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The Farrow's Bank Crash page 2


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The proceedings on the second day of the trial opened with the evidence of Henry S. Keogh, joint-manager of the city office of the bank in Cheapside, who declared that, although Crotch twice asked him to sign the balance-sheet of 1919, he declined to do so, as he had not had access to the books.

On the opening day of the trial it had been stated that a Mrs. Janvrin, wife of one of the directors, had been debited with 35,000 in respect of the sale of 35,000 shares in the United Small Arms Company, Limited, of which Crotch was director. When, on the second day of the proceedings, Mrs. Janvrin was called to give evidence on the point, she failed to answer to her name, and her husband stated that she was too unwell to attend the court. He informed the court that his firm, Janvrin and Merriman, had for many years transacted business on the Stock Exchange for Farrow's Bank, and in 1918 Farrow had approached him with a view to his becoming a director of the bank.

He stated that before accepting a position on the board he discussed with Farrow the use of his name in connection with the United Small Arms Company shares, and it was afterwards suggested that 35,000 1 shares should be put in his wife's name. When subsequently he discovered that his wife was debited in the bank's books for the sum of 35,000 he raised the matter with Crotch, who said that it was ridiculous, and that there was no such thing. However, a few days later Crotch admitted that such an entry did appear in the books; that it was obviously a mistake and would be corrected; and some time afterwards told him that the entry had been corrected. During the course of his cross-examination by Mr. Curtis Bennett, for Crotch, Mr. Janvrin stated that during the eighteen months he had been a director of the bank, he had attended seventy-four board meetings and had never witnessed anything incorrect in the conduct of the business.

When Mr. Read was called upon to give evidence on behalf of the prosecution, he repeated the story which he had told at the police court proceedings in the previous February, and to which the attorney-general had referred in outlining his case for the prosecution. He stated that when he challenged Crotch with the fact that the balance-sheet was fraudulent, the latter admitted this to be the case, and that now that the game was up he would have more time in which to write books.

Mr. Read, in reply, said that Crotch appeared to have a sense of humour, to which the latter answered, "I may as well." But, becoming serious again, went on: "If I believed in a hereafter, I should know exactly what to do, but as I don't, I shall just have to face it out."

Later in the case, Mr. Curtis Bennett, for Crotch, cross-examined Mr. Read regarding this part of his evidence, stating that Crotch, who had written a number of books expressing his belief in immortality, denied having made use of the words, and that he felt the matter very keenly. Mr. Curtis Bennett suggested that Mr. Read's statement was an invention, but this was denied, although Mr. Read admitted that he might have made a mistake in the actual words used by Crotch, which may have been, "If I did not believe in a hereafter, I would know what to do." Mr. Read regretted that he had referred to the subject, and apologised to Crotch for having hurt his feelings.

In further evidence, Mr. Read stated that, unlike Crotch, Farrow showed no indication of "wilting," but expressed complete astonishment, saying that the report was impossible; his whole attitude, in fact, was one of denial. When, however, Mr. Norton, a co-director of the bank, persisted in his declaration that the balance-sheet was fraudulent, Farrow at last admitted it, and added: "Let's get to business, and see what we can do with it." Farrow was told that counsel's opinion would have to be taken, but he declared that such a course was quite unnecessary. Nevertheless, the opinion of Sir John Simon was obtained, and when Farrow and Crotch were informed that the agreement would have to be cancelled on the ground of misrepresentation, they finally agreed to this being done.

Mr. Cecil Whiteley, on behalf of Farrow, closely questioned Mr. Read regarding his statement that Farrow admitted he had been guilty of fraud; he pointed out that he (Mr. Read) had never previously spoken of the admission, and had even stated during the police court proceedings that he still believed in the integrity of Farrow, and that he had been misled.

"I believed in his integrity up to a point only, was what I said," Mr. Read replied; "and I maintain that to-day."

In re-examination by his leading counsel, Mr. Read confirmed that he had taken every possible step to prevent the bank from closing its doors, even going to the length of consulting Sir John Simon and the financial secretary to the Treasury, and, as a final resort, he sought the advice of Barclay's Bank. In the meantime Farrow and Crotch were also straining every endeavour and investigating every possible channel to avert an irreparable collapse.

Mr. Read informed Farrow and Crotch that his American association, in order to avert disaster, was prepared to find a million and a quarter sterling providing the big London banks would express willingness to put up a similar sum. But all his suggestions and efforts to retrieve the position were abortive.

When Mr. Henry Morgan was called by the prosecution, he stated that he was asked to make an investigation of the bank's affairs, as a result of which he was compelled to disclose the alarming fact that there was a deficiency, according to his estimates, of no less than 2,800,000. When he remarked to Crotch that he could not conceive how men could possibly have continued the business of the bank with such a burden on their minds, he had been told by Crotch that the first year they were a little short, but having some likely properties on hand, they had written them up in the belief that the increased value would have materialised by the next annual valuation. And so it had gone on, Crotch added, till at last they could hope only for a miracle to happen; but, as Mr. Morgan remarked, not even a miracle could have put matters right.

The adverse balance of profit and loss was placed at a rather lower figure by the next witness, Sir Gilbert Garnsey, who had been appointed as special manager of the bank, and who will be more familiar to readers for the part he played in 1929 in the Clarence Hatry case. This witness had prepared a true and correct balance-sheet up to June 30, 1920, which disclosed an adverse balance of profit and loss of 2,216,652.

A further amazing disclosure made by Sir Gilbert was that in the year 1914 the salaries and wages paid were more than five times the total earnings of the bank, while in 1920 salaries at 59,621 exceeded the total earnings by 355. He also referred to the fact that in June, 1911, a building estate which had been purchased earlier in the year for 23,350 had been written up in the balance-sheet by no less than 81,000. At this time, too, the estate had not actually been paid for, a deposit of 4,330 having been the only payment made.

Commenting on the remarkable evidence of Sir Gilbert regarding the methods which had been employed in framing the bank's balance-sheet, the judge caustically remarked that the problem seemed to have been approached upside down; it had not been a question of finding out what the profit was, and then allocating it, but of first allocating what they wanted to allocate, and then finding the balance to make it up.

In concluding his evidence, Sir Gilbert disclosed the surprising fact that on no occasion at the time of publication of the balance-sheets from 1909 to 1920 was Farrow's Bank solvent or prosperous, explaining on the request of the judge that by being solvent he meant capable of paying its liabilities in full. He also gave it as his considered opinion that at the time of speaking the bank's deficiency was nearer 3,000,000 than 2,000,000.

Evidence given by Mr. William Cash, President of the Institute of Chartered Accountants, confirmed that of Sir Gilbert Garnsey, and further elicited that rather more than half the assets, except for a negligible sum, produced no income whatsoever for the bank.

The case for the prosecution was now approaching completion, but the evidence of certain of the unfortunate depositors was still required to bring it to a conclusion. The first of these to enter the witness-box was Albert John Taylor, a retired tailor, of Walworth. He related how he had transferred his savings first from one bank to another, and then from the second bank to a third, and finally to that controlled by Farrow. The first of the banks to which he entrusted his savings was the Charing Cross Bank, and the second the Birkbeck Bank, both of which, incidentally, suffered a similar fate to Farrow's Bank, when depositors lost a considerable part of their deposits. The third bank, a private one, also suffered disaster.

It was as the result of an anonymous communication that Mr. Taylor withdrew his savings from the Charing Cross Bank - one of the few occasions when there is virtue in anonymity - and he stated that he was so influenced by the glowing report of the current shareholders' meeting of Farrow's Bank that he was induced to entrust his hard-earned savings - 350 in all - to its care.

Another depositor was attracted by the glowing nature of the bank's advertisements, and was further persuaded by Farrow's whole-hearted denouncements of moneylenders; had he deferred his decision for another twenty-four hours, his small but all-important deposit of 50 would not have been swallowed up in the vortex, for the very next day the failure of the bank was announced.

These and similar pathetic stories were related; one depositor, a retired printer who was a victim to bronchitis and dependent on a pension only, stating that he had lost his life's savings of 230, which he had most unwisely transferred from the Post Office Savings Bank.

Another depositor, who had also lost all he possessed, said that he had begun to have his suspicions aroused because the speeches appeared to be "rather treacly," and added that "One of the disgusting features of this case is the sanctimonious tone they adopted."

The case for the prosecution had occupied the court for six days, and on the seventh day, before Mr. Cecil Whiteley opened the case for his client, Farrow, the judge remarked that he had received two letters from a Mr. G. Alexander Siday of Ealing, both of which were gross and impudent contempts of court, which, if they were repeated, would lead to steps being taken against the writer. Counsel for both sides declared that they, too, had received letters, but they had refused to read them.

Mr, Cecil Whiteley then addressed the court. His client, he said, was 59 years old, a widower with three sons and three daughters. He spoke of his early life and his activities down to the time of the passing of the Moneylenders' Act of 1900, which he declared was entirely due to his client's activities. He related how Farrow, disappointed with the provisions of the Act, started a small experiment called the Croydon Mutual Credit and Deposit Bank, which was a success from its inception. So successful, in fact, was this concern that it prompted Farrow in 1904 to inaugurate Farrow's Credit Bank, and to introduce home savings banks, automatic saving machines, banks for small holders and other thrift schemes. Mr. Whiteley spoke with fervour of a life devoted to the protection of the poorer classes from the moneylender, to providing banking facilities and encouraging thrift. He declared that his client had never had from Farrow's Bank anything over and above the salary to which he was entitled, and that at the moment the only money he possessed was the small amount of 100. He would not, in fact, have been able to employ his counsel had it not been for the generosity of his many friends.

Mr. Whiteley's speech, which occupied nearly the entire morning, was a masterly example of rhetoric, in which he paid glowing tribute to the character and the beneficial activities of his client, quietly but effectually emphasising the time and attention he had given in the interests of the diligent and thrifty.

When, in the afternoon, Farrow was called to the witness-box, there was an eager and attentive court to listen to his defence. He told with pride of the continued existence of his little credit bank at Croydon; of his promotion of the bigger institution in 1904; of how the other great banks received the venture with open hostility, and how they charged from sixpence to a shilling to every man who dared to tender a cheque on Farrow's.

He declared that his sole concern had been the interest of the shareholders and depositors, and how, in his solicitude for their welfare, he had deprived himself of a holiday for the seventeen years of the bank's existence.

"I am an idealist, an organiser, and an optimist," he said. "I am not an accountant." And when asked if he had had any idea before the police court proceedings of the accumulated losses of the bank, he replied emphatically, "None whatever; it astounded me;" and added naively that if he had even dreamed that such was the position he would have taken a very long holiday and advised his colleagues to do the same.

He had been astounded to hear the reserve fund described as an imaginary one; and he had always thought that the reserve was invested in the securities mentioned in the balance-sheet. He had never admitted to Read that he had been guilty of publishing fraudulent balance-sheets; and as to the latter's promised 500,000, he knew that this sum would be taken into consideration in the June balance-sheet, but he had no idea of the way in which Hart was going to deal with it.

Speaking of the purchase of the bank by Read, he declared that he had then attained the object of his life, and that as he had not served his country during the war, he wished to make compensation by serving the public. Read and he were friends, and together they could have defied the banking world.

The attorney-general opened his cross-examination of Farrow by asking him if he held that he was not to blame in the matter, to which the prisoner replied, "I am not guilty of the crimes alleged against me. If I have done anything wrong, it was without knowing it and in the interests of the shareholders." He declared that he had no knowledge of accountancy or banking when he founded the bank, which was started to lend money at 10 per cent, instead of the exorbitant 60 per cent, charged by moneylenders.

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