Recommended reading:
Historical bonds are those bonds
that were once valid obligations of American entities but are
now worthless as securities, are often a favorite
tool of scam artists. Here are several things that you should
know about them:
Types of
Historical Bonds Used for Fraud
Although all sorts of historical bonds are collected and traded,
historical railroad bonds comprise most of the bonds used to
perpetrate fraud. Historical railroad bonds commonly used by
scam artists include those issued by the Chicago, Saginaw, and
Canada Railroad Co., the East Alabama and Cincinnati Railroad
Co., the Mad River and Lake Erie Railroad Co., the Galveston,
Houston & Henderson Railroad Co. and the Richmond, and York
River Railroad Co. These railroad bonds are but a few of the
12,000 to 15,000 varieties of historical railroad bonds that are
known to exist.
Lies Used
for Fraud
Lie: Historical bonds are payable in gold.
Fact: Historical bonds are not payable in gold.
Historical bonds are not valid obligations. Even if they
were valid obligations, they would not be payable in gold
because gold clauses in bonds issued before 1977 are
unenforceable in U.S. courts. Adams v. Burlington Northern R.R.
Co., 80 F.3d 1377, 1380 (9th Cir. 1996)(26K TXT file, uploaded
9/28/98); 31 U.S.C. § 5118(d)(2) (2.5K TXT file, uploaded
9/28/98).
Lie: Historical bonds are
backed by the Treasury Department.
Fact: Historical bonds are not and have never been backed by the
US government.
While historical bonds often have the words "United
States of America" printed on them, these references were
merely to identify the bonds as issued by entities located in
the United States. Nowhere on historical bonds are there any
statements that the bonds are issued or backed by us or any
other part of the United States Government. Only in limited and
well-known circumstances have we guaranteed obligations issued
by private parties, for example, the bonds issued by the
Chrysler Corporation in the early 1980s.
Lie: The Treasury
Department has established a federal sinking fund to retire
historical bonds.
Fact: There is no federal sinking fund to retire historical
bonds.
As these historical bonds were neither issued nor backed by
us or any other part of the United States Government, it would
be patently absurd to suggest that we would establish a sinking
fund to retire these historical bonds.
Lie: Historical bonds can
be used in high-yield investment "trading program"
sanctioned by any, some, or all the following entities: the
International Chamber of Commerce ("ICC"), the IMF,
the World Bank, the United Nations, the Federal Reserve Board, a
Federal Reserve Bank, and the Treasury Department.
Fact: There are no such "trading programs," and none
of these entities ever sanctions or regulates such private
investment activity.
For example, the IMF has issued a warning
about financial schemes misusing its name.
Lie: Funds in, or some
proceeds from, these high-yield trading programs go to
humanitarian purposes or infrastructure development projects
that are approved by the United Nations, the World Bank, or the
Treasury Department.
Fact: There are no such "trading programs" or
"high-yield investment programs."
The scam artist's use of humanitarian or infrastructure
development theme is a trick to (1) make the investor want to
believe that the trading programs are real and (2) make the
investor believe that they could be helping a Third World
country by forking over their money.
Lie: Historical bond
trading programs yield high rates of return through the buying
and selling of "debenture" or "medium term
notes" supposedly issued by "prime" or
"top" European or "World" banks.
Fact: Officials of leading European banks, including Barclays
Bank, have denied any participation in such programs and there
is no evidence that the market for such instruments exists as
described by scam artists.
This appears to be a recycling of the "prime bank"
schemes that have long been labeled as bogus by countless
domestic and foreign banking authorities. See, for example, the
warnings issued about "prime bank" scams by the Federal
Reserve Board, the Federal
Reserve Bank of New York and the SEC.
Courts have repeatedly held that prime bank trading programs,
including those purporting to generate profits through the use
of historical railroad bonds, are fictitious.
True Values of
Historical Bonds
Historical bonds are worthless as securities. None of the
historical United States railroad bonds are payable by today's
successor railroads such as CSX, Norfolk Southern and Union
Pacific. Instead, historical bonds only have value as
collector's items. A 1995 publication, Stocks and Bonds of North
American Railroads: Collectors Guide with Values assessed the collector's value of the
historical railroad bonds listed at between $25 and $700 each.
Moreover, there are many sites on the Internet that you can
visit to evaluate the collector's value of any particular bond.
Bogus
Third-Party Valuations to Trick Investors
Scam artists are selling historical bonds to unsophisticated
investors at inflated prices far exceeding their fair value as
collectibles. They often use third-party valuations, which state
that the bonds are worth millions or billions of dollars each.
These valuations or authentications, which are often referred to
as "hypothecated" or "hypothetical," are
bogus. A typical
valuation will falsely overstate the value of these bonds by
assuming erroneously that, despite the unenforceability of the
gold clauses contained in the bonds, and the defunct and
bankrupt status of most of the bonds' issuers, some person or
entity is obligated to redeem the bonds in gold bullion.
Scam artists using such
valuations may also make the false assertion that while perhaps
not payable today in gold or in money, the bonds are used in
high-yield trading programs in the United States, offshore and
in Europe. As stated, there are no such trading programs.
In several cases, the third parties issuing the valuations
appear to be working in conjunction with the scam artists. All
these false assertions have been used to defraud investors into
paying as much as $150,000 for bonds that might trade for $25.
Chicago,
Saginaw and Canada Railroad Co. Bonds
A historical bond fraud case in point involves bonds issued by
the Chicago, Saginaw and Canada Railroad Co. (CS&C). It has
been alleged that these securities are payable by us in gold. We
neither issued these bonds, nor are they payable in gold,
backed, or guaranteed by us or any other part of the United
States Government. In 1873, CS&C issued 5,500 thirty-year
gold-backed bearer bonds, paying seven percent interest to
finance construction of a proposed railroad. Click
to view a full-size image of a CS&C bond.
CS&Cs creditors forced it
into bankruptcy in 1876 and a predecessor of CSX Transportation,
Inc. ("CSX") purchased its assets. CSX's predecessor
did not assume any of CS&Cs outstanding debt, including the
railroad bonds. All claims to money due under the bonds, which
had a face value of $1,000 each, were resolved 112 years ago in
the 1876 bankruptcy proceeding. At that time, investors
presented their bonds for payment out of funds from the
foreclosure sale and received a distribution amounting to less
than 25 cents on the dollar. After the bankruptcy proceeding,
the bonds remained in court archives until they were discovered
in the basement of a federal building. Despite what a
bogus valuation might claim about CS&C bonds, the bonds have
no value other than as collectible memorabilia, since CSX has
disclaimed any liability for redemption of these bonds, and they
are most certainly not payable in gold. Courts have held
that the CS&C bonds have only nominal value as
collectibles.
