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Manitoba History: The Machray Scandal

by Jim Blanchard
Winnipeg

Number 33, Spring 1997

This article was published originally in Manitoba History by the Manitoba Historical Society on the above date. We make it available here as a free, public service.

Please direct all inquiries to webmaster@mhs.mb.ca.

On Wednesday, 24 August 1932, Winnipeg newspapers carried a brief story, stating that shortages had been discovered in the trust accounts of the University of Manitoba. The next day it was reported that Winnipeg lawyer John A. Machray, the man who had managed the institution’s investments for 25 years, and the man who had been Chairman of the Board of Governors until the week before, had been charged with the theft of “moneys and valuable securities, the property of the University”. [1]

John Alexander Machray was a highly respected and trusted member of the Winnipeg establishment; the news that he was charged with theft was greeted with shock. Until the appearance of the news stories, no one, with the exception of a handful of people in the Government, the University, and Machray’s law firm, had any idea there was a problem. Certainly, no one but Machray himself had any idea of the true size of the losses. As the days and weeks passed, as estimates of the amount lost mounted to a final total of $1,800,000, and as it became clear that Machray’s financial ruin involved not only the University but the Anglican Church and many small investors as well, shock turned to outrage and panic.

John Alexander Machray
Source: Who’s Who in Canada, 1927.

The Machray Scandal was daily news for the next few months. During the lawyer’s bankruptcy hearing, during his trial for theft, and then during the hearings of the Royal Commission which investigated the losses, the details of Machray’s activities over the preceding quarter century were painstakingly reconstructed and laid before the public. The purposes of this paper are, first, to summarize this information to tell Machray’s story again, and second, although a final, definitive answer can never be known, to address the important question of why a man with Machray’s background and reputation misappropriated the funds of people who trusted him. The question is significant because of what the answer reveals about the city’s elite. In the years since 1932 only two authors have written about the case. W. L. Morton, in his history of the University of Manitoba, One University, deals with the effects of the scandal on that institution, and its struggle to overcome those effects. Margaret Hunter, in her M.A. Thesis, A History of the Financial Administration of the University of Manitoba, 1877-1936, gives a good account of the financial side of the scandal. This paper adds to the work of these two scholars by looking a little more closely at John Machray himself, through the eyes of his friends and colleagues who testified at the Royal Commission, in order to understand the reasons behind what took place.

Although he is now largely forgotten, in 1932 John Machray was one of Winnipeg’s leading citizens. He was well liked and trusted by his colleagues in the legal and business world and had been a tireless worker for the University of Manitoba, for the Anglican Church, and the Red Cross Society. The nephew of Robert Machray, the first Archbishop of Rupertsland, he was held in high esteem by and given positions of trust in the Anglican Church. Through marriage to his wife, Emily, the daughter of the brewer E. L. Drewry, Machray was connected to one of the great fortunes of Winnipeg’s early years. His memberships in clubs like the St. Charles Country Club and the Manitoba Club were proof of his success and kept him in constant contact with other successful men. In many ways, then, he was typical of the class of powerful lawyers who played a large part in running the city and the province. [2]

Machray, like many men of his generation, arrived in Winnipeg with very little in the way of worldly goods. He did, however, have brighter prospects than most of the others. He was born in Haddington, Scotland, where his father was the governor of Her Majesty’s prison, but in 1874, at the age of 9, John and his brother, Robert, travelled to Manitoba to live with their uncle, the Archbishop of Rupertsland. It is possible that the boys’ parents thought that a prison was not a good place to raise children and that the new frontier would offer more opportunity. It is ironic that John would die almost 60 years later in a prison - Stony Mountain Penitentiary.

In many ways their parents’ decision proved to be a good one. John Machray, as we shall see, enjoyed a good deal of success during his life and his brother, Robert, became a clergyman and later, after returning to England, enjoyed a long career as a professional author. He was a regular contributor to the prestigious Fortnightly Review, and wrote several books on European politics. [3]

The two boys were educated in St. John’s School, where Archbishop Machray acted as headmaster. Former students remembering their days at St. John’s said that although the elder Machray could be a stern disciplinarian, he could also be kindly and made some attempt to act as a substitute parent to the boys under his charge. [4] There is no reason to believe that the life at the school was anything but happy for the two young Machrays.

Archbishop Machray was a good example of the Victorian colonial bishop, wielding tremendous authority in his bailiwick, successfully transplanting the Church from England to Western Canada. He was also one of the founders of the University of Manitoba, serving as its Chancellor from 1877 to his death in 1904.

The Archbishop had been poor as a lad - he had himself been the protégé of a kindly uncle. He had remained poor as a student at Cambridge and throughout his life. Any money he made was usually donated to the Church. Building a church organization in the wilderness was expensive and Machray concentrated a great deal of his prodigious energy and powerful personality on the work of fundraising. With the help of his friend, the lawyer Heber Archibald, Machray built up endowment funds to support his work. When the real estate boom of 1881 - 1883 reached its peak, Machray was able to sell off church property and use the profits to endow parishes and begin construction of the new building for St. John’s College on Main Street. His obituary in Town Topics, the City’s society newspaper, paid what was probably the highest tribute that Winnipeg’s elite could have paid at the time: it was said of him that he was a talented man of business and if he had not been a churchman, he probably would have been a millionaire.

This particular trait of the Archbishop’s, only one aspect of a complex and fascinating personality, seems to have been passed on, in the minds of Winnipeggers at least, to his nephew. John Machray, it was repeated over and over again during the long Royal Commission proceedings, was considered by everyone to be an excellent businessman, a man who, because of his business ability, could be trusted to handle the finances of the University virtually without assistance or supervision.

It is likely that, for the first half of his life, John Machray lived in the shadow of this powerful Victorian. He lived with his uncle, “for more than twenty years, like a son” [5] at Bishop’s Court, near St. Johns Cathedral. He travelled with the old man, acting as his secretary, attending church synods and meetings and developing an intimate knowledge of the workings of the Archdiocese of Rupertsland and its finances.

The Archbishop saw to it that the boys were well educated. In 1884, at the age of 19, John received a B.A. with First Class Honours and the Silver Medal from the University of Manitoba. He would later recall taking his 1882 examinations in a building on the corner of Main and Bannatyne, while outside the young city was being born:

Winnipeg was in the throes of its first boom ... The streets were to us thronged with people. The very air seemed vibrant. [6]

One gets the impression that the young man writing his Latin exams would have preferred to be out in the street, where the excitement was. Thirty years later Machray would no longer be a spectator; he was an important participant in the city’s next great boom.

After finishing his studies in Manitoba, he went to Cambridge, to Sidney Sussex College, of which his uncle was a graduate and Fellow. He received his LL.B. in 1887 and returned to Winnipeg and read law with Archibald and Howell, being called to the Bar of Manitoba in 1890 at the age of 25. The firm of Archibald and Howell was a logical place for John Machray to begin his career - Heber Archibald was a trusted friend of Archbishop Machray. He was also the man charged with managing the endowment funds of the Archdiocese. It was as a young law student that Machray first met R. H. Shanks, Archibald and Howell’s accountant, who spent the rest of his life working for Machray and who played a major role in the Machray Scandal. In 1897 Machray and another lawyer, Frederick Sharpe, were made partners in Archibald’s firm.

In March 1904, the Archbishop died, full of honours. He was given a state funeral, as a token of the part he was seen to have played in the founding of the city, the University and his church. On 22 June 1904, three months after the death of his uncle, Machray married Emily Drewry, the daughter of the brewer, E. L. Drewry. Their wedding ceremony was featured as the Wedding of the Week in Town Topics, and their pictures were printed on the front page. [7] They were married in St. John’s Cathedral by Bishop Grisdale, assisted by Canon, soon to be Archbishop, Matheson - the man who would soon be Chancellor of the University and chair of the University Land Board which supervised the management of the land grant which was to assume so much importance in the Machray Scandal.

In 1909 the couple moved to 76 Harrow in the new district of Crescentwood, into a house that cost the princely sum of $15,000 to build. At the age of 40, Machray had left behind his old life in the shadow of his uncle to join the city’s ambitious, aggressive elite in the newest most fashionable area of the city.

In 1905 Heber Archibald had retired and the law firm became Machray, Sharpe and Dennistoun. Machray’s evolution from law student to senior partner was complete.

He began to be more involved in public life at this time: in 1906 he was elected to the Council of the University of Manitoba, and the next year he served as a member of the Royal Commission on the University. After 1905 he replaced Archibald as the investment agent for the Anglican Church and in 1907 he was made Chancellor or legal counsel of the Archdiocese of Rupertsland. As his partner, Frederick Sharpe, said in his testimony before the Royal Commission:

Mr. Machray is the nephew of the late Archbishop and the successor of Mr. Archibald, and had apparently the absolute confidence of Archbishop Matheson and all the officials of the Anglican Church. [8]

Archibald and Howell had also been investment agents for the Isbister Trust - an $85,000 bequest to the University of Manitoba by Dr. A. K. Isbister - with R. H. Shanks acting as Secretary. This trust fund remained with the firm when Archibald retired. It was in 1907, though, that Machray and Sharpe became involved in the affairs of the University in a large way. They submitted a bid for the management of all the University’s trust funds and won the contract. The agreement stipulated that the firm would undertake the charge of investing the funds and provide all the clerical and secretarial support required to do so, along with an office and a board room. Their compensation, which did not change substantially in the next 25 years, was $40.00 a month for a secretary, $25.00 per month for the office and 5% commission on all interest collected. [9] After 1916, when Machray became the Honourary Bursar, the work of the Bursar’s Office also came to the firm. The day to day work in all cases fell to R. H. Shanks and a small staff of assistants.

Almost all the University’s trust money at this time, other than the Isbister bequest, derived from sales of the 150,000 acre Dominion land grant given to Manitoba to support the University. By 1907 the capital amassed from sales of agricultural land totalled $466,000 and the Land Board, a committee which administered the grant, paid $12,000 into the University operating account that year. Two decades later sales had produced a capital of $1,087,000 and during the 1920s the University’s annual income from the Land Board averaged $60,000 a year, in a budget of about $500,000.

Bequests made, for the most part, in the 1920s, added substantially to the trust funds. These included the Chown Prize Fund, the Roderick Mackenzie Scholarship, and the H. W. Kennedy Scholarship in Forestry. The Rockefeller Foundation gave the University $500,000 to help found the Medical Faculty and the Carnegie Foundation gave $90,000 in 1931 to establish a pension fund for retired faculty. Investing and managing these funds, along with the funds of the Anglican Church and of a number of smaller individual investors, including some retired clergymen or their widows and his former partner, Heber Archibald, was the responsibility of John Machray. [10]

In 1907 then, when Winnipeg was poised for one of its greatest periods of growth, John Machray controlled about $500,000 in University money and an unknown amount belonging to other trust clients. There were plenty of investment opportunities in Winnipeg. The city was the gateway to the west and the site of what was becoming one of the major wheat markets in the world. Winnipeg industries were helping to build the infrastructure necessary to receive the immigrants flooding into the prairie further west. The city’s population grew from 90,000 in 1906 to over 160,000 in 1916. Apartments and houses were in short supply, building went on at a feverish pace, and the value of city real estate was steadily rising. New subdivisions were laid out far from the centre of the city by real estate developers confident that the city would soon grow to be the size of Chicago. Although the world wide depression of 1907 and 1908 slowed Winnipeg’s growth and led to difficulties in raising capital, it was only a momentary check.

Between 1909 and 1912 foreign capital, largely British, flowed into the city and the construction boom resumed. During these “palmy days” as he called them, Machray entered into various partnerships with other people in the city to buy real estate, erect new buildings, and start new businesses. He had first-hand knowledge of the last great boom in the early 1880s when his uncle had been able to turn substantial profits for the benefit of the Church. He did not have personal means, but he controlled the trust funds and used trust money as his share in many different syndicates for investment purposes.

We know that Machray and Sharpe had invested together in real estate, beginning about 1902. But these early ventures were small, conservative ones and the properties were sold quickly at a profit. Sharpe testified that they were not “all loaded up” with property, as they would be later. [11] This was in keeping with their modest personal finances - they had entered into their original partnership with Archibald, in 1897, with an overdraft privilege of $25,000 at Molson’s Bank, but no money of their own. [12]

In 1909, however, Machray entered into a joint liability for $25,000 with his two partners, Dennistoun and Sharpe, to invest in real estate. Denistoun was told by Machray that he was “letting the opportunity of a lifetime slip away” and that he would “never get again the same chance of making some money.” [13] Denistoun testified that far from making money, his losses eventually amounted to about $5,000.

In his anxiety to cash in on the land boom, it is probable that Machray took unwise risks during these years. Sharpe was sometimes alarmed at the agreements Machray was signing during this period, because of the size of the investments.

... I refused to go into any extensive, reckless, speculation without knowing where the money was coming from ... I would tell Machray, if he would talk about going into this or that, I would say, “Look out, you are taking a big liability” ... He would say “It is all right; it is all right; I will get the money”. He said he could get it from his father-in-law, Mr. Drewry, Dad, as he called him, or Fred (Drewry), or borrow at the bank. He always had unlimited confidence in his ability to raise money and he did raise money. [14]

Although Sharpe complained that he and Dennistoun were “pitchforked into” some “foolish investments” by Machray, [15] many of their transactions made money. One example was the Archibald Garage on the south west corner of Portage and Maryland. The land here was purchased for $100.00 a foot in 1910 and the building was erected and rented out. It paid for itself many times over. The Lasalle Block at 807 Main Street was “bought at a song, much lower than the regular value. If values had not shrunk so enormously that block would show a surplus...in 1912 it was away up.” [16] The Success Business College building on Portage and Edmonton and the Colonial Theatre near Logan and Main were other properties that were profitable for Machray and Sharpe and their partners.

At the end of the land boom in 1912 Machray and Sharpe were both wealthy men, at least on paper. Sharpe testified that:

About 1912 and before the land boom broke my assets consisting of proceeds which had been received, or would be received, from lands sold and from the value of lands still held reached a very substantial amount. [17]

With financial success came the trappings of success. In 1912 the firm moved into new offices which occupied the entire fifth Floor of the sumptuous new Bank of Commerce building at 389 Main Street. That same year, Machray was made Kings Counsel; he was a Tory and the Conservatives were now in office in Ottawa. The Winnipeg Telegram of 26 October 1912 commented that Mr. Machray was “... well and favourably known to the legal fraternity in this province ...” and that the honour would be a source of “gratification” to his many friends. The same paper reported in 12 March 1913 that Machray had been appointed to the Board of Dominion Trust and was Chair of that firm’s advisory board in Winnipeg. Machray was, thus, not only proving himself in the worlds of the University and the Church, where his uncle’s name would open doors, but in his chosen legal profession and in the business world, where his rise was based on his own personality and financial acumen. Pictures taken of him at this time show a small, dapper man, confident, intelligent and self contained.

Then disaster struck in the form of the collapse of the Winnipeg real estate boom. The fall in prices left Machray owning a large amount of real estate that was now worth a lot less than he had paid for it. Most if not all this property had been purchased by Machray not on his own account, but in partnership with other investors. Machray’s share in these partnerships was likely not his own money - he had no personal fortune - but the money of individuals and organizations who had entrusted their funds to him. Machray had, therefore, gambled on a real estate boom and lost. His career as an investment agent might have ended there, but he decided to hold on and try to recoup his losses. As Margaret Hunter writes:

The investment firm for all practical purposes, was bankrupt by 1912, a time when the Winnipeg real estate boom was ending. It would seem that John A. Machray chose to protect his reputation as a successful investment agent by adopting illicit practices and to carry on with his investment, gambling on greater success in the future. [18]

Machray was bankrupt in the sense that if either his many clients or all his creditors demanded their money at the same time, he could not have paid them. The illicit methods with which he concealed this were a mixture of practices that the firm had used for some time and new techniques devised by his accountant, Robert Shanks, to meet the new circumstances.

The Fort Garry campus of the University of Manitoba, circa 1930.
Source: Archives of Manitoba

There is evidence that questionable methods may have been used as early as 1903. In that year the auditors commented that the firm owed the Isbister Trust $19,000 and had a total overdraft in various trust accounts of $61,000. [19] It appears, then, that Machray and his partners were “borrowing” their clients’ money for their own investments, presumably paying it back later. The practices that would get John Machray into trouble later seem, therefore, to have been standard with the firm for many years. In managing the various trust funds Machray depended upon his accountant, R. H. Shanks, to do the day to day administration. Shanks, who began working for Heber Archibald in 1881, used the same bookkeeping methods he had used for the relatively small Isbister Trust to handle the large amounts of money for which the firm was now responsible. All investment money, whether from trust funds, or the personal money of the partners, was mixed together in one account, “all muddled, all together” as Sharpe was to put it in his testimony before the Royal Commission. The pooling of funds in a common account was probably not illegal in itself, but coupled with an inadequate bookkeeping system which does not seem to have been kept up to date, it made it very difficult to establish what the true position of any of the component funds really was. As we shall see, this inadequate method of keeping track of the firm’s investment business was to make audits almost impossible. For Machray and Shanks it had a positive side in that it meant that they could easily move money around, when necessary, to make it appear that everything was as it should be. In fact, in 1932, the Royal Commission concluded that Machray and Shanks had used this method to conceal the true state of affairs in the account from the auditors for all the years from 1907 to 1917. The actual amount of cash in the bank in the Land Board’s name was always, and every year, less than the amount shown in the official financial statement. The difference, as high as $141,000 in 1913, and $69,000 in 1914, was made up by delayed deposits to the University account, made “... after the fiscal year end and just prior to the inspection of the University funds during the annual audit ...” These “delayed deposits” were made by Shanks, moving money belonging to the firm’s other trust clients into the University account just long enough to satisfy the auditors. Meanwhile, “... during the whole period, University funds were being used by the investment agents for their own purposes. [20]

In 1912, then, in the face of falling prices, Machray decided to conceal the extent of his financial problems and hang on to many of his properties. His attitude is no doubt echoed in the words of his partner, Frederick Sharpe, speaking about real estate investments at this time. He said, “... if a man had good property on Portage Avenue or Main Street, in a good district, if he could hang on he would not sustain any ultimate loss.” [21] In his testimony before the Royal Commission, R. W. Craig, Machray’s Vice Chair of the Board of Governors, said that Machray told him in the summer of 1932 that, although he had managed to back out of a number of real estate deals, getting the vendor to take the land back, in many other cases, in 1913 and 1914, he decided to “hang on”, paying taxes and loan payments in the hope that land values would recover. Such a recovery was not to occur.

He said he realized it would have been far better if he had faced the situation when it was first disclosed to him, but he had thought he could carry the thing through and that things had not worked out as he had hoped. [22]

Having no funds of his own to pay these charges, Machray used trust fund money; indeed, it is doubtful that he could have continued to operate his business had he not done so. It was later shown that in 1912 $14,000 in taxes, for example, were paid to the City of Winnipeg from trust monies. We have already seen how any shortages in the trust account created by such practices were covered up by delayed deposits.

A compounding factor in John Machray’s business troubles was his desire to protect his reputation. For a man who depended upon the making of deals with groups of investors, a reputation for business failures or for not paying one’s debts would have been disastrous. R. Willie comments on the importance of having a sound reputation amongst the lawyers of Machray’s day for, amongst other things “... being consulted concerning business prospects, and for forging necessary business links between the West and the central Canadian capital sources.” [23] In 1932, after the scandal became public, Machray spoke to colleagues about his sense of honour and his pride in the name of Machray and how these things led him to make business decisions that some of his associates considered foolish. Machray told Craig that in a number of syndicates or real estate partnerships he alone had signed the covenant or contract and was, as a result, responsible for loan payments and taxes. In the case of a real estate syndicate called the Paquin syndicate, his partner, Frederick Sharpe said:

Machray, by virtue of his giving his covenant there, the had to pay $17,000 or $18,000 to protect his name. That wasn’t a liability that should attach to any person else except the defaulting members....I wouldn’t have in God’s world paid that money. Question: What would you have done? Answer: I would have let them sue me ... Question: You never took any steps to make the other parties pay up? Answer: ... I did not. But I think it should have been done. That is only one of a dozen of them. [24]

This willingness to assume debts was commented upon by another business associate, W. H. Gardner of Oldfield, Kirby and Gardner.

I must say that throughout such time as I knew any of his affairs he would often grumble about what he was carrying, do it in a good natured way, and go out the next day and take on an obligation for somebody else. Machray was his own enemy in this way. I think there are so many people in this town who must be conscious of the things that he did. My recollection of Machray was that if there was any difficulty he was ready to step into it and take the load. [25]

R. W. Craig told the Royal Commission that:

“... agreements had been taken foolishly in his own name, in which there was a personal liability in the covenant, and that he had been held in a number of instances on these covenants. Question: Did he indicate that he had made payments on those covenants? Craig: Yes. Question: For the benefit of the persons in the syndicate? Craig: Yes, in fact he gave me to understand he had been carrying a very heavy burden since 1912, and carrying it almost alone.” [26]

Machray told Craig that he had made good on lost investments for clients, even when he did not legally have to do it, because he had a “... pride, as he said, a foolish pride in the name of Machray, and he did not want his name to be associated with any default ...” [27]

Many of the properties and businesses Machray owned in 1912 would later be, in the words of Sharpe, “sunk by a lot of rotten things done later” and by paying “carrying charges on dead stuff.” In other words, some ventures failed, at least in part, because they were used in attempts to pay off debts or taxes. One example was the Canadian Motor Company, a venture into which Machray and Sharpe entered with Machray’s brother-in-law Walter Paterson. Paterson, who would go overseas in the Great War and return a General, the Commander of the Fort Garry Horse, was the President of Winnipeg Paint and Glass. In the years leading up to World War I cars were beginning to appear in ever greater numbers and Machray entered into a syndicate with Paterson and a builder called Hicks to capitalize on this phenomenon. Machray purchased land a block east of Portage and Main and Paterson and Hicks built a garage there. The company owned another garage on Corydon Avenue, and one by the Free Press Building on Carlton Street. Stock was sold to a great many investors and Paterson was the President.

With the depression of 1913 and the outbreak of war, the demand for cars fell and the company was in trouble. Nevertheless, it might have survived had it not been loaded with debt. In 1914 a mortgage was taken on the Corydon Avenue building for $25,000 and the money used to pay off a tax bill and three other loans. In 1917 another mortgage, for $27,000 was taken out on the same property (exhibit 229). In his testimony before the Royal Commission, Paterson claimed that when he returned at the end of the war, loans totalling $93,100 were still owing to the Union Bank. This debt was settled by Machray and Paterson was informed that he was released from his $50,000 share of the liability. It seems likely that Machray sold bonds belonging to the Isbister Trust to clear this debt. [28]

Sharpe described how the partners struggled to hang on in the years after 1912, slowly reducing their overdraft in their investment account. [29] He claimed that by 1917 they had improved their position. It appears, however, that in 1918 the partners were told by Shanks that their position was much worse than they had imagined - they were told they were $500,000 short in their trust account. Machray later said he “almost fainted” when he learned this. Sharpe, who had been making large withdrawals from the firm’s general account until that time, stopped this practice in 1918. [30]

Associates who sensed something was wrong often blamed it on Shanks. They called Shanks’ methods “fifty years out of date” and tried on several occasions to persuade Machray to ask him to retire. Both W. H. Gardner and his law partners suggested this. Machray refused to fire Shanks out of a sense of loyalty to the man he had known since his student days, combined with the knowledge that if Shanks left the web of deceptions they had built would soon collapse. Machray quarrelled with Gardner, but in the case of his partners, although he refused their demands to fire Shanks and put the trust account in order, he did agreed to divide the firm into a “law side” and an “investment and University side”, with separate accounts. The law firm thus distanced itself from any problems. [31]

In 1917 a new University of Manitoba Act was passed and the institution entered a new era. It moved from the original “republic of colleges” structure in which the church schools like St. Boniface, Manitoba and St. John’s Colleges were the basic administrative units, to a state university model in which a central University Board of Governors was in charge. Academically, the changes to the University were wide ranging and revolutionary. Its financial administration continued on the same basis as before. As W. L. Morton wrote in his history of the University:

... the new board had taken over the old practices and inadequate staff of the University Council....The old habits, the personal trust, the amateurishness of the early days had in consequence been carried over into the administration, both financial and clerical, of a large university. One result was a slackness in financial matters ... which may have contributed to the success of Machray’s evasions. [32]

Machray retained control of the trust funds, acted as Bursar and became Vice-Chair and, in 1924, Chair of the Board of Governors. Shanks and his small staff handled work, on a part time basis, that should have been done by permanent, internal employees of the University.

Occupying positions that should have been a check upon one another, Machray was now much freer to carry on with his misappropriations. The absolute trust placed in him by his colleagues on the Board and by the Government meant he was able to act independently to an unusual degree. In 1919 he was given authority to negotiate loans without prior approval; in 1921 it was agreed that he should be able to create overdrafts in the trust account.

Beginning in 1916 Machray began to transfer money under his care from mortgages and investments in property to bonds. While this was likely a natural transition, it made it easier for Machray to manipulate the funds. For example, ownership of bonds in Machray’s safe was indicated by a slip of paper pinned to the certificate. It was therefore a simple matter to change the ownership by changing the slip. Machray was also able to sell bonds to provide himself with cash needed to meet various obligations much more quickly than was the case with mortgages.

As his power increased within the University, so did Machray’s ability to frustrate attempts to audit his investment business. The Comptroller General Robert Drummond, the Provincial official who, after 1918 was charged with auditing the University, was constantly put off by excuses and Shanks’ poor or non existent bookkeeping. Drummond placed one of his staff in Machray’s office to implement a new bookkeeping system and, later, to help bring the books up to date. Even so, between 1919 and 1931 only three audits were completed - in 1920, 1921 and 1925. In other years no audited statement was delivered to the Minister of Education, as required in the Act. John Machray’s stature, even in the eyes of Drummond, was such that he was able to bluff and delay year after year. This fact was greeted with incredulity when it came out during the Royal Commission hearings.

It should be remembered that, before 1932, no one outside his office knew of the seriousness of Machray’s financial problems and he continued to go from success to success. He was President of the local Red Cross Society and headed up the Winnipeg League of Nations Association. He continued to serve as Chancellor of the Anglican Archdiocese and on the Board of St. John’s College. After 1924, when he succeeded Isaac Pitblado as Chair of the Board of Governors of the University, he provided effective leader-ship, shepherding the University through the tremendous growth years of the 1920s.

As Chair, his main concerns, as revealed in his annual reports, were to stabilize and increase government funding, secure a final decision from the Government on the location of the main campus, and expand the facilities of the University to accommodate the constantly increasing student body. In the years from 1918 to 1926 alone the enrolment jumped from 927 to 3672 and the buildings on Broadway were literally bursting at the seams. When the decision was finally made to move to the Fort Garry site of the Agricultural College, and money was granted for new buildings, Machray began the planning for the move.

He was forthright in calling for higher pay for faculty, arguing that better pay and better facilities would stop the drain of good people to other institutions. During his time the first pension plan for faculty was inaugurated.

Always poorly supported by the government, the University was faced in 1924 with a $100,000 reduction in its grant. The new Bracken government was focused on reducing the deficit left behind by its predecessors. Machray was never shy in lobbying for the restoration of the grant and its increase. As he said in a speech in 1928:

The University ... has managed to survive the shocks of time on a starvation diet. I question whether the time will ever come when the University will rise from a state dinner with any feeling of satiety. [33]

Of course, one of the greatest shocks the University ever suffered was the crisis brought on by Machray’s misappropriations. His financial position did not improve during the 1920s; in fact, it worsened considerably. After 1929 Machray sustained losses by moving money from bonds into more speculative investments, such as oil stocks. [34] He also took over a large farming operation - Pigeon Lake Farms, near Portage la Prairie - just at beginning of the slump in wheat prices and lost heavily speculating in wheat futures. He continued the practice of using capital to pay the yearly interest payments of his clients. In April, 1932, tens of thousands of dollars in bonds were sold in order to make the annual payments to various clients, including the University. [35]

In July of 1931, about a year before the scandal became public, an auditor with the Comptroller General’s office issued a statement showing that Machray’s investment firm was “short” $671,000 in its University account. This figure was only an estimate based on an examination of the firm’s vouchers and files - proper audit had still never been done because the books were never brought up to date. R. H. Shanks was asked to produce sufficient securities to cover the shortage when he returned from holidays. This request, notable for its lack of urgency, is indicative of the kid gloves manner in which the Comptroller General’s staff had always treated Machray and his employees.

Over the next year Machray was asked repeatedly to produce the securities. He gave various excuses for not having followed the auditor’s instructions - his own serious illness which was finally diagnosed as stomach cancer and, in April 1932, the death of Robert Shanks. Finally in April and May of 1932, Robert Drummond, the Comptroller General, became alarmed enough to inform both the Attorney General and the Minister of Education in John Bracken’s government that there might be a problem. At the end of May Drummond met with James Kerr, who had worked with Shanks for a number of years and was privy to his secrets. With Kerr’s cooperation the story of the last few years of Machrays’ firm slowly emerged. Unlike Shanks, Kerr had himself stolen money from the trust account, but he was not prosecuted because he agreed to testify. Machray’s vault was searched and it was discovered that there were no securities there. Everything that could be sold had been sold.

Craig began meeting with Machray regularly, to try to sort out what should be done. Throughout these meetings Machray kept asking for more time, insisting that, given time, he could secure loans from relatives and friends and get an accounting of his own assets so that any shortages could be made good. His Order-in-Council appointment as Chair of the Board of Governors was actually renewed on 16 July, an act that shows the government still had hope he could come up with the money. But at a meeting on 20 July with Craig and the Minister of Education the Attorney General, he was clearly so ill that Craig suggested that he would not be able to do the work necessary to replace the missing funds and that he ask a friend to help him. Craig quoted him as saying that he:

“... had always taken care of his obligations. He had never failed yet and did not intend to now and he was not going to allow the name of Machray to be dragged through the mud.” [36]

Nevertheless, in early August, at the urging of Craig and his friend, W. H. Gardner, Machray allowed an independent auditor to look at his books. Very quickly it became clear that the firm was over $800,000 short in its University funds. A few days later the Board of Governors sent Machray a letter demanding that he provide securities to cover that amount by 17 August. When he failed to do so, he resigned from his post as Chairman and on 25 August he was arrested for theft. Within a few weeks the firm of Machray and Sharpe would declare bankruptcy. A fleet of 5 moving vans arrived at 389 Main Street to take possession of all the files and papers in the fifth Floor offices of Machray’s investment firm. The long years of deception were over.

Isaac Pitblado, circa 1915
Source: Archives of Manitoba

The criminal charge against Machray, to which he pled guilty on 22 September, stated that he had stolen $500,000.00 from the University and $60,000 from his former law partner and mentor, Heber Archibald. The confused state of Machray’s records meant that the exact amount of the losses to the University, some $869,065.27, was not finally established until 1941. Approximately another $1,000,000 was lost by the Anglican Church and Machray’s smaller clients, individuals like Archibald who had entrusted him with funds to invest. Only $40,837.77 was ever recovered - the proceeds of Machray’s life insurance policies.

The trial of John Machray took place in the Police Magistrate’s Court on Thursday, 22 September 1932. Machray’s illness made it difficult for him to stand when his name was called in the Court. He waived his right to a jury trial and elected to be summarily tried by the Magistrate, R. M. Noble. He pled guilty to the charges. Then his lawyer, A. E. Hoskin, made a statement, during which Machray sat with his hands covering his face.

Hoskin explained that he had prepared the statement together with B. C. Parker, one of Machray’s partners and his other counsel. The speech is the only public statement that gives what we can assume is John Machray’s version of things, and is therefore of some interest. Hoskin said that although Machray was pleading guilty to theft, he had not used any of the money for his own purposes. He gave the example of $60,000 in bonds belonging to Archibald which had been sold in order to make one of the annual payments to the University. There was no income from University investments and so Archibald’s money was paid over instead. The intention was to replace Archibald’s money at some later date, when Machray’s financial situation improved.

Hoskin made the argument that Machray’s intention was not to steal money for his own use, but to continue to pay income to his clients, even after investments he had made on their behalf became worthless. For example, a client might have given Machray $3000 to invest in a mortgage. The payments on the mortgage may have stopped and the investment “gone bad” but Machray would continue to pay the investor interest payments, on time, as though nothing had happened. This, Hoskin argued, led to his eventual bankruptcy. He stated

Very unfortunate investments were made in Western Canada and other parts of Canada, and if every investment agent shouldered the responsibility for bad loans which had been made through his office, there would have been a vast number of bankruptcies throughout the country. However, the firm did this and I have said bad investments were treated as if they were good and interest was paid on them as if it had been collected. [37]

Such payments were made to the University, the Anglican Church and to a number of individuals, like Archibald, who had entrusted their funds to Machray.

No other intention apparently ever existed than that of protecting and maintaining the assets of their clients and in the hope of ultimate realization and payment of the shortages. [38]

The Crown Prosecutor, Mr. Allen, said that the law did not require that profits accrue to the accused in order for him to be charged with theft. “It must be recognized that trust funds cannot be used as they were used.” [39] Magistrate Noble agreed: “I don’t think there is the slightest doubt about that. The whole question is not the circumstances but one of what the penalty should be.”

Allen continued his argument, listing three salient features of the case. The first was the respectable position held by Mr. Machray in the community. “The higher the standing in the community, the higher the standard of conduct required.” Second was the great confidence the community had in Machray, and the fact that “That confidence has been broken.” The third feature was the large sums involved. He urged Noble to do justice not just to John Machray but to the “great public of Manitoba whom I have the honour to represent.” Noble stated that his position was “difficult and delicate” because he had known Machray for 25 years;

“But I must forget friendship, prejudice and all those other elements that might sway me at a time like this. I must administer justice. 1 have got a duty to the public.” [40]

He passed the maximum sentence of seven years in prison. John Machray was taken by car to Stony Mountain to begin serving his term the same afternoon. He died there, of cancer, in October, 1933. There can be no doubt that John Machray repeatedly broke the law over a long period of time, and that he deserved to be punished. The true nature of his crimes, and the poor state of his health, might have led to some mitigation of the punishment he received had he been less in the public and political spotlight.

On 26 September 1932, less than a week after Machray was incarcerated, Premier Bracken established a Royal Commission to investigate and report on the methods employed in the administration of the trust funds of the University, and how it had been possible to misappropriate funds on the scale on which Machray had done. They were to make recommendations regarding changes necessary in the financial management of the University. The members were Judge W. F. A. Turgeon, member of the Saskatchewan Court of Appeals and the Chair of many Royal Commissions, Walter C. Murray, the President of the University of Saskatchewan, and C. G. K. Nourse, a Winnipeg trust company executive.

The commission held public hearings in the Law Courts, 29 September 1932 to 19 January 1933, sitting for 54 days, 44 witnesses were heard and 257 exhibits were filed. There were two counsel for the Commission, R. F. McWilliams and W. Thorson. These two Winnipeg lawyers - both Liberals who would go on to occupy positions of distinction, McWilliams as Lieutenant Governor of Manitoba and Thorson as a Cabinet Minister under MacKenzie King - were often as adversarial as a prosecutor, pressing or even badgering witnesses. This approach was dictated by the unusual circumstances, as McWilliams said in his opening statement before the Commission on 29 September 1932:

The public, to use a slang expression, is flabbergasted by the extent of these shortages. I think everyone feels that had the shortages amounted to 100,000 or 200,000 over a term of years, it would be understandable. But shortages that amounted to something like one million and three quarters seem unbelievable, and naturally, therefore, suspicion is aroused at every hand. The question is, what happened to the funds? Where did they go? Who got the benefit of them? Did any of the people who ought to have checked this thing up have any interest in them? There is an atmosphere of suspicion which it is hoped this commission will be able to dispel by gathering the facts. [41]

McWilliams went on to say that “No person will be shielded in any way, no matter who he is, and we shall do all in our power to submit information that may throw light on this matter.” [42] As was the case with Magistrate Noble, the Premier and his Commissioners knew that the public was watching and waiting for answers and that justice must be seen to be done.

In his summation of the evidence, three months later, McWilliams recounted the details of Machray’s actions, as they had emerged during the Commission’s work. McWilliams was quite strong in his condemnation of Machray:

What is abundantly clear is that Mr. Machray carried on for many years a systematic misuse of his client’s funds ... a whole course of conduct as to which condemnation cannot be too strong. [43]

The total losses of $1,800,000 were itemized: the largest portion, $782,000, was paid out to clients as regular interest payments on their investments, which, as we have seen, often did not exist. Monies held in trust were used for other purposes and Machray kept up the interest payments by paying them out of capital entrusted to him. [44] It was concluded that $300,000 had actually been taken for Machray’s personal use, and that the evidence refuted the arguments made at his trial that he did not personally benefit from the misappropriations. Another $200,000 seems to have been paid out to cover taxes and expenses on land that Machray and various partners held for speculative purposes. The remaining $400,000 was lost in bad investments.

The Commission’s final report assigned responsibility to the governments which appointed and reappointed Machray to the Board of Governors and, in 1924, made him Chairman, at the same time as he was employed as the University’s investment agent and serving as the Honourary Bursar. The Board of Governors, said the Report, gave Machray far too much independent authority in dealing with financial matters such as the issuing of cheques and buying and selling the University’s securities and other investments. Robert Drummond, the Comptroller-General of the Province, had not been diligent enough in pursuing the audit of Machray’s books. Drummond resigned - the only public official other than Machray to lose his post over the scandal.

The Minister of Education and the Department of Education were found to be at fault because they had never pressed for the required annual audited statement. Frederick Sharpe, Machray’s law partner, was declared to be “guilty of negligence” in not ensuring that client’s money was safeguarded and in not taking any steps to secure an audit of the trust account. Although he was financially ruined, Sharpe was not disbarred and continued to practise law, although not with his old partners in the Bank of Commerce Building.

The Royal Commission called for many changes in the financial administration of the University and within a short time these were put in place. A new President, a new Chancellor and a new Board of Governors soon replaced the older men - all of them inescapably tainted with the “Machray Scandal”.

Not everyone who came in for criticism accepted it meekly. McWilliams’ comments were rebutted, often quite fiercely, by Isaac Pitblado, the Chair of the Board of Governors from 1917 to 1924 and a man who had worked closely with Machray on University matters. Pitblado said that he was appearing on behalf of the Board members who served during his term. He spoke for days and his remarks cover hundreds of pages. His main point was that the Board took reasonable precautions and could not be held responsible for the actions of Machray and Shanks, whose actions came as a complete surprise. Part of his argument hinged on the universal respect enjoyed by both men in the community, a respect which made it unlikely that they would be suspected of wrongdoing.

Pitblado was concerned to protect himself and his fellow Board members, but he was also arguing that the system which allowed respected business leaders a great deal of authority in the running of the University should not be condemned because of the dishonesty of one man.

Marcus Hyman, a labour member of the Legislature, and a lawyer who had crossed swords with Pitblado over a decade earlier at the trial of the leaders of the General Strike, found in the Machray Scandal a delicious opportunity to criticize the “system” prevailing in Winnipeg at the time. Hyman stated that:

Mr. Pitblado not merely answered the charges that were naturally made by the counsel for the Commission, but he seemed to resent that any charges were made at all, particularly in connection with the question of loose methods of the Board of Governors ... [45]

He was obviously enjoying himself when he described how Machray

... not only swallowed up the whole of the assets, the whole of the funds of the University, but he was on the way to swallowing up the whole of the institution. He was land agent, he was Bursar, he became the Land Board, in fact he was vice-chairman, and then Chairman ... In point of fact Pooh Bah, of the Mikado, was quite an elementary combination of personalities compared with Mr. Machray ... [46]

Hyman pressed home his attack on the attitudes that had allowed Machray to operate without restraints:

When the community was very small it was perhaps natural for members of the Board who knew each other very well, and everybody in town knew everybody else, to follow the principle of “tickle me Toby, and I will tickle you.” But we are a large community now; nobody knows anybody else well, and yet we find here that we have raised respectability to a fetish. Machray was entrenched behind a whited sepulchre of respectability, and members of the Board, even today, seem to have little sense of the wrong of even a shadow of nepotism. [47]

With the end of the Royal Commission’s proceedings and the implementation of most of its recommendations, the Machray Scandal began to fade from the public consciousness. Within a year John Macbray died in prison of cancer, a tragic end to a long and, in many ways, a productive life. On 3 November 1932, the front page of the Free Press carried a description of Machray, during his brief testimony before the Royal Commission, that is deeply moving, but must have been deeply distressing for a such a proud man.

Unable to be removed from his bed, guards carried him from his cell in the prison hospital to one of the offices on the second floor of the jail, where Dr. George Campbell, the prison physician was in constant attendance. Lying in his little cot, a shadow of his former self, with flushed cheeks and wasted hands, he was a pathetic figure. Often he grew greatly excited. Repeatedly he tapped the little table that stood beside him and then as his mood changed, would nervously strike the wall with his fingers. [48]

John Machray had been swept up in the excitement of the city’s great pre world war one boom, seeing it as a chance to fulfill a dream of becoming wealthy as others had before him. Machray no doubt also saw it as an opportunity to enrich his various clients, toward whom he clearly felt a strong sense of responsibility. Like other speculators, he was ruined in the collapse of real estate values in 1912 and 1913. Unlike them, he controlled a large pool of capital which he was willing to use to conceal the essential fact of his ruin. By the time the truth came out, he had squandered nearly all the money in his care in this hopeless cause. Machray’s story is one of ambition and greed, unpleasant characteristics tempered in his case by a complex and interesting personality in which pride and a sense of responsibility played leading roles.

Notes

1. Winnipeg Tribune, August 25, 1931, p. 1.

2. Richard A. Willie, “'A Proper Ideal During Action’: Fraternity, Leadership and Lifestyle in Winnipeg Lawyers’ Professional Culture, 1878 - 1900” Journal of Canadian Studies, vol. 27 (1), 1992, pp. 66-67.

3. Robert Machray, Life of Archbishop Machray, (Toronto: MacMillan, 1909); The Little Entente, (1929); Poland, 1914-1931, (London: G. Allen and Unwin, 1932); The Polish German Problem, (London: G. Allen and Unwin, 1941); East Prussia; Menace to Poland and Peace, (Chicago: American Polish Council, 1943).

4. Robert Machray, Life of Archbishop Machray, op. cit., p. 242.

5. Ibid., p. xvi.

6. John Machray, “Reminiscences of the College Era in University Development”, University of Manitoba Quarterly, December, 1927, p. 21.

7. Town Topics, June 25, 1904.

8. Royal Commission on the Impairment of the University of Manitoba Trust Funds. Evidence and Proceedings. University of Manitoba Archives, p. 6436.

9. Report by R. H. Shanks to I. Pitblado, 1917. Royal Commission on the Impairment of the Universityof Manitoba Trust Funds. Exhibits. University of Manitoba Archives, UA10, Box 22, Folder 2.

10. Evidence and Proceedings. pp. 99 and 110.

11. Evidence and Proceedings. p. 6819.

12. Evidence and Proceedings. p. 6819.

13. Royal Commission on the Impairment of the University of Manitoba Trust Funds. Report. p. 36.

14. Evidence and Proceedings. p. 6814.

15. Evidence and Proceedings. p. 6615.

16. Evidence and Proceedings. p. 6819.

17. Evidence and Proceedings. p. 6440.

18. Margaret Hunter, A History of the Financial Administration of the University of Manitoba, 1877-1936. M.A. Thesis, University of Manitoba, 1985. p. 104.

19. Ibid., p. 100.

20. Ibid., p. 101.

21. Evidence and Proceedings. p. 6864.

22. Evidence and Proceedings. p. 873.

23. Willie, p. 61.

24. Evidence and Proceedings. pp. 6820, 6822.

25. Evidence and Proceedings. p. 7518.

26. Evidence and Proceedings. p. 847.

27. Evidence and Proceedings. p. 848.

28. Exhibits. University of Manitoba Archives, UA10, Exhibit 229.

29. Evidence and Proceedings. pp. 6841, 6844.

30. Evidence and Proceedings. p. 6440.

31. Evidence and Proceedings. pp. 7156-7160 and p. 7516.

32. W. L. Morton, One University: A History of the University of Manitoba, (Toronto: McClelland and Stewart, 1957), pp. 150-151.

33. John Machray, op. cit. p. 18.

34. Evidence and Proceedings. p. 7456.

35. Evidence and Proceedings. p. 7364.

36. Evidence and Proceedings. p. 879.

37. Winnipeg Free Press, September 23, 1932, p. 2.

38. Ibid., p. 2.

39. Winnipeg Tribune, September 22, 1932, p. 8.

40. Ibid., p. 8.

41. Evidence and Proceedings. p. 113

42. Evidence and Proceedings. p. 114.

43. Evidence and Proceedings. p. 7834.

44. Evidence and Proceedings. pp. 7831-7832.

45. Evidence and Proceedings. p. 8701.

46. Evidence and Proceedings. pp. 8703, 8704.

47. Evidence and Proceedings. p. 8712.

48. Winnipeg Free Press, 3 November, 1932. p. 1.

Page revised: 4 December 2011

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