The story is about the end of World War II in Germany, the city is in chaos, troops from Russia are in Berlin and to the victors goes the spoils. $400 million dollars in bearer bonds go missing – maybe the Russians stole them, maybe somebody else did, however the bearer bonds are missing. The important aspect to bearer bonds is they are not registered to anyone’s name – whoever has them in their possession is entitled to the interest and principal payments. In the present time, bonds moved through the financial worlds in an non issued forum. In the old days, bonds were printed and moved from one institution to another – usually the trust company. Coupons were clipped by hand and gave rise to the saying after you buy the bond all you have to do is clip the coupon. Nowdays, the overwhelming majority is electronic clipping which saves money for the trustee and the owner’s money is deposited into the account on time.

In the book History’s Greatest Fraud by Scott Stockdale. self published 2002, he explains in a land deal, one of his clients wanted to put up some bonds as collateral for the loan. The bonds were German bonds issued in 1924 due October 15, 1959 payable at 7% interest rate and can be redeemed for gold. The issuer was J.P. Morgan and Co. Remembering gold was originally set at $ 35 an ounce and since the price has floated which made the bonds very valuable. In order to accept the bonds, Mr. Stockdale asked the Bank Manager who made inquiries to Head Office who made inquires to New York.

Much has taken place since the 1976 inquiry and Mr. Stockdale ran in many who decided not to pay or redeem the bonds. The bonds were issued as part of the reconstruction of Germany after WW I, since then the world had gone through a depression, a second WW, and reasonably peaceful and normal times after the war. No one was in a position to pay and the officials in Germany were very reluctant to release their lists of serial numbers of bonds that were still outstanding. When bonds are issued, there is a trust fund to pay for the redemption of the bonds, the trust fund had disappeared over the years. Many of the bonds were payable in US dollars, rather than German marks which lead to the question of in the depths of the recession when German inflation had run wild, where had the money come from to repay the bonds. When inflation had run wild, the German government had passed a law limiting the amount of money that could be paid in foreign currency which meant it could not have redeemed the bonds in US currency.

With the court case going on, the law enforcement agencies pressured Mr. Stockdale and his businesses by trying to shut down their livelihood because if the bonds are worthless he was trying to fraud the banks with the use of worthless collateral.

Linking to dividend paying stocks, in every company’s history there is a time it has been offered bad collateral, although on the surface it seemed to be good. Due diligence takes time and although it should be easier at the present time, due diligence still takes time. Often the possible frauds are aimed at smaller businesses because it is harder to tell what is good and what is bad. The lesson to be learnt is try to stay away from fraud because every once in a while the law enforcement will target a company and it will take a great deal of resources to recover even if you are proven in court to be innocent.

There are more questions than answers, till the next time – to raising questions