Paper chase

William Morgan says he's just an innocent document dealer snared in a campaign finance scandal. And if you believe that, he has some old railroad bonds he wants to sell you.

Afterward, Morgan and Taggart kept in touch. And both continued to be intrigued by the bonds, for several reasons.XXXFirst, to be sure, was the possibility they could be used to put food on the table. And for real estate brokers like Morgan, in the early '90s, it was just about the only possible funding source. Like many of his peers, Morgan had big financial woes. His corporation, Nepenthe--named for the elixir that, in Greek mythology, causes one to forget pain--was in bankruptcy, as was Morgan himself. Failed business and real estate deals had left him with several default judgments, including local, state, and federal tax liens. (Morgan blames his financial troubles on Knapp.)

But like almost everyone who touches the bonds, part of the allure was the cloak-and-dagger intrigue behind the instruments.

While the bond traders may not be international law experts, they certainly are a fascinating bunch, and they move in a fascinating world, full of revisionist history and bogus documents.

Weimar Republic bonds present an excellent example.
Like many ancient instrument dealers, Morgan cut his teeth on Weimar Republic bonds. Germany issued them between the two wars, mostly to finance the crushing reparations the nation was obliged to pay under the Versailles Treaty of 1919. From the start, Germany had trouble meeting these obligations. Payments were rescheduled several times during the '30s, and on the eve of World War II, Hitler disavowed them entirely.

After the war, Germany and the occupying powers reached a series of accords on payment of Germany's pre-war debt. Experts in international law say that in these situations, getting new regimes to pony up for the debts of their predecessors is dicey. Although the international community can pressure the successors, principles of international sovereignty limit what can be done.

In 1953, Germany and its occupiers did reach an agreement known as the London Debt Accord. Unfortunately, according to one expert who teaches international law and finance and has attended courses at The Hague, "the London Debt Accord is totally ambiguous." Germany's position is that it reaffirmed its debts--but only a percentage of the original amount of those debts, and even then only if certain conditions for redemption were met within a limited period of time. The vast majority--perhaps 99 percent--of bondholders never met these conditions, and cannot today meet Germany's terms for redemption.

As a result, there are millions of Weimar bonds floating around, almost all of questionable value.

A major alleged source of the bonds involves a fantastic tale of paper stolen from or abandoned by Holocaust victims, stored in caves in the Eastern Bloc, and smuggled across Checkpoint Charlie in the '60s.

"I think it was in the early '60s," says Dr. Joseph V. D'Angelo, a 75-year-old West Palm Beach, Florida, doctor and businessman best known as the inventor of a home saliva AIDS test. (According to news reports, the test does work, though D'Angelo is not marketing it in the United States and has not sought approval from the Food and Drug Administration.) "I was in Romania, and a man came into the clinic. He had a German bond. He said, 'I know where there are a lot of these.'

"I bought the bond for $5. I wanted to know what he was talking about," D'Angelo said in a telephone interview. "So I went through Checkpoint Charlie, and he showed me a cellar built into a hill. I couldn't believe what I was seeing. They were stacked up to the ceiling."

According to D'Angelo, the bonds had come primarily from German death-camp victims. "I know that is the case, because in many cases I saw letters to children, letters to grandchildren, from people who had never come back from the camps."

D'Angelo mentioned his adventure to another American staying at his Berlin hotel, a trader whose ex-wife just happened to be the East German commandant at Checkpoint Charlie.

"She was very militaristic," D'Angelo says, "a real rough one. We started negotiating. She wanted $2,700 per suitcase of the bonds." Eventually, he says, they brought the stash--300,000 pieces--over the border in a car.

D'Angelo says he sold many of his bonds "years ago, when they went for a dollar or two." (He once sold 10,000 to a winery, which wrapped its bottles with the paper.) And while he believes that the German government will eventually be forced to settle something on the majority of bondholders, he is worried by some of what he sees going on. "There are lots of shady characters in the business now," he says. "They all have a peculiar role that they play.

"A lot of it [the figures being floated] is B.S. But I do know of some deals that have gone down. Still, I'm a little concerned about the gold clause business, that sort of thing."

Naturally, Morgan and his colleagues see things differently. With a passion that rivals Republic of Texas members, this tiny clique of laymen and lawyers, who are experts in neither private international law nor international finance, argue ceaselessly over the meaning of the London Debt Accord and whether the reunification of Germany might have triggered repayment of obligations. And that's before they get around to arguing about the effect various treaties, laws, executive orders, public statements, and constitutions may have on gold clauses.

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