Insurance Companies, Banks, Investment Brokers
Loan Defaults and Fraudulent Accounting Closed Canadian Bank
Oct 1, 2009
Many bank and insurance company directors were chosen for their connections and prominence in the world of finance. People such as Sir William Mackenzie, Sir Henry Pellatt, Sir Max Aitken, W.D. Matthews, and George Albertus Cox sat on many of the same boards.
Life Insurance Companies Investigated
In 1906, a federal Royal Commission on Life Insurance Companies showed that investment policies were ignored by the controlling group. Frequently, they used policy holders’ money as funding for their own projects. Sir Henry Pellatt, a director of Manufacturers’ Life Insurance and member of its investment committee, was specifically named in that regard. Questionable investment practices that benefitted other directors were cited in the report. Nothing was done about the inquiry results.
The general public’s opinion was that the wealthy financiers were arrogantly making excessive profits at the expense of the public good. Despite warnings, the financiers and brokers continued as though oblivious to expressed concerns.
Whistleblower at Home Bank of Canada
Incorporated in Toronto in 1903, the Home Bank of Canada was one of several chartered during that period. From the beginning, it advanced questionable loans by using the savings of working-class people.
James F. Mason (General Manager) and Henry Pellatt were directors along with E. George Gooderham, A. Claude Macdonnell, and three more in Winnipeg, Manitoba. Mason retired from the bank following his appointment to the senate in 1913. His son, Harry G. Mason became the new General Manager.
William Machaffie was Manager of the Winnipeg Branch. In 1914, he took his concerns about the bank’s fraudulent accounting to the directors. His concerns were ignored, and after a lengthy leave of absence, he tried again, but was fired. In 1918 he sent a letter to the Minister of Finance in which he gave detailed information about the bank’s internal, questionable dealings.
In July 1919, M. J. Haney, a Home Bank of Canada director struck a note of confidence. He indicated that the bank “enjoyed one of the most satisfactory years in its history”. In 1920, Pellatt and Pellatt (Sir Henry’s brokerage firm) owed the bank almost $2 million.
His land speculation schemes had not paid off in the troubled financial times following World War I. Directors, fearing dire consequences, attempted to have Pellatt pay. In debt to nine financial organizations (none knew of the others’ loans to him), he could not pay. As a consequence, he was forced to sign over all of his assets and was virtually bankrupt.
Bank Loan Defaults and Fraudulent Accounting
Pellatt was not the only individual who could not repay loans to the Home Bank of Canada. Many more people and firms were in the same situation. Partly due to questionable practices initiated by James F. Mason, the bank failed.
Ten executives, including Sir Henry Pellatt, were arrested for fraud and ‘cooking the books’. Through civil actions, they were required to pay damages, but hundreds of people lost their savings.
During that same period, two bank mergers occurred. They involved banks that had depleted their reserves through questionable practices. In 1921, the Merchants Bank of Canada merged with the Bank of Montreal. In 1925, the Union Bank of Canada was taken over by the Royal Bank of Canada.
Fifty years before that, Canadian bankers successfully opposed government inspections of banks. Following the failure in 1923, the Bank Act was amended to provide for bank inspections.
Related Articles
More information about the business dealings of Sir Henry Pellatt and the effects upon the mining community of Cobalt, Ontario
Sources:
Sir Henry Pellatt, King of Casa Loma by Charles (Carlie) Oreskovich, Published by MacGraw-Hill Ryerson, c1982
Sons of Canada: Short Studies of Characteristic Canadians
History of the Banking system of Canada
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