action. They are, I admit, wide powers to give to a Government Department, but I am perfectly certain that, unless the House is willing to give powers of that nature to a Government Department, no other means will be found of dealing effectively with this menace. That, therefore, is the system which we have adopted in this Bill.

If hon. Members will turn to the Bill they will see that Clause 1 sets out the machinery for this licence. There are to be two kinds of licence for those who carry on the business of dealing in securities: First of all, the principal's licence for the firm or for the partner in a partnership, and, secondly, a representative's licence which is to be held by anyone authorised by them to carry out actual transactions of dealing in stocks and shares. Hon. Members will also see the proviso. I will not deal with that now because it paves the way to a system of exemptions which we propose in Clauses 12 and 13, and which is designed to exclude from this licensing system those firms or associations with which we can deal either by their own domestic systems of discipline or by inquiry into the individual cases. Clause 2 merely provides for applications for these licences and hon. Members will notice that it is to be a yearly licence only and that application for its renewal must be made every year.

Clause 3 is an important one because it deals with the conditions under which the Board of Trade as the licensing authority may either refuse to grant a licence or revoke a licence which has once been granted. On top of page 4 of the Bill hon. Members will see what these grounds are. They are the fact that the applicant has refused to give information, that he has been convicted either of fraud or of some offence against the Act, that he has committed a breach of the rules—and I will deal with the rules later—or—and these are the important words, because they give to the Board of Trade a wide discretion—because of any other circumstances … which … reflect discredit upon his method of conducting business.'' That is a wide discretion to give, but I am sure that, if you were to confine the power to refuse a licence to people who had committed some specific offence, inevitably you would have the absurd situation of a man whom we might well know from his past record to be a share-pusher and who we knew would be intending to use the licence to deal in stocks and shares only for the purpose of share-pushing; knowing all that, we should be compelled to grant him a licence and allow him to carry on with his work.

Mr. T. Johnston

Before the right hon. Gentleman leaves Clause 3 will he say whether it is his intention that a man who may have been convicted in the United Kingdom of fraud shall be refused a licence, whereas a man who may have been convicted for fraud in Canada may still be automatically given a licence? I am speaking of Sub-section (2), in page 4, line 10.

Mr. Stanley

We can look into that. That is a different point. The right hon. Gentleman will realise that if a man had been convicted in Canada he would be caught under Paragraph (b) as that would be something reflecting discredit upon his method of conducting business. Whether it would be better to keep it on these broad lines or to refer to a conviction in any way is a matter that we could look into, but either way, even as it is drafted now, a conviction in Canada or in a foreign country would reflect discredit upon his method of conducting business and would enable us to refuse him a licence. I think it is clear that, if these wide powers are to be given to the Board of Trade, there must be some tribunal to whom an applicant who is aggrieved either by refusal of a licence or by the revocation of a licence should be able to appeal. Clause 4 constitutes such a tribunal. It is to consist of three persons, one of whom, the Chairman, is to be a member of the legal profession and to be appointed by the Lord Chancellor, and the other two are to be persons appointed by the Treasury. It is essential in a case of this kind that the members of the tribunal should be people of considerable financial experience who should be able to deal with what may well be extremely complicated cases.

Clause 5 is a Clause of some importance, because it empowers the Board of Trade to make rules for the conduct of business by those people whom they have licensed. Paragraph (a) gives power to make rules for determining the manner and circumstances in which they shall act. The object is to enable us to make for these people the same sort of rules, by which they will have to be guided as, for instance, the Stock Exchange makes for the guidance for its own members. Under the powers given by this Clause we shall be able to make rules dealing with the practice of calling by representatives of the dealer, and to deal with it much more effectively by a rule of that kind than it was dealt with under the Companies Act of 1929. We can deal deal with this question of approach to the non-client and try to approximate the conditions under which these people carry on their business, to the conditions under which a member of a recognised Stock Exchange has to carry on his.

I believe this to be perhaps the most valuable provision in the Bill. By it you can proscribe those methods of business, such as circularisation and means of approach which we know to be essential if the sharepusher is to succeed. In order to stop them, it will not be necessary to prove motives of fraud. It will be enough to point to a breach of the regulations in order to bring a practice of that kind to an end. The House will notice that these draft rules have to be published in order that any objection to them may be stated, and that in their final form they are to be laid before the House of Commons.

In dealing with Clause 1, I referred to the fact that we desire as far as possible to exempt from the necessity for the annual licence those classes or those individuals who are already being dealt with under internal disciplinary methods, or whose standing and repute is such that no one would for a moment pretend that they ever have been or could be of use for the purpose of share-pushing. If hon. Members will look at Clauses 12 and 13 they will see set up there the machinery for exemption. Clause 12 gives power to the Board of Trade to exclude from the operation of this licensing Clause any body of persons dealing in securities, or any recognised association of dealers which the Board of Trade chooses to recognise as such. That includes the London Stock Exchange, which by the interpretation Clause is recognised in the Bill as an exempted body, and other stock exchanges, in so far as their constitution and the overlooking of their membership and their rules of business are such as to justify their exemption.

It deals also with a large class of people to whom the Bodkin Committee drew particular attention. Those are the people known as outside brokers, people who deal, the great majority of them, quite honestly, in stocks and shares, but who for one reason or other do not join any of the recognised stock exchanges. There may be many reasons for that. Sometimes it is the expense of joining a stock exchange, or it may be the fact that it is not a whole-time business. As hon. Members know, members of a stock exchange may not carry on other business. It may be that in their particular class of business the rules in regard to advertisement or circularisation hit them very hard, and yet the business they carry on is not only an honest one but is very often an essential business.

These outside brokers are very often the only people who are able to place shares in little known industrial concerns, which perhaps are not quoted on the Stock Exchange, and with regard to which dealings on the various stock exchanges would hardly ever occur. Very often, too, the executors of an estate find that for some limited class of share about the only outlet they can find is through the outside broker. The Bodkin Committee expressed the hope that these outside brokers would form themselves into an association, draw up their own constitution and formulate their own rules to discipline their own members. Since the issue of that report such an association has been formed, and they are now, I believe, in the process of drawing up their constitution and deciding upon the kind of regulations they will impose upon their members. If that constitution is satisfactory and if those regulations are sufficiently stringent, then it will be possible for the Board of Trade to grant them recognition, which will mean exemption for their members from the licensing provisions.

Clause 13 deals with the exemption not of organised classes but of individuals and individual businesses which, for one reason or other, are not able to form themselves into associations and have, therefore, to apply for exemption singly and individually. The type of business here dealt with is that of the bank, the issuing house and the trust company, and complicated provisions are set up under this Clause which have to be fulfilled by these businesses before exemption can be granted. Even if these conditions are fulfilled, there is no obligation upon the Board of Trade to grant exemption to an applicant, but, generally speaking, the line that has been taken is to try and make it possible for exemption to be obtained by these businesses, which are wholesalers and not retailers of stocks and shares. The bank or issuing house which sells or issues stocks and shares personally deals with a broker or other business house and not by direct approach to the client.

These exemptions even when granted may be revoked. Hon. Members will see from page 17 that they will be revoked is they fail to continue to satisfy the conditions laid down in the Clause, or if there has been some material change since the exemption was granted. We have had a case where a perfectly honest business which undoubtedly under some machinery of this kind would have been able to acquire exemption was afterwards bought by a share-pusher, and its goodwill and its honest reputation were used to get money from the unsuspecting public. Any change of that kind, the sale of the business to someone else, would be a material change under which the Board of Trade might be entitled to revoke the licence.

There is another important question which arises in connection with licensing, and that is in regard to unit trusts. In recent months we have had a very excellent report from the Anderson Committee, which sat under the chairmanship of a distinguished member of this House, dealing with the whole question of unit trusts. Much of that committee's report is not relevant to this particular legislation, but it deals with one point which is relevant, and that is that the unit trust is a possible vehicle of fraud. We deal with that in Clause 14. There we lay down—it is also dealt with in Clause 1—that exemption may be given to the unit trust provided it has an approved trustee, and we lay down in Clause 14 what are the conditions on which the Board may declare some body to be an approved trustee. That is in line with the recommendations of the Anderson Committee, and it is an effective safeguard against the unit trust being used as a vehicle for fraud.

Mr. Bellenger

Does that exemption apply to the management of the trust?

Mr. Stanley

Provided the unit trust has an approved trustee, then the whole of the trust is exempted. Of course, only such organisations will be approved as trustees who, we know, will themselves make a most careful inquiry into the unit trust and the way its business is being carried on. I now turn to Clause 8, which deals with the position of the industrial and provident societies. I have heard a good many complaints—the right hon. Gentleman has brought to my notice several extremely bad cases—where legislation dealing with industrial and provident societies has been used to enable fraudulent dealings to go on. Under the Act of 1893 societies wishing to register under that Act were able to do so at much less cost than it would take to register a company under the Companies Act, and at the same time they were exempted from some of the more stringent provisions, such as the publication of information, which we find in the Companies Act, and with which any new company formed would have to comply.

That could have only been meant by the Legislature to be a privilege granted to societies with definite objects of a definite character. It could never have been meant as an easier and cheaper alternative for the ordinary money-making company, in helping it to have an alternative to the Companies Act as a means of formation. Undoubtedly, the use of the Industrial and Provident Societies Act has in several cases in recent years been a vehicle for gross fraud upon the public. Under Clause 8, in future the Registrar will have the power to refuse registration under the Industrial and Provident Societies Act unless he is satisfied that the company is a bona-fide co-operative society or, to use a comprehensive term, it is a philanthropic society of the type we know so well, where people pay money, with very little hope of return, for such purposes as slum clearance. Under this new provision the type of society for which the Act was intended will still be able to obtain registration without any difficulty, but it will be possible for the Registrar to prevent an honest society, registered under this Act, from being brought into disrepute by the use of the same machinery by people who are intentionally fraudulent.

There will be no power under this legislation to cancel an existing registration unless a society which has been registered at any time after July of this year makes an invitation to subscribe. If they do the Registrar will have power to cancel the registration which has been given. There are provisions enabling a society which is now registered under the Industrial and Provident Societies Act, to make up their mind within a year to transform themselves into an ordinary company under the Companies Act without the payment of stamp duty or registration fees. Clause 9 is intended to deal with another loophole. There have been one or two cases of fraud by companies registered as building societies. We are engaged in stopping loopholes in the Industrial and Provident Societies Act and we do not want that kind of company, having been stopped under that Act, to turn its attention to the Building Societies Act and try to get a footing there. Under the provisions of Clause 9, with the consent of the Treasury, the Registrar will be able to forbid the issue by any building society of an invitation to the public to purchase its shares, and if while this interdict is in existence a society proceeds to do so it will be liable to a heavy penalty.

Clause 10 is the answer to the request of the Bodkin Committee that something should be done to extend the definition of false pretences under the Larceny Act and make easier a conviction in the case of share-pushing. Under the Larceny Act false pretences must consist of a statement about existing circumstances, but really the false pretences of the share-pusher's canvasser is not what he says about existing circumstances but what he says about the future and the promises he makes. Under the new definition false or reckless promises or forecasts may equally be a cause of conviction. Later on in the Clause hon. Members will see that the penalty for conspiring to defraud, which under the Larceny Act is limited to two years, is brought up to a maximum of seven years.

Finally, there remains only the question of circularisation in Clause 11. The right hon. Member for Stirling and Clackmannan will agree with me that it would be difficult indeed for these people to operate without the possibility of circularising the public. Clause 11 forbids all circularisation dealing with the objects set out in Clause 10; the sale or buying of ordinary securities, the acquisition of unit rights in such schemes as mushroom farms, or commodity pools. Exemption is provided for members of recognised stock exchanges or those licensed under Clause 1, and regular commodity dealers will still be able to circularise their clients with regard to the commodities in which they have been dealing, but the circularising of commodity pools or anything like the mushroom farm which has been the latest development of the share-pusher's activity will not be allowed.

I have tried to give a short account of the general principles of the Bill. We have had a great deal of consultation with many interests as to its terms. There is always the danger in a Bill of this kind, when you are attempting to stop a loophole against the dishonest man, that you will create quite unnecessary and unjustifiable trouble for the honest man. By a great deal of consultation with all interests and by publishing the Bill in the summer in order to allow comments upon it, we hope that we have avoided this. I saw a letter in the "Times" to-day from a gentleman in the city complaining about the general lines of the Bill. All I can say is that the attitude he adopts is not the attitude I find among any responsible firms I have consulted in the city who will be the people handicapped in any way by the Bill. They have all taken the attitude that they are perfectly prepared to accept a certain inconvenience and, as it is put, even some loss of dignity, provided we stop the practices which we are out to stop. They feel as we do that these share-pushing frauds in the past have been the cause of great suffering to individuals and that the publicity which is given to activities of this kind does them no good, casts great discredit upon them, and makes people lose confidence in legitimate transactions. At the same time we have to remember that the share-pushing which we wish to stop is only an infinitesimal fraction of the everyday transactions.

4.52 p.m.

Mr. T. Johnston

The right hon. Gentleman has said, quite properly and truthfully, that the swindling of fools by knaves is not purely a post-war phenomenon. I recollect that 200 years ago Oliver Goldsmith wrote in the "Vicar of Wakefield" a description of how Moses was induced to trade Dobbin the colt for a gross of green spectacles by a plausible stranger. Nothing that we can do in this Bill or elsewhere can protect the born gull from the born crook. We welcome the Bill for its effort, though far from being complete or comprehensive, to make the way of the swindler in investments more difficult than it is now, and to the extent that the right hon. Gentleman has done this we heartily compliment him. The Labour party has not thought it desirable to move a reasoned Amendment upon any of the points of omission or commission in the Bill, as they have no wish to make party capital out of the issue. I was glad to hear the right hon. Gentleman's assurance that when Amendments and improvements are suggested in the Committee stage, he will consider them carefully and impartially on their merits.

The extent of this evil may be gauged from the report of the Commissioner of the Metropolitan Police for 1937. In London alone every ten days last year there was the prosecution of a share-pusher. I believe I am right in saying that the profits of these people last year ranged from £250,000 downwards. This year unfortunately, owing to the Wetnall Jenkins case the sums involved have been much heavier, as in that case alone about £1,000,000 was involved. Despite the hesitancy of the Bodkin Committee to accept the estimate of £5,000,000 per annum as the amount of swindling I am perfectly certain that it is an underestimate—not an over-estimate. Many of these rogues have escaped. Although there was a prosecution in London every ten days in 1937 it is impossible to estimate how many of these rogues escaped prosecution. When fled beyond the seas and we cannot extradite them, they are exempt under our extradition laws and can snap their fingers at Scotland Yard. Between 1910 and 1936 Scotland Yard knew of 177 firms in London engaged in this traffic.

It is a gross mistake to imagine that it is only the greedy and wealthy investor who is skinned by the share-pushers. Many, indeed, of the victims are humble folk. The majority can be described, I think, as easy meat classes, clergymen heading the list, doctors coming next, lawyers third, and spinsters and widows fourth. But there are any number of these spinsters and widows, many of whom are in exceptionally poor circumstances. I have known a number of cases in which they have had all their insurance money and all their compensation money which has been given to them in a lump sum extracted at one swoop by a plausible share-pusher. Sometimes the investments of these people are made from patriotic motives. They are not all people who are looking for large returns on their investments. The right hon. Gentleman will recollect the mushroom unit ramps which I tried in vain to stop before the damage was done. They were very highly spiced with patriotic literature. People were invited to assist in growing more food: "Why import food from abroad when you can raise it at home?" It was splendidly baited stuff, as in the Cucklington case. I paid a tribute to the right hon. Gentleman in trying to stop that in time by a warning in this House, although I wish he could have done something more through the British Broadcasting Corporation. When that company collapsed in August of this year the assets were £6,000 and the liabilities £244,000. That is a quarter of a million pounds literally taken from people who imagined that they were assisting the country to grow more food.

Then there was the MacLean and Henderson case, the case of an old firm in my county town in Stirlingshire established since 1868. One day Spiro arrived, disguised himself under the name of Stanley, and offered £5,000 for the business. He buys it. But nobody knows that he has bought it. He worked behind this curtain with their notepaper; and hid his transaction through the banks. I am sorry that the right hon. Gentleman gave the banks a bouquet this afternoon. Spiro hid his transactions behind the banks. For instance, the Banca de Bilbao was an offender, as were the Anglo-African Corporation and others. He foisted worthless shares on to the British public for many months. He sold shares of the Scottish Gas Utilities Corporation, which had actually only 13s. 5d. worth of assets; I believe he sold about £100,000 worth of stock in that worthless concern. By the time the collapse came, in February, 1937, and Spiro bolted—he came back afterwards and someone in London gave him eight years—he had got in plunder from MacLean and Henderson alone, a reputable firm which the President of the Board of Trade would have licensed immediately, £500,000, and as was stated in court, he had got away with £189,000 in cash. I recollect that before the right hon. Gentleman's arrival at the Board of Trade, we wrote letters to his predecessor about this sort of thing in advance, and we were told that the London police would look with sympathy upon a prosecution if a private citizen would initiate it. I congratulate the right hon. Gentleman that from the time he went to the Board of Trade—whether it was a coincidence or whether it was due to his efforts, I do not know—the City of London Police and Scotland Yard have actively interfered with the activities of many of these nefarious gentlemen.

Mr. Stanley

I think the right hon. Gentleman ought to thank the Bodkin Committee for that.

Mr. Johnston

I think that before the Bodkin Committee was appointed, the Treasury solicitors were acting in this matter. The major criticisms we have to make against the Bill are partly of what is in the Bill and partly of what is not in it, but ought to be in it. First of all, when the right hon. Gentleman introduced his Bill before the Recess there was in what was then Clause 19 and what is now Clause 10 (Penalty for fraudulently inducing persons to invest money) the following offence: Any dishonest concealment of material facts. These words are not in the present Bill. I think that this afternoon the right hon. Gentleman might have spared a moment or two in his very interesting speech to tell us why he considered it right and proper, presumably in agreement with the Cabinet, to make it an offence to have a dishonest concealment of material facts when asking somebody to buy shares, and then later on to omit these words. Before the Debate on the Second Reading of the Bill is concluded, I think there ought to be an explanation from the Government Front Bench as to why these important words have been dropped. I would remind hon. Members that in British Columbia, Section II of the 1935 Statute, which is supposed to be the tightest statute that is known against share-pushers, contains these words: Any intentional omission to disclose any material fact. In British Columbia, the Government thought it was right two or three months ago to put in those words. Now the words have been dropped from this Bill. In the same Clause in the eve-of-the Recess version of the Bill, it was an offence to promulgate or make any statement which the person making the statement could reasonably be expected to know to be false or misleading. Those words have been omitted from the present Bill. Now the maker of the statement must knowingly or recklessly make the misleading or deceptive statement. Will some hon. Member tell me how, particularly when a rogue was taken into court 12 or 18 months after committing the offence, it would be possible to prove that he knowingly or recklessly made a misleading statement? I am certain that the Solicitor-General would hesitate before going into court, 18 months after an offence had been committed, and seeking to prove or to get a conviction on a charge that a rogue had, 18 months earlier, knowingly or recklessly made the statement in question.

Why did the right hon. Gentleman weaken the Bill in this way? This was an essential part of the Bill. I think he weakened it because of the clamour of certain financial journalists in London. When the right hon. Gentleman introduced the first draft of his Bill before the Recess, any number of these gentlemen who write up or write down companies in the financial columns of the daily newspapers suddenly discovered that they might be had under this Clause for any deceptive or misleading statements which they made. They set up a clamour. This was too wide, it was not getting at the share-pushers but, if you please, at the honest gentlemen who write these paragraphs boosting shares, but who do not themselves sell shares. Therefore, I think the right hon. Gentleman and the Government have unnecessarily weakened the Bill. Lest the right hon. Gentleman should think that I have a bee in my bonnet about this matter, I would draw his attention to what was said by the editor of "Truth" last week. If there is any financial journal in the world which has had experience of hundreds of these rogues, and which has rim very grave financial risks with regard to libel in doing so, it is the newspaper called "Truth." I draw the attention of the Solicitor-General to the fact that last week "Truth" said that, as a result of this weakening of Clauses 9 and 10 of the Bill: The sharepushers, whether in bucket shops, in the Press or in the city, have had their leases renewed. That is the considered opinion of "Truth." My second difficulty about what is in the Bill is this. There is to be a prescribed fee for a licence before anyone can traffic in investments, but why is there to be no substantial deposit? Anyone who gets a licence to traffic will thereby be able to walk about the world giving the impression that the Government have "O.K.ed" him. We have never had that before. Previously, anybody who sold bucket-shop shares had to do so on his merits, but in future he will buy and sell shares with the consent of His Majesty's Government, and the Government will not take a penny from him in the way of a deposit. I beg the right hon. Gentleman to consider this aspect of the matter. If the right hon. Gentleman asks the police, he will find that it takes six months, nine months, a year or even 18 months to catch a rogue. Nine times out of 10 the rogue bolts, if the right hon. Gentleman and the police are not very smart. If he bolts, there is no prosecution, but if he is caught, who pays the expense of the prosecution? The State. The rogue's money is sunk in Switzerland or somewhere else. Why should there not be, as the Bodkin Committee unanimously recommended, a deposit of £500 from anybody who is licensed to traffic in shares?

Mr. Macquisten

The Stock Exchange wants one.

Mr. Johnston

Let them get their interest on their money, but let that £500 deposit be in the Treasury, so that in the event of there being a default and the person being a crook, or a swindler, at any rate there will be £500 with which to assist in paying the legal expenses of getting after him. I do not think it is unreasonable to ask that such a provision should be included in the Bill, especially as it was the unanimous recommendation of the Bodkin Committee. The hon. and learned Gentleman the Member for Argyllshire (Mr. Macquisten) said that this is what the Stock Exchange does now. On the London Stock Exchange, before a man can operate, he has to deposit a minimum of £630, if he is the son of an existing broker, and if he has no such relative to give him a start, he has to put down £3,000. In Edinburgh, they have to pay from £250 to £860. Yet, outside, it is proposed to give these licences without any deposit. It may be that the rogue himself will never apply for the licence, but, like Spiro, will send a nominee, some person with a perfectly innocent exterior and an honest past, to get the licence. Why should there not be a deposit of at least £500 lodged with the Government? Only last week the right hon. Gentleman had to bring back from Pretoria two of these rogues, and that cost the State £500 in one way or another before getting the prosecution started. It is not an unreasonable request to ask that there should be this deposit.

What is not in the Bill? First of all, I very much regret that the right hon. Gentleman has not taken this opportunity of doing something to stop the misuse of the bank nominees system. Originally, it may have been devised for bona fide purposes of share transfer, it may originally have been devised for any decent and honourable purpose you like, but what is it doing now? Every bank forms a dummy company, calling itself Bank Nominees, Limited. If one goes to Somerset House and pays 1s. in order to see who are the shareholders in a particular corporation, one's purpose is now defeated. The purpose of the Companies Act is defeated. One is up against a stone wall. One finds, for instance, that £260,000 of shares are held by Bank Nominees, Limited, here, and £300,000 by Bank Nominees, Limited, there. The dangers of these concealments are obvious. First, there is the danger to the Chancellor of the Exchequer. A shareholder buys stock in a company through Bank Nominees, Limited. The taxation of his profits is deducted at the source. He gets his income, less some small charge made by Bank Nominees, Limited. If he forgets to include in his Income Tax statement the fact that he has drawn such already taxed income, the Chancellor of the Exchequer will lose his Surtax. I put it no higher than this, that there is an opportunity here for those who are willing to take advantage of it, to escape their legitimate payments of Surtax to His Majesty's Treasury.

Lieut.-Colonel Sir A. Lambert Ward

Is it not a fact that the bank has to disclose to the Treasury who are the shareholders, if they are asked to do so? I think the right hon. Gentleman will find that legislation to that effect was included in a comparatively recent Finance Act.

Mr. Macquisten

That is so.

Mr. Johnston

I am not talking about the shareholders in Bank Nominees, Limited. I am talking about the people who use Bank Nominees, Limited, to get transactions though, with the possible effect of evading Surtax.

Sir A. Lambert Ward

But the Treasury can always find it out?

Mr. Johnston

They can if they go through the several hundreds of thousands of transactions carried on by some of these banking businesses.

Mr. Macquisten

They can do so quite easily. There is a system of cross-references and they can look up every dividend and see to whom it has been paid and find out exactly how the matter stands. Nothing escapes their net.

Mr. Johnston

We shall have a discussion later on this point. The Solicitor-General and those responsible for this matter are, at least, going to look into it, but the two hon. Members opposite who have interrupted may take it from me that it is not such a simple or easy matter as they pretend. Secondly, I ask the House to consider what opportunities for fraud there are in these concealments. Suppose that a Member of a Government—I do not say of this Government or of any particular Government—decided to use his prior knowledge to purchase stock through Bank Nominees, Limited. His name never appears in the list of shareholders. Suppose a member of a local authority decided to enter into a corrupt transaction, because of prior knowledge which he might have of some step which a local authority was about to take and suppose he operated through Bank Nominees, Limited. There is great danger to the public interest there. In my view, this system is not being used for the purpose for which it was originally intended. It is now being used to conceal transactions which any member of the public is entitled to have made known to him, in the light of day, if he desires to go through the formality of paying 1s. at Somerset House.

I have said that there is danger to the public interest. I have here a copy of the "World's Press News and Advertisers' Review" of 20th October. It deals with the shareholding in one of our London daily newspapers, the "Daily Mirror." It shows that Drummonds Bank Nominees hold 250,000 of the ordinary shares and the Westminster Bank Nominees 232,000. That is a total between them of nearly 500,000 shares, concealed ownership of the newspaper. If the right hon. Gentleman looks at a later return he will find another 143,000 bank nominee shares, in smaller units, of course, in this same newspaper. The right lion. Gentleman will doubtless recollect that in 1914 on the outbreak of the last War—and I am making no reflection whatever of this kind on the "Daily Mirror"—a London daily newspaper had to close its doors because the Austrian Embassy which had been surreptitiously financing it could no longer make payments. That was the "Standard." Statements have been made authoritatively, that in another capital, Paris, there are only two newspapers today in which you cannot buy the news columns. I put it to the right hon. Gentleman that it is exceedingly dangerous that opportunities should be here for corrupt concealment of vital ownership in organs of public opinion.

The difficulty is that we find the same practice everywhere. There is also the case of coal. My hon. Friend the Member for Hamilton (Mr. D. Graham) has obtained, through chartered accountants and through the Scottish Miners' Federation, a list of bank nominee holdings in our Scottish coal companies. I am not going to weary the House with a large number of them, but I may tell hon. Members that one firm alone the firm of Archibald Russell, Limited, has £994,000 worth of stock held by nominees of one bank, the National Bank of Scotland. Who are the owners and why should they try to hide themselves? In the Steel Company of Scotland, £486,000 worth of shares are held by Commercial Bank of Scotland nominees and in the United Collieries, paying a 10 per cent. dividend on a capital of £1,000,000, nearly three-quarters of the total stock is held by Bank Nominees, Limited. Shipping may be the same, and the dangers of diversion of traffic are obvious.

But if I may be pardoned for mentioning it on this occasion, it is in aircraft manufacturing concerns, at this moment, that we on these Benches are most vitally interested. Taking six or eight of the largest manufacturing concerns making aircraft, of vital importance to this country, where secrecy is important and where certainly the control ought to be vested clearly in British subjects, I put it to the right hon. Gentleman as a curious fact that in one of them bank nominees from an Italian bank should be holding scrip, also nominees from a Belgian bank and from a Swiss bank. In the Rolls Royce Company there is £158,000 worth of bank nominee stock. In Short Brothers there is £163,000 worth of bank nominee stock. In the Bristol Aeroplane Company—and this will interest my hon. and learned Friend the Member for East Bristol (Sir S. Cripps)—there is £275,000 worth of bank nominee concealed stock. The Fairey Aviation Company, Limited, has 1,000,000 £1 shares issued, and over half of them are held by Bank Nominees, Limited, one block alone of 163,000 by Barclays Bank Nominees. In the Hawker Siddeley Company 2,170,000 shares are held by Bank Nominees, Limited. In Handley-Page there is one block held by the Royal Bank of Scotland of £180,000 worth of shares and out of a total of £373,000 ordinary shares in Handley-Page, £215,000 is held by Bank Nominees, Limited. I regret that the right hon. Gentleman has not taken this opportunity of doing something to prevent misuse of this Bank Nominee system. In Imperial Airways there are eight Bank Nominee groups operating, ranging from £36,000 worth of stock held by one concern in the Midland Bank, downwards.

I do not wish to take up much more of the time of the House, but there are two other possible steps which the right hon. Gentleman might have taken in this Measure. He might have made it easier for British people who wanted to do so to invest their money in small sums in Government stock not liable to fluctuation in amount, not liable to fluctuation owing to the ups and downs in the market. He could have called it national investment or anything you like, but he might have made it easier for British people to invest their money, knowing that it would be used for national purposes—for municipal, local and Imperial purposes. He might have stopped the system under which local authorities are borrowing money through financial agents in London and paying commissions therefor, which I have been unable to discover in any account. He might have made it easier for the British people to know that their savings were being devoted to national ends and, not as is possible now, to anti-national ends, and certainly to concerns which are in direct competition abroad with the interests of persons investing here.

It is not enough that we should spend time plugging up leaks in the financial boat. As soon as one set of devices for exploitation has been discovered and stopped, ingenious minds discover a new set. A mere harrying of rogues into Pentonville or Dartmoor albeit at considerable expense to the nation, permanently solves no problem whatever. Ought we not day by day to be steadily limiting the field of robbery and chicane. Ought we not to do more to advertise and develop our national bank, that is, our Post Office Savings Bank? Ought we not to give the 10,000,000 depositors in that bank, if they so desire, cheque books and the right to draw cheques upon their accounts, such as the depositor with every private profit bank already enjoys? Ought we not to abolish the limit on deposits in any one year from any one depositor and stop the senseless system under which a man can only take out £3 at sight and give our national bank a chance? Encourage the social sense, by propaganda and otherwise, in finance. Teach the people to deposit their savings where they will be used, not only for State and municipal purposes, but for all sorts of purposes approved of by His Majesty's Government that will make for the common weal. Encourage the idea of thrift and saving at a low rate of interest as against gambling and speculation at a high rate, with high risks. A day may yet come when the Ruskinite idea that we should pay for the protection and safe-keeping of our thrift, rather than lend it out at usury, may be a possibility. Pending that day, let us develop our national resources with our national savings, and let us give a national guarantee of security to our investors and depositors that they do not have now, and limit the area in which the tricksters and the rogues may rob the simple and foolish folk of the country.

5.32 p.m.

Mr. Graham White

I for one and, I have no doubt, many others in the House have a great deal of sympathy with some of the suggestions of a constructive character which were referred to by the right hon. Member for West Stirling (Mr. Johnston) in the concluding portion of his speech and dealt with matters not included in the Bill, although he thought that some of them might well have found a place in it. In regard to some of the matters to which he referred in connection with bank nominee companies, it is clearly of importance that we should be able to know who are the actual holders of securities in companies concerned with national work. As to a National Investment Board, there was a work published in 1928 called "Britain's Industrial Future" and known as the Liberal Yellow Book, a mass of useful information on such matters, which set forth the general scheme for the setting up of a National Investment Board. But I do not want to pursue these matters, and my few observations will be concerned with the actual proposals of the Bill itself.

We give a general and cordial welcome to the Bill. We think it is long overdue, and we regret that individual rogues and syndicates of swindlers should have had such a long run with other people's money, and that they should have been able to extract, as the right hon. Gentleman said, mainly from people of small means, sums which in the aggregate have amounted to a very formidable amount. This has been going on in this country, I suppose, ever since the South Sea Bubble and quite possibly before it. I remember on an earlier occasion, when we had this matter under discussion, suggesting that these rogues and swindlers of to-day had their counterpart in other times in the highwaymen and in the pirates who sailed the high seas, but the offences of these gentry are much worse than those of the highwayman or pirate. The highwayman could never be sure the people whom he waylaid on the stage coach did not carry a blunderbuss, and the pirate could never be sure that the ship which he was pursuing was not a Government ship in disguise. They took their risks and paid their penalties, but as for these sharks, they set out with cruel calculation, by fraud and deceit, to rob innocent people of their hard-earned savings or their small means.

As the right hon. Gentleman said, in introducing the Bill, it is a difficult matter to deal with by legislation, and for that reason I was glad to hear him say that he would welcome suggestions of help from any quarter of the House which might make the Bill more effective for its purposes. It is very difficult to protect people who are afflicted with two not uncommon human failings, ignorance and cupidity, and I am bound to say that in the main I think the Bill does grapple with the subject in a satisfactory manner. The Clauses in regard to licensing are probably adequate, and I agree with the right hon. Gentleman in suggesting that the Clause dealing with regulations, disqualifications, and the like should not be too rigid. There is really no limit to the ingenuity and the effrontery of some of these practitioners. I could not help smiling when I looked the other day at the report of the Bodkin Committee, refreshing my mind on some matters, and I found that a representative of Messrs. Wetnall, Jenkins, and Company, Limited, had been one of the witnesses before that body. It was of this concern that the report of the proceedings in the "Times" of, I think, 18th May this year said, at the time when the company first approached the public it was insolvent, and when, a month or two later, it issued an appeal for an iron and steel syndicate pool, its resources were very doubtful indeed and it had, for the purpose of phantom pools, collected a sum of £250,000, while the Public Prosecutor could find no evidence whatsoever that any pool had in fact existed.

It is clear that if we are to deal with firms of this kind, displaying this ingenuity and effrontery, we must have a sensible and elastic method of coping with the situation, and I think very great importance will depend on the nature of the rules and regulations which are in fact laid down by the Board of Trade. I associate myself with the suggestion of the right hon. Member for West Stirling that there should be some deposit expected and made with the Government, which would be some assurance for those who might transact business with firms who are granted exemption. That seems to me to be a matter of very considerable importance, and it will require a very vigilant administration.

I think also very great care should be exercised by the Board of Trade in granting permits to associations of persons who may be formed for the purpose of obtaining exemption from licensing. I noticed in the Press that such an association had in fact been formed in the early part of this year, and indeed it was stated that it was meant to forestall this legislation. I do not know how that may be, but the weekly journal which was referred to a moment or two ago by the right hon. Member for West Stirling pointed out that some of the firms connected with that association have in fact been the subject of very severe criticism for some of their methods, and I may say that I myself frequently receive communications from at least one of the firms in that group. One that I received in the last week or two invited me to take up shares in a company which I did not know and have now forgotten, but on making inquiries I found out that if I had gone to the normal source, I could have obtained the shares at a very much lower price. I understand the object of this association is to do such things as will maintain a good standard of business in carrying on trade affairs. A good standard of business does not necessarily mean that they should charge higher prices for goods than those at which they may be obtained elsewhere, and I hope that very careful investigation will be made when it is proposed to grant exemption to an association of this kind. It has been pointed out to me in connection with the association that was formed that there were four businesses in one building in the City; two had the same directors and the same telephone number, and they are individual units in this new association. It may be perfectly right and proper, but it raises questions in the minds of those who observe it, and one wonders what the objects of the association are. In all these matters we want to make every effort to avoid fresh abuses coming in to take the place of those which we are trying to eradicate.

I turn for a moment to Clause 10, which was the subject of some observations by the right hon. Member for West Stirling. I can see that in this case the Government, or whoever may be responsible for these proposals, are in a difficulty. Parliament would not wish to pass legislation which would have the effect of penalising trustees or persons who might have to give advice in a professional capacity, advice which may be based on all the information available to them and which, taking into account the circumstances of the time, is an honest and bona fide opinion, but which may in fact be proved wrong, and then they might find themselves subjected to prosecution and to a penalty of seven years' imprisonment, Parliament would not wish to penalise those whose duty it is to give bona fide opinions, but, on the other hand, when I compare the new Clause 10 with the old Clause 9, I find myself at all events in a certain amount of sympathy with the observations made by the right hon. Member for West Stirling. In the opening sentence one finds the words: Any person who, by any statement, promise or forecast which he knows to be misleading … I find that those words would be extraordinarily difficult to administer or to interpret in a court of law, and I think that, without having considered the matter very deeply, there is something to be said for omitting them. But with regard to the further provision, where it speaks of: Any person who, by any statement, promise or forecast which he knows to be misleading, false or deceptive … and then the words: or by any dishonest concealment of material facts are omitted, I can see no reason for the omission of those words, and I hope that further consideration will be given to this Clause in Committee, because I think that, while we must be anxious to protect the bona fide adviser, we must beware of making any Clause too wide so that further abuses may arise. In Clause 11 it seems to me that there is a matter which calls for further attention, and that deals with the question of circularising and the circulation of newspapers. Sub-section (3) says: A person shall not be taken to contravene this section by reason only that he delivers, or causes to be delivered, to purchasers thereof copies of any newspaper, journal, magazine or other periodical publication. There is a great number of these periodicals and I hope there will be a stringent definition of what may be circulated. A number of these things no doubt come to all members, like the "Weekly Financial Review," which is quite a substantial thing, "The Popular Investor," "The Monthly Review of Finance," and the "Industrial Market Review." They may only, according to the Bill, be delivered to purchasers, but it seems to me that there is great scope for avoiding this provision. I see nothing to prevent people for a nominal consideration distributing these things on a large scale. They all contain in some part of them a public offer of a doubtful description. One of them which I have here contains a leading article called, "Touch and Go." There is in all of them a "recommendation of the week" a sort of plat du jour and the phraseology of the recommendations is nearly always in the same tone. In the offer which is made there are always "very few of the particular shares." "They are always hard to come by and are only generally obtained on the death of the fortunate holder of the shares." They go on to say that careful search had failed to reveal any more of the shares which could be obtained from any other quarter. I suppose that it is the kind of search that Lord Nelson made at the Battle of Copenhagen. I hope that careful consideration will be given to this question of circularising of newspapers, which seems to me to lay itself open to abuse in many ways.

I am glad that steps are to be taken to regularise the kind of company that has arisen under the Provident Societies Acts. I am sure that from some of the documents that we receive there is an intention, if not to mislead and deceive, at all events to do something very much in that direction. One finds on one of the more prominent of them a photograph of a middle-aged couple sitting in front of a fire with a look of unalloyed beatitude on their faces, apparently secured by knowledge that they have either borrowed money from or obtained an investment in this particular concern. These particular documents, which go out in hundreds and thousands every week, indicate that the "property interests" are valued at very large sums of money, leading any innocent person to suppose that they had unencumbered property. It is that kind of thing which leads one to suppose that there is great need for the step which the right hon. Gentleman proposes to take. There are one or two other matters to which I wanted to refer, but perhaps they might be left over for consideration in Committee. In general, my hon.

Friends and I welcome this Bill, and we welcome the statement of the right hon. Gentleman that, realising it is a difficult subject with which to grapple, he will welcome suggestions at later stages.

5.50 p.m.

Sir George Broadbridge

In his speech in the Debate on the Address, the hon. Member for Bridgeton (Mr. Maxton) said it contained a message for the City of London. He was referring to the present Bill, and I wish to say that the City of London welcomes not only this Bill, but any legislation which has for its object the suppression or the prevention of fraud of any kind. Where there are large communities such as in our great cities and towns, where there is always a large section of the public who will have their little gamble, there will nearly always be found a certain number of black sheep. I mean men to whom honesty in their lives or in their businesses is physically impossible. It so happens that in this country a vast number of businesses are carried on under joint stock law and this system has no doubt afforded opportunities to the fraudulent share dealer to push his wares.

It can easily be understood why a large number of these fraudulent firm should choose the City of London as their headquarters, since it is the focal point of this country and the world in finance trade and commerce. To a large extent the moving spirits in these fraudulent concerns have been undesirable people of foreign extraction, and if this Bill has the effect of exterminating them no on will be more pleased than the legitimate traders of London. No other city in the world can be so justly proud of its honesty and integrity in all its financial transactions as the City of London, and this is all the more to be emphasised when we bear in mind the vast amount of business that is carried on by verbal agreement and understanding. It is that integrity which has made the City of London the great city it is, and this Bill will help to keep it so and rid it of those undesirable and dishonest share-pushers who are a menace to this country.

I have but one or two observations to make on the Bill. I should like to draw attention to a possible loophole under the Clauses dealing with the licensing and exemption of dealers. A perfectly respectable person may apply for and be granted a licence, and then, although the business may be carried on under his name the strings may be pulled, perhaps behind the scenes, by a fraudulent share-pusher who would not be in receipt of a representative's licence. Hon. Members may no doubt be aware that similar methods have been adopted in certain instances in the profession of solicitors, where a solicitor who has been struck off the roll has got hold of a tame solicitor, in whose name the business is carried on, but the real force behind it is the disqualified man. A reference to bank nominees was made by the right hon. Genth man the Member for Stirling and Clackmannan (Mr. Johnston). I would remind him that these bank nominees originated at the time when it was very prevalent for investments to be put into the hank's name, and for that purpose the names of two of the joint managers were always used. That threw interminable signing upon those managers, and hence it was decided to get over the difficulty by bank nominees. The right hon. Gentleman will also find that in a good many cases investments are put into the bank's name because the bank has financed the transaction. Another reason is that in many cases the investor is travelling and it is almost impossible to reach him to get the transfers signed in time.

Except in Sub-section (6) of Clause 11, I cannot see any provision for giving authority to a magistrate to grant a search warrant to the police where there exists a suspicion of dishonest share-pushing. I regard this as an important and urgent necessity, and I hope the President of the Board of Trade will take that into consideration. Generally speaking, I assume that all applicants for either a licence or an exemption will be subjected to their credentials being fully inquired into before the grant is made. Lastly, I hope that the appointed day for this Bill coming into operation will be the earliest date possible, not later than 1st January next. If there are any other matters to which I think it desirable to call attention they can, with your permission, Sir, be left until the next stage of the Bill.

5.58 p.m.

Mr. R. C. Morrison

There have been many distinguished representatives in this House from the City of London, and I am sure that the speech to which we have just listened bids fair to indicate that another distinguished representative of the City has entered this House. The House has been charmed by the modesty of the hon. Gentleman's speech, and particularly by the constructive tone which he imparted to it. We shall look forward to further speeches from my hon. Friend, if I may call him so, in future. I think he was inclined to be a little too optimistic in expressing the opinion that this Bill would exterminate the type of persons against which it is directed. I hope he is correct, but we have been so often disappointed in these gentlemen. No sooner has the net closed on them in one direction than they have slipped out in another. A classical writer of the past said that laws were devised to catch small flies and to let the hornets break through. So often the effect of the legislation we pass is to catch the small fellow and to allow the big man to slip away to conquer fresh fields and pastures new. I am at one with my hon. Friend regarding one matter. Though I have been through the Bill carefully I am not sure whether sufficient care has been taken to make certain that the actual offender does not get away and a nominee only is punished. I would direct the attention of those in charge of the Bill to page 10 of the report of the Departmental Committee, where they say: Frequently the person registered as the proprietor of the business is a mere nominee who is paid some weekly salary, takes no real part in the business, and probably knows little about it. The real proprietor may have an office elsewhere and seldom attend at the registered business address, but he is in frequent telephonic communication therewith and directs operations by telephone from his own premises. I think it would be well to look into that point to see whether it is certain that under this Measure the real "crook," if I may use the expression which is in all our minds, will be captured, and not some inoffensive person. One always makes analogies, and in my experience as a voluntary magistrate in a Metropolitan police court we frequently have people brought before us for betting offences whose offence is very slight, while living in a big house not very far away is the real gentleman who is the "crook" and who ought to be in the court but never is. I hope we shall not have the same experience in regard to this question.

Generally speaking, I think that the sooner this Bill is on the Statute Book the better. The right hon. Gentleman said that it was intended to protect fools from their folly, and he pointed to the number of warnings issued in the Press and over the wireless. It is difficult to protect people who are so foolish as to "fall for" share-pushers, but there is something to be said for the fact that the share-pushers are extraordinarily clever. Let me give the House one short example. It happened some time ago, when the right hon. Gentleman who is now Minister for the Co-ordination of Defence was Attorney-General. These frauds had got so bad that he delivered a speech over the wireless to warn the public against them, and as a result 20 or 30 bucket shops or share-pushing organisations shut up immediately; but in one case which came into court soon afterwards this was reported—I am quoting from a newspaper: The witness spoke about hearing a broadcast by Sir Thomas Inskip in which he issued a warning against share-pushers. She went up to London and saw the defendants, who explained that they themselves had asked Sir Thomas to broadcast the warning. Really, I think one could be pardoned for being "gulled" by persons so clever as to think out an answer like that. Another point I wish to make is that I hope the Bill will not be used by the Government as an excuse for not proceeding with a general amendment of the Companies Acts. Many urgent matters are not dealt with in this Bill. My right hon. Friend the Member for West Stirling (Mr. Johnston) has mentioned one, and mentioned it in a way that ought to compel the serious attention of the Government. I refer to the scandal of bank nominees. There is also the question of misleading prospectuses, and the question of what are called "£100 companies." Those companies start with a capital of £100 as private companies, but in a short time launch out as public companies, and by that simple device are able to avoid giving the public a great deal of information which they would have had to give if they had come out as public companies in the first instance.

I think this Bill is good as far as it goes, and I particularly welcome the action which is to be taken to prevent any further increase of spurious co-operative societies. I agree with my right hon. Friend that on the Committee stage something ought to be done to ensure that licences issued under the Bill will be subject to some substantial deposit. There is a very important matter, and it bears out the point I have been making that it is essential that nobody should be allowed to pose as a mere nominee. It a substantial deposit were demanded on the issue of a licence it would help to make that position secure. I welcome the Bill, and my only regret is that it does not go far enough.

6.7 p.m.

Mr. Spens

May I congratulate my right hon. Friends upon two things, first, upon the tremendous push they have made against share-pushers in recent months and, secondly, upon our having at long last got this Bill before us. I should like to associate myself with those who would like to see the Bill become law with the least possible delay. If a problem such as share-pushing is to be tackled the net must be spread extremely wide, and we may get into it not only those whom we want to catch but also a great number of perfectly innocent ordinary business men and firms, but we are bound to cause those innocent business men a certain amount of inconvenience and trouble if we are ever going to create a net which will be of the slightest use to catch the rogues. I also feel very strongly that whatever we do we shall never catch all the rogues whom we wish to catch. But under this system of licences and exemptions the net has been spread very wide indeed, and for the ordinary, honest business firm which has been transacting its business for years without let or hindrance from the State, whatever may be its position as regards stock exchanges, this Bill does introduce certain inconveniences which no doubt some of them may to some extent resent. However, I believe the provisions to be necessary.

There is one point in connection with this system which appears to me to be a matter of principle and not a Committee point. It arises under Clause 4. Hereafter, everyone who wishes to deal in stocks and shares will have to get a licence or an exemption. That exemption is going to be granted by a Department of the Executive. That licence is going to be granted by a Department of the Executive. That exemption is going to be taken away by a Department of the Executive. That licence, a man's right to earn his living, is to be taken away by a Department of the Executive. Human beings may err, the very best of them may—those in the Board of Trade consist of many of the very best, but still, they may err—and there must be an appeal to somebody, but in this Bill we have one more example of the growth of the system of executive control and executive action. Why cannot the appeal be to His Majesty's judges? Why must there be a special tribunal appointed by the executive? What are the terms upon which its three members will hold office, and for how long are they to hold office? The chairman is to be a member of the legal profession. Are they to make their decisions by a majority vote? If so, of what earthly use is it to have a legal chairman?

I am bound to say that I have not heard a sufficient defence of the setting-up of this new tribunal. By all means give the executive the right to lay down the rules and regulations for licences and exemptions, but when the executive desire to take away from the subject his right to earn his living because he has committed an offence against those rules or regulations surely the right tribunal to which that subject ought to be able to appeal is His Majesty's judges who alone, by the terms of their tenure of office, can stand up against improper executive action. I have commented upon similar attempts in other Departmental Bills to take questions between the executive and the subject out of the purview of the courts and refer them to arbitrators appointed by the Department, or something of that sort. Here we have a still greater extension of the system. We are setting up a new tribunal. It is true that the chairman is to be appointed by the Lord Chancellor, but the two other members will be appointed by the Treasury. Nothing is said about the terms upon which they will be appointed or how they are to be dismissed. How can they have the same power of protecting the subject against the executive as have His Majesty's judges?

Why is it necessary to have this new tribunal? We have in both Divisions of the High Court, dealing with these very matters day after day, judges who, I venture to think, have as much experience as my right hon. Friend the Member for West Stirling (Mr. Johnston) about everything to do with share-pushing. Certainly in the Division in which I practise there is nothing that the judges who are dealing daily or weekly with companies and the winding-up of companies do not know about the tricks which have been played in the past by those who have tried to deceive the public. Being completely in favour of the Bill, and in favour of that part which is going to stop, and I believe effectually stop, the abuse of the Industrial and Provident Societies Act—a step which I think is just as important, if not more important, than the share-pushing—I yet want to enter my most emphatic protest against Clause 4. I say with great respect to my right hon. Friends on the Treasury Bench that I shall have to hear a great deal more in support of the setting-up by the Executive of a special tribunal before I, for one, can support Clause 4.

6.15 p.m.

Mr. Benson

Much as I dislike lawyers in the abstract, I felt the force of the remarks of the hon. and learned Gentleman who has just sat down. I am always ready to support any old-established constitutional principle and the division between the Executive and the judiciary, which has been handed down to us for many centuries, is a very valuable institution indeed. I shall be glad to hear what defence the Government put up for handing over what is really a judicial function to three members appointed by the Executive.

The most interesting part of the speech of my right hon. Friend the Member for West Stirling (Mr. T. Johnston) was undoubtedly when he referred to shares being held secretly by bank nominees. I thought there was adequate ground for suspicion, in what he said, that all was not right, and when I heard the defence put up for that practice by the hon. Member for the City of London (Sir G. Broadbridge), I was quite convinced. If the best defence that can be put up for the practice comes under the three heads, first of all, that you must not burden bank managers with too many signatures; secondly, that the banks may have financed transactions; and, thirdly, that the owners of the shares may be travelling, it is time that this method of shareholding were ended. There is not the slightest objection to allowing the bank to hold shares for the security of the bank, but in neither this nor the other cases is it essential that there should be secrecy as to the actual owner as is the case at present. We know that the real reason why these shares are put into the hands of bank nominees is for secrecy as to the real owners. When we find that a big and important aeroplane company has more than half its share capital held in secret, it is time that the Government looked into the matter.

As regards the Bill, on broad general lines nobody would find much to criticise in it. There are omissions, but we have had a promise by the President of the Board of Trade that they will be made good in Committee. One point is with regard to unit trusts which, if approved, are to be treated as exempt concerns. The Bill deals primarily with the share-pusher who has no other object than swindling, but in dealing with him we must take care not to give unjustifiable status to other individuals or concerns. In certain cases the exemption of individuals or corporations may have that effect. It is particularly likely in the case of unit trusts, which are a method of investment which is still new and the forms of which are still in flux.

When it was first developed it was as the fixed trust, and the portfolio of investments was published; it was known, and it could not be altered. When any investor bought a unit, whether it was of £100 or £500, he knew exactly what he was getting for his money. He knew that he was buying a number of specified securities in a certain proportion. There was no possibility of the trust changing or altering his securities. It was found, however, that the fixity of these trusts carried certain disadvantages into which I need not go in detail, and there is now a movement away from the fixed trust to the flexible trust, which leaves out the word "fixed" and merely calls itself a unit trust investment. These trusts are mainly for the small investor. When he buys he may know exactly what he is buying, for a unit trust consists of a certain group of shares in a certain proportion; but there is no fixity. He may find after his purchase that the fortfolio of the trust has been completely altered and that his security is therefore completely altered.

Responsibility for the changing of the portfolio does not rest upon the trustee. I emphasise that. In many cases it is rather vague upon whom responsibility rests, but broadly speaking it rests upon the managers of the trusts and not upon the trustees. In the Bill, an authorised unit trust is to be a trust whose securities are held by a trustee approved by the Board. The Board of Trade will approve the trustee, but the Board does not approve the manager or the individuals who may be responsible for the variation of the portfolio of the trust and therefore of the security of the trust. I might almost say that the trustee has only a nominal function to perform, that merely of safely guarding the documents he receives and of distributing the interest. He is not responsible in any decision of policy or in any question of the form taken by an investment. Trustees are usually banks or large insurance companies. When money is invested in these unit trusts, you generally find emphasis on the fact that the trustees are so-and-so bank or so-and-so insurance company. The effect upon the mind of the ordinary small investor is: "Here I am perfectly safe because I am putting my money into a concern the trustee of which is one of the big five banks, or is a world-famous insurance company. My money is guaranteed, backed by this trustee." As a matter of fact, it is nothing of the kind.

Many investors really believe that the trustee bank or insurance company gives them some security and a. guarantee that their investments will be made wisely and well. On this theory the unit trust is able to trade. If the Bill becomes law in its present form the unit trust will be able to advertise, not merely that so-and-so bank or insurance company is its trustee but that the trust itself is authorised by the Board of Trade, and a status may be given to the trust entirely out of proportion to the reality. The only security or guarantee which is given in this part of the Bill is that the trustee is an approved person and not a rogue. When asked whether there was any investigation of managers of trusts the President of the Board of Trade replied that it was anticipated that trustees would themselves see to it that the managers were respectable and that the trust was satisfactorily run. The average trustee has no power to do that, because his function does not go beyond what I have described. We shall require a far greater investigation into unit trusts before we can give the imprimatur "authorised by the Board of Trade," in these circumstances.

As a matter of fact, banks who are trustees in this respect are becoming perturbed about the widespread idea that when banks become trustees they guarantee the investor against something or other. There is no question of fraud in this matter but merely of the impression that is gained from the advertisement. The Westminster Bank has invariably refused to become trustee for unit trusts. I understand that a number of other banks are beginning to worry because they find the impression abroad that there is some form of guarantee by the bank. In view of that mistaken impression, the Government should take very great care not to give it added force.

There is a certain amount of publicity—I will not call it share pushing because that is rather unpleasant—invariably attached to the flotation of one of these unit trusts. I find that one very large trust—I will not mention its name although it is a very large and perfectly respectable fixed trust—has decided to float another trust. In the "Times" of 17th November, this statement appeared: ''Wide management powers, exercisable how ever only with the express approval of the trustee, will be specified for the rigid working of the present trust. Three days later we found this entirely denied, and that instead of the trustees exercising this control, as the Government appear to think that they will do, the power that the trustees are to have under this new flexible trust is power to veto certain investments. It is made clear that if the trustee fails to exercise his veto he takes no responsibility. He may exercise his veto if he wishes. Unit trusts are in a fundamentally different category from the gentlemen whom we are really after in this case, and they seem likely to grow into a large and important factor, particularly for the small investor in sound investments, but I do not want them to gain a status by means of this Bill that the facts do not warrant.

6.30 p.m.

Mr. Hely-Hutchinson

I am grateful for the opportunity of speaking in support of this Bill. I do not think I should follow the hon. Member for Chesterfield (Mr. Benson) in his observations with regard to unit trusts, because all my own training has been on the other side of the business—the managed investment trust company business. But I do agree with him that the exact functions of the trustee require very careful definition. It is very important to fix clearly the responsibility for investment policy in the case of a flexible trust—that is, one in which the investments can be changed.

Having spent 30 years in the investment business, both here and in America, and having had some experience of the operation of what are called the "Blue Sky Laws" in the latter country, I feel that I can say with confidence that no security dealer who conducts his business with energy and good faith has anything to fear from this Bill. The essence of the investment business is confidence between the merchant of securities and his clientèle, the investing public. The reputation of the great issuing houses, their ability to do business, and particularly their continuity in business—the fact that some of them have remained in business for 100 years and more—rests entirely upon public faith in their integrity; and it is just here that the conception underlying the "Blue Sky Laws" in America is at fault. I think it is fair to say that the conception underlying those laws is that every security dealer is not merely a potential rogue, but an actual rogue. This reached its culmination in the Federal Act which created the Securities and Exchange Commission, which has been described as an attempt to evolve a formula for conducting confidential business with someone who can on no account be trusted. This Bill proceeds on an entirely different assumption. In its general provisions for exemption I think it is right to say it assumes that the ordinary and well-established machinery of the securities business rests on a basis of integrity and experience. It sets out to catch the rogue, to prevent him from entering the business and to catch him if he does. Therefore, I fully support the spirit of the Bill, and such suggestions as I may offer will be designed merely to assist it, if possible, to attain that object.

First there is the question of the power of the Board of Trade to refuse licences. I feel sure that not only the public, but the business community too, will be anxious that my right hon. Friend shall assume for the Board of Trade the fullest powers in that respect. There is a qualifying phrase in paragraph (2, b) of Clause 3 which appears to limit the power to refuse licences to people who have been convicted in this country. I refer particularly to the phrase— any such person as is mentioned in subparagraph (a). I may have interpreted these words wrongly, but I hope that my right hon. Friend will assure himself that he has the full power which I feel sure public opinion will be willing to grant him in this respect, because we want not merely to catch people who have been convicted of crime; we want, if possible, to forestall the adventurers, the carpet-bag dealers who come from abroad—from the United States, from the Continent, and possibly also from Canada and Australia.

There need be little fear that these powers which the Board of Trade assume will be abused provided that the appeal tribunal is properly constituted. And here I would like to associate myself most heartily with my hon. and learned Friend the Member for Ashford (Mr. Spens), and also, as I understood him, with the hon. Member for Chesterfield, in desiring to see the appeal in this matter lie to the courts. This House is always on the lookout for examples where the Executive constitutes itself judge and jury in its own case, and I feel that we should not let pass this opportunity of bringing to the attention of my right hon. Friend how strongly it is felt that this tribunal should be independent of the Executive. Further, I would like to suggest to my right hon. Friend that he should consider making provision for the powers of appeal to that tribunal to apply, not merely to refusal of licences, but also to refusal to grant exemptions.

When one looks at the provisions in Clause 13 with regard to applying for exemption, one is struck by the huge volume of individual applications for exemptions that will have to be made. My right hon. Friend, in his speech introducing the Bill, mentioned that it would be possible for him to exempt large classes of people who were members of associations which he might propose to recognise as associations of dealers for the purposes of the Act; but I am wondering whether he will not consider going further, and specifically giving statutory exemption to a large number of such associations, in order to minimise the number of the applications that will have to be made. The Bill, properly, concentrates, in Clause 11, on the use of circulars and prospectuses as a means of inducing the public to invest in particular securities. It may be necessary to ask for a closer definition of what constitutes a circular. When does a given piece of paper manifolded two or three times, or half-a-dozen times, or a dozen times, and sent out in the ordinary course of business, say by a solicitor to his clients, become a circular? I think it is most important that that should be clearly defined.

I am particularly glad to be able to support the Bill, which, as the right hon. Gentleman the Member for West Stirling (Mr. Johnston) pointed out, is non-controversial in its nature, and one of which he himself would not wish to make any party capital. I noticed, however, that towards the end of the right hon. Gentleman's speech some old friends turned up—the super-investment hoard and the super-national bank. Perhaps this is not the moment at which to discuss these, except possibly to suggest to the right hon. Gentleman that, if at any time in the future the opportunity for bringing those schemes into operation should fall to him, I hope he will not fail to remember that a number of us on this side of the House, who have spent all our lives in the investment or banking business, will be looking for jobs; and at least we shall be able to say as a qualification that we have made no reckless statements or promises as to our ability to manage such large concerns.

Finally, I should like to congratulate my right hon. Friend on the improvement which he has made in Clause 10 of the Bill. In its original form, if I remember rightly, that Clause established penalties for the making of any statement which the maker of it might have had reasonable grounds for knowing to be false or misleading. I think that that would be an extremely difficult thing to establish in practice, and I can well imagine that, long after an enterprise which had been floated had turned out to have falsified its original hopes—perhaps two or three years after the event—there would not have been wanting individuals who would be ready to come forward, some of whom might have found their way on to juries, perfectly prepared to pronounce judgment in the terms that "any fool should have known that." The present form of the Clause is, I think, very much better, because it establishes penalties for the reckless making of any statement, forecast or promise which is misleading. We have to remember that optimism is a very necessary quality if businesses are to be expanded or new businesses are to be developed. We do not want to kill optimism, and it is entirely impossible to lay down what are the bounds of legitimate optimism. No reputable dealer or issuing house ever makes forecasts or promises without having exercised the greatest care to establish a reasonable basis for those forecasts. If it is a matter of engineering, they get the best engineers they can to report on the proposition; if it is a matter of accounting, they rely upon the advice of expert accountants; and no responsible dealer in securities or issuing house need fear these words as they now stand: the reckless making of any statement, promise or forecast. As several speakers have observed, it is quite impossible to protect the gull from the shark. I think the House may possibly remember some remarks of Lord Baldwin in this House some years ago, when a suggestion came up that a charter should be granted to the Stock Exchange in order to protect the innocent investor. He replied "that no charter that the wit of man could devise could prevent a fool and his money from being soon parted." In that sense we must be careful that, in any legislation we frame, we do nothing which would curb the optimistic efforts of business men to expand their businesses and to obtain the necessary capital for that purpose. When by experience we find that this or that man is a dangerous optimist, we have our own way in business of dealing with him—we refuse him further credit; and, if I may offer to my right hon. Friend a homely phrase, I would say that I hope that neither this Government nor any future Government will interfere with the City in its method of "burying its own dead." I shall have great pleasure in voting for the Second Reading of the Bill, and, while I feel that it may need careful consideration in Committee, I wish it a speedy passage through all its stages.

6.42 p.m.

Mr. Bellenger

I can assure the hon. Member for Hastings (Mr. Hely-Hutchinson) that we on this side are not so much concerned with the City's dead as with the large number of dead people outside the City who came to the end of their financial life because of certain acts of City people. But, of course, "The City" is a very wide term, and perhaps the hon. Member meant to use it in its widest possible sense. With regard to a remark that he made about a national investments board, and the claim which I understood he wanted to stake out for that time when a Labour Government comes into office and introduces this national investments board, I can assure him that we shall need gentlemen like himself in order to work it properly, and that, so far as any influence goes that I may have in that Labour Government—I am sure it will be very small—I will see that his claims are not overlooked.

The right hon. Gentleman, in introducing the Bill, was very lucid, and we are grateful to him for the assistance he gave the House in trying to understand what in certain parts is a somewhat complicated Bill; but when he referred to the unanimity of those authorities in the City whom he had approached, I thought that that was one further reason why we should examine more closely than ever the various clauses of the Bill, because I do not think the issue is quite so simple as the right hon. Gentleman attempted to make it. This is not a case of the child and its pocket-money; it is the case of large numbers of investors, often small investors, but including others of larger means, being wilfully defrauded of large sums of money, even if not in the particular, in the aggregate.

The whole problem of preventing fraud, in investments or in anything else, is a much wider subject than that covered by the Measure now before the House. It is a difficult task for hon. Members on this side to attempt to patch up the present economic system, which, we believe, in many respects is somewhat defective; and it is a question whether we have to pull down the bridge and build a new one, as in the case of Waterloo Bridge, or keep the existing bridge merely because it has some aesthetic value. I visualise an economic system which is to take, not the four lines of traffic which it had to carry in the past century, but the much bigger volume of traffic which exists in this twentieth century, and which is likely to increase the more we expand, as industry—and consequently finance—is likely to do in the future. But I would like to congratulate the right hon. Gentleman on his vigour and virility in bringing forward this Measure. Although I cannot say that it is going to deal with this vast problem, and with cognate problems such as unit trusts and company law amendment, which are vital, nevertheless, I realise that the Measure is going to clip the wings of those birds of passage who have for so long battened on the present financial system. These gentry have caused untold misery among numberless small investors.

It may be within the recollection of hon. Members that last December I had the privilege of moving a Motion on company law. After moving that Motion, I received quite a number of letters from different people, some of them belonging to this particular class of investors to which I have referred. I will quote two extracts, which will indicate, better than I can in my own words, the type of investor who is caught by these financial crooks. One gentleman told me that he would be obliged if I would advise him concerning growing mushrooms as a whole-time occupation, on which I would be relying for my only income. I did not feel that I could take the responsibility, and I referred him to the President of the Board of Trade.

Mr. Stanley

The hon. Member should have referred him to the Minister of Agriculture.

Mr. Bellenger

In my simplicity, I thought the right hon. Gentleman would be a more suitable person to advise him. Another letter was from a gentleman who said he had noticed that I had put a question regarding mushroom and soya bean farms. He went on: As I have since found out, I am one of the victims in the above company. I had invested £100, which was a considerable part of my savings, and I was wondering if you could inform me whether there is any likelihood of recovering any of my money. Again I referred him to remarks made by the right hon. Gentleman in this House as to the unsuitability of soya beans as an investment. The question arises as to whether this Bill touches more than a fringe of that problem. Take the question of speculation in commodities. It is within the recollection of hon. Members that not long ago we had what was known as the pepper pool scandal. The trouble was not so much that investors were defrauded of their money in that swindle as that tremendous public interests were endangered by the depredations of the gentlemen engaged in that operation. That is what I mean when I say that the wider problem must be tackled by the right hon. Gentleman or by somebody who follows him.

There is another question which is as important to consumers if not to investors. That is the question of the price rings, which are just as bad in controlling prices of commodities as these share-pushers may be in controlling the savings of small people. The question of unit trusts, to which my hon. Friend the Member for Chesterfield (Mr. Benson) has referred, has formed the subject of an inquiry the conclusions of which were reported to this House over two years ago. I ask whoever is going to reply to say whether we are to understand that that question, which was dealt with by that special committee, is to be the subject of another Bill or whether it is being dealt with, so far as this Government are concerned, in the present Bill. The Bill, as I see it, deals only with the registration of dealers in securities and their conduct of their business, and makes provision for some control of those institutions which now come under the Industrial and Provident Societies Act. We have to bear in mind that these institutions are responsible for exceedingly large amounts of public investments. As my hon. Friend the Member for Chesterfield said, the opportunities for fraud are very vast—he gave only one or two illustrations—and there is not the control over the unit investment trusts that there ought to be. I know, and the right hon. Gentleman probably knows, that a tremendous amount of money going into these trusts to-day comes from the small investors of moderate means, who think they are putting their money into gilt-edged securities. Too often they are not.

The Association of Unit Investment Trusts represents something over £300,000,000 of public money, and the fixed trusts have collected £70,000,000 of small savings. That is in the hands largely of the managers of these trusts, and with it, if they feel inclined, they are able to do great damage to the financial markets. Hitherto they have not used these powers: there has not been the tremendous fall in securities which many people imagined would happen in times of slump; but I think that if we do get a slump of the nature of that which occurred in 1931 these trusts, because of the large amounts of institutional money with which they are dealing, might be a danger to the financial system of this country. For that reason alone, I would ask the right hon. Gentleman to deal with these trusts, if he proposes to deal with them at all, at no distant date.

If I may, I will turn to the property societies, because I believe they are doing perhaps even more damage to the small investor than the investment trusts, and certainly more than the soya bean and mushroom concerns. They are taking money under what is nothing less than false pretences. Their methods have been investigated by newspapers which have taken their advertisements; and certain newspapers will not now accept the advertisements of these societies. People are being encouraged to think they are investing in bricks and mortar: one of the forms of investment which is very popular with the small tradesman and other people of that class, who are saving for the rainy day—the inevitable rainy day under the present system. In many cases, these societies do not even own the bricks and mortar, but have only a second charge or an option on the bricks and mortar. These societies have too long existed under an Act which was never intended for that purpose, and I am glad to see that the right hon. Gentleman is dealing with this at long last.

I would like to ask one question concerning Clause 8, Sub-section (2). Under this, the provision for cancellation of the registry of these property societies under the Industrial and Provident Societies Act shall not apply to those societies which have not made public application or invited the public to subscribe moneys to those societies within the period from 26th July, 1938, to the date of the passing of this Act. Does that mean that the existing societies which are registered under the Industrial and Provident Societies Act and which have not invited the public to subscribe between those two dates, will not have their registration cancelled if they do not apply to come within the Companies Act?

Mr. Stanley

I think the hon. Gentleman ought to read on. The Clause says: neither in the period beginning with that day and ending with the passing of this Act nor since the passing of this Act … In other words, the registration is not cancelled unless they do make this application or invite the public to subscribe, not only within the time set out in the Act but at any time after the passing of the Act.

Mr. Bellenger

Do I understand that the property societies at present registered under the Industrial and Provident Societies Act need not apply to be registered under the Companies Act and will not have their registration under the Industrial Act cancelled if they have not invited public subscriptions within those dates?

Mr. Stanley


Mr. Bellenger

That is an injustice to the public, because many of these societies now existing are insolvent. If their accounts were submitted to independent audit they would have to go into liquidation straight away; and to allow those societies to remain in existence without being forced to come under the Companies Act, whereby they would have to disclose much more voluminous information to their shareholders, is not fair. It is a matter that I think will have to be dealt with in Committee.

Other hon. Members have referred to nominee holdings. I do not think any of the hon. Members who have spoken before have indicated some of the fraud, or unjust dealing, which might result from directors of various companies speculating in their own companies' shares. For that reason alone, shareholders in any company should know what their directors are doing, which they cannot know at present under this nominee system. The hon. Member for the City of London (Sir G. Broadbridge) gave a reason for this procedure. He stated that shares are held by Bank Nominees, Limited, because—amongst other reasons—the banks have helped to finance some of these deals. But when banks help to finance deals in property, they do not usually hold the property in their own names. The owner of the property holds the property, and is registered with his holding at the Land Registry, but he gives to the bank or whoever has financed him a mortgage. Is it not possible to have some sort of system like that in relation to stocks and shares?

There is one other matter which I think ought to be dealt with, either in this Bill or at some future date, and that is the powers of auditors. Auditors at the present time are not independent authorities. They are mostly under the patronage and good will of the directors of companies, who for the most part appoint them, and they are not the true guardians of the shareholders. I certainly think that the right hon. Gentleman might give some consideration to that subject.

I have said enough, I think, to show that this Bill only skirts the perimeter of the subject of investments and that it will not satisfy my hon. Friends that it will prevent fraud on a large scale. Hatrys come and Hatrys go, but they still seem to go on for ever under a different name. At any rate they are only the ones who are found out. I believe that prevention is better than cure, and we need a far more comprehensive Bill than this if we are going to have prevention. Hon. Members opposite look askance at our proposal for a national Investments Board, but I think that sooner or later they will have to come to it. They cannot continue indefinitely the laisser faire system of the past century in dealing with modern requirements in industry and finance, and to-day gambling in stocks and shares has become almost a greater industry than productive manufacture itself. Why therefore is finance allowed this free scope, which is not permitted even by the Government to many forms of industry to-day which are controlled presumably in the public interest? This Bill is named a Prevention of Fraud (Investments) Bill. I submit that what is required is a Bill entitled Prevention of Fraud (Finance).

7.2 p.m.

Sir John Mellor

I should like to say that I, also, welcome this Bill. I do not like this type of legislation, but I do regard this Bill as an unpleasant necessity. Generally speaking, the less we attempt by Government action to regulate the carrying on of business the better, but in this case the mischief aimed at has been responsible for so many tragedies that I think this Bill is necessary. The share-pushers have shown heartlessness and great ingenuity. Often their methods have been surprisingly simple. Some years ago there was a very famous crook who emerged from a term of penal servitude and proceeded to carry on his old business, that of share-pushing, with great success, and the success of his confidence trick lay in this, that he carried on business under the very name under which he had previously been convicted. His victims naturally thought that any man who carried on business in a name that was so publicly execrated must be a very unimaginative and simple-minded person, and certainly could not be the famous ex-convict in person.

I think that while this Bill is all to the good in principle, care must be taken that it does not in some directions do a certain amount of harm. In one direction especially I think there is a certain danger. If the Government say that a certain class of business is outside the pale and a certain class within it, if they say that one kind of business is authorised and another is illegitimate, then there is a danger that the public will come to regard the authorised business as having a certain official blessing, and there will be a false sense of security. For example, every hon. Member knows, and the well-informed public know, that the Stock Exchange does not give any guarantee of the solvency of any of its members. But after a Bill of this description has received great public attention, I do think the less informed members of the public may imagine that those associations which are recognised by the Government will give some form of guarantee to their members. It has often happened that in the bankruptcy of a member of the Stock Exchange a creditor has learnt for the first time that membership of the Stock Exchange did not in any way insure solvency. Therefore, I hope that it will be made perfectly clear that the Government in authorising certain firms and certain associations to conduct business will not be giving any form of assurance and will not be increasing their security.

A great deal will turn upon the form of the rules which the Board of Trade will in due course make under Clause 19, and I very much hope that the initial rules, those which will operate from the Appointed Day, will be laid before Parliament as early as possible, in order that this House may have an opportunity of considering them very carefully. It is important that those businesses which apply for exemption under Clause 13 should not be involved in any avoidable difficulties. I think it will be a great pity if they have to make any unnecessary returns in order to obtain exemption. The hon. and learned Member for Ashford (Mr. Spens) urged that the appeal against a refusal of the Board of Trade to grant licences should be an appeal to a court of law and not to a tribunal set up by the Government. Even if it is not possible to go so far as that, at least there should be something clone with regard to claims for exemption under Clause 13. At present, while in the case of applications for licences there is an appeal to the tribunal set up under the Bill, in the case of a claim for exemption there is no form of appeal whatsoever, and in that case the decision of the Board of Trade is absolute and final.

This Bill is a very complex one in detail and, while I think it is rather a pity that the Second Reading discussion had to be compressed into the space of half a day, I hope very much that there will be ample opportunity at subsequent stages of the Bill for discussing the various details, because, if they are not very carefully analysed and discussed I do think there is danger that considerable inconvenience may arise, and ultimately amending legislation will be required.

7.10 p.m.

The Parliamentary Secretary to the Board of Trade (Mr. Cross)

I should like to take this opportunity of expressing the gratification of my right hon. Friend at the very wide welcome which has been given to this Measure and at the expressions of good will and the objective criticism which have come from every quarter of the House—not only from the right hon. Gentleman opposite who has spoken but from the hon. Member for East Birkenhead (Mr. White) and the Member for the City of London (Sir G. Broadbridge) who, in a maiden speech upon which, I think, we should all like to congratulate him, spoke up for the high reputation for integrity which the City has built up for itself. The right hon. Gentleman the Member for Stirling and Clackmannan (Mr. Johnston) offered a certain amount of criticism. He will forgive me for saying that it was largely directed to things which he would have liked to see in the Bill, but which certainly are not designed to prevent share-pushing. He had some criticism to make of Clause 10. First of all, the right hon. Gentleman referred to the fact that in the old edition of Clause 10 words were included concerning dishonest concealment of material facts, and he wanted to know why those words had been left out. I understand that the reason is that those words are already covered by the words in the Clause relating to a statement which is misleading or deceptive, and indeed that this is already an offence at law, and therefore these words were adding nothing to the Bill. It was for that reason that they were taken out.

Mr. Johnston

That has nothing to do with concealment. You may make a statement which is misleading, false or deceptive—that is a positive statement, but it is not the same as concealing something.

Mr. Cross

The right hon. Gentleman will not expect me to answer as if I were a learned Gentleman. I am representing the advice I have got from my hon. and learned Friend the Solicitor-General, and if the right hon. Gentleman wants to take this matter up further I think the Committee stage would be the appropriate time, when the Solicitor-General would himself reply. A further point on Clause 10 raised by the right hon. Gentleman concerned the making of a statement which the maker of that statement could reasonably be expected to know was misleading. That was in the old version, and was taken out. The right hon. Gentleman objected to that. The hon. Member for East Birkenhead said he could well understand it, and the hon. Member for Hastings (Mr. Hely-Hutchinson), with his experience of running investment trusts, congratulated the Government on having taken this out. The reason why it was taken out was that it was altogether too burdensome, that it offered opportunities for what you might really call blackmail, the blackmail, that is to say, of a person who had offended under these words but without any guilty intent. You might, no doubt, in the end get a verdict in his favour, but in the meantime his reputation would have been seriously damaged, or he might be convicted in the absence of intent because the jury might well say that he should have known that certain information which he gave was misleading.

The right hon. Gentleman also regretted that there was no provision for a deposit of £500, or be it what it may, in this Bill. The reason why there is no such provision is the fear that we should not merely hurt the small man, the man who is running a stockbroking business as a small side line, but it would actually make it impossible for him to carry on his business; while at the same time I understand that these share-pushers have generally got very adequate capital resources behind them, which would mean that a £500 deposit was no real obstacle to them. The right hon. Gentleman also complained of the misuse of the nominee system which, as he rightly pointed out, is a matter for amendment in the Companies Acts. I cannot say when there will be any amending of the Companies Acts, but that is a matter which would of course involve the setting up of a committee to make an inquiry. In any case, it is not share-pushing. The right hon. Gentleman's illustrations exemplified that. There was his illustration, for instance, of the evasion of Surtax, and the possibility that a Member of Parliament might use his prior knowledge of events and buy shares on the strength of that information. He gave a number of other instances concerning newspaper ownership and the ownership of aircraft shares, and so on, which, however much we may agree with the right hon. Gentleman, have not a place in this Bill.

The hon. Member for East Birkenhead raised the question that he rather feared that some of the exemptions which might be granted would be granted to firms which were operating in rather a questionable sort of way. On this I can only say that each case will receive the most careful investigation to the very best of our power, and we hope to be able to avoid exempting in such cases. He also made an interesting point, though a small one, on Clause 11 (3) concerning the possibility that it might occur that the rules as to circularisation would be overcome by the delivery of a newspaper in such a way that it might be said to be purchased. That is a matter into which we will look further. It is a sub-section which might, perhaps, provide some small loophole.

The hon. Member for North Tottenham (Mr. R. C. Morrison), as also the hon. Member for the City of London, raised the question of the person who has hitherto led a blameless life and manages to get a licence, and is in fact the tool of some share-pusher. We cannot say that someone, of the kind who can find the right kind of referees and so on, will not get a licence. All I can say is that the moment one discovers that the situation is as described by the hon. Member for North Tottenham such a person will lose his licence very quickly; and the powers under the Bill are sufficient to secure that.

Mr. Bellenger

Will it be revoked immediately, or must you wait a year?

Mr. Cross

It can be revoked under Clause 3 (2 b) immediately, but there is, of course, an appeal to the tribunal. The speech of the hon. Member for the City of London reminded me that representations have been made to my right hon. Friend concerning paragraph 29 in the Bodkin Report, from which it might be inferred that the advice of the City Solicitor had not at all times been available to the City Police. My right hon. Friend has instructed me to say that he interpreted the report to mean that the Commissioner of the City Police had no advice available to him from a lawyer versed in criminal law attached to the Commissioner's staff.

There was a very important point raised by my hon. and learned Friend the Member for Ashford (Mr. Spens), who deplored the growth of executive control and wanted to see an appeal to His Majesty's judges in place of the appeal tribunal, which there is under Clause 4. My right hon. Friend is, in any event, extremely reluctant to burden himself with any additional executive control, and he does so only because he believes it to be absolutely necessary, or at least most desirable for the suppression of these share-pushers. The appeal tribunal can act with far greater speed than would be possible if a case had to appear in front of a judge. In these matters speed is often absolutely essential. If there is not enough speed the share-pusher is able to carry on with his business pending the hearing of the case, and this is only too likely to afford him time to get away with the loot of his victims, and it is then very much too late to do anything about it.

It is for these reasons, as well as others, that the provision for an appeal tribunal has been inserted. That, again, is a Committee point and if, when we reach the Committee Stage, the Committee feels so strongly on the matter that they are prepared to risk that additional delay, an alteration can be made at that time, though I think that my right hon. Friend would be most unwilling to see such an alteration effected. The hon. Member for Chesterfield (Mr. Benson) made some very interesting points on the status of the management of unit trust as distinct from the status of the approved trustee, but he himself agreed and said that it was not a share-pushing point to be included in the Bill.

Mr. Benson

We have got something about it in the Bill. I was pointing out that the Bill itself would tend to give an added status to unit trusts. It is the Bill itself that I was criticising.

Mr. Cross

I do not quite understand why the hon. Gentleman should object to the Bill giving any added status to a unit trust provided the management of the unit trust is all that can be desired as well as the trustee. It will be a part of the duties of the trustees to furnish particulars of the unit trusts to the Board of Trade, and, consequently, there will be a further check upon the activities of the management. In the unlikely event of a trustee riot being worthy of his position and of some shady transaction going on, the Board of Trade would have the necessary power to enable them to take action.

The hon. Member for Bassetlaw (Mr. Bellenger) also raised a question concerned with unit trusts and wanted to know whether there would be another Bill to deal with them. I think he will agree with me that the matter is not nearly so urgent as the one with which we are dealing, and also that a very great deal has already been done independently through the unit trusts themselves. We have, furthermore, an insurance Bill, which is of very much greater importance, with which we must deal in the near future, and I am sorry that I cannot, therefore, give him any promise as to when legislation dealing with unit trusts will be introduced.

Mr. Bellenger

May we take it that the Government do propose to deal with the unit trust business at some time, because they have already given a promise to that effect and have also said that until they do deal with it, they cannot consider the Amendment of the company law?

Mr. Cross

I think that the answer to that question must depend very much as to how far unit trusts succeed in putting their own house in order The Government do not want to interfere in any way, and as the unit trusts have already made an advance in that direction, and since we cannot anticipate legislation in the near future, I should hesitate, and indeed be unwilling, to give a promise since in the intervening period things may have changed a good deal.

The right hon. Gentleman the Member for Stirling and Clackmannan spoke of his desire to see a national investment board and of many matters which were cognate to that. I do not think that he will wish me to reply to many of the points which he raised as to the things he hoped to see under a national investment board, but he will agree with me that, as a remedy for share-pushing, it would be a splendid instance of taking a sledge hammer to crack a nut. The volume of money passing year by year as a result of fraud, which he put at £5,000,000, is very small compared with the amount of loss which might be suffered in quite a normal sort of way owing to fluctuations on the Stock Exchange or in a fall in commodities. The amount of money which is actually lost by fraud and passes into dishonest hands is absolutely trifling compared with the amount which passes in honest transactions. Why should one, to put it metaphorically, put the 99 just men into leading strings simply in order to circumscribe the activities of the one unjust man? Surely the better approach to the subject is that of his Bill, where we attempt to circumscribe the activities of the share-pusher while leaving all other persons to enjoy the maximum liberty for their legitimate activities. The main ground which has been taken up by hon. Members in every quarter of the House is the same. It is a unanimity in their desire to forge an effective Measure for the suppression of share-pushing, and I trust that, since we have that complete unanimity of purpose, the House will now give the Bill a Second Reading.

Question, "That the Bill be now read a Second time," put, and agreed to.

Bill read a Second time, and committed to a Standing Committee.