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.

William R. "Bill" Morgan still remembers the phone call that led to the most mysterious presidential fundraising episode of 1996, which led to the strangest political story of 1997, which in turn promises to spawn several entertaining crime stories in 1998.

It came on the afternoon of October 22, 1996. As usual, Morgan, a 60-year-old "historical document" dealer, was working the phone at his company, Vaduz Limited Partnership.

"You've gotta understand," says Morgan. "I was on top of the world." He had reason to be feeling good. For the better part of a decade, Morgan had been learning the ropes of the antique bond trade. Finally, after eight years of false starts and failed deals that long ago would have snuffed the hopes of a less-dogged dreamer, his ship appeared to be steaming into port.

Just 12 days earlier, Morgan had returned from London, where he had retrieved two Chicago, Saginaw & Canada railroad bonds from safekeeping at Barclays Bank. From there, Morgan escorted the two "Saginaws," as these beautifully engraved bits of 19th century history are known, to Chicago. According to Morgan, who produced contracts and plane tickets to back up his story, once he arrived in the Windy City, he turned the paper over to a lawyer for Bayvest Capital Funding Limited, a foreign concern that had contracted to pay a mind-boggling $300 million for the two 125-year-old bonds. Morgan then hopped an American Airlines jet back to Dallas to await his payoff.

To be sure, the deal had its peculiarities. For one thing, the money wasn't coming in a single lump, but in 15 monthly installments of $20 million. And it was only to be paid out of the profits of Bayvest's own wheeling and dealing with the Saginaws.

But most curious of all was the price. While the bonds are lovely examples of intaglio printing, that hardly justifies shelling out nearly one-third of a billion dollars for them, or roughly four times the amount of the most expensive painting ever sold. (Vincent Van Gogh's Portrait of Dr. Gachet, auctioned in 1990 at the height of the art market, brought a mere $82.5 million.) And since they're not artworks of unheard-of rarity and value, then why would anyone pay $300 million for seemingly worthless paper issued by a railroad that went belly-up before the turn of the century?

This riddle underlies one of the wildest tales of the '96 campaign season, a bizarre story that reads like a Donald Westlake caper novel, full of outrageous schemes and charming rogues who, if nothing else, have cornered the market in moxie. The yarn culminates with the president himself nearly lending his name to what looks an awful lot like an international con game.

And it all began with that phone call to Morgan from one R. Warren Meddoff, a fellow document dealer from Florida, who suggested a way for Morgan to spend some of his windfall: donate $5 million to the Democratic Party.

But the best part of the story is the reason why a group of historical document dealers wanted political stroke: They needed it to breathe value into the reams of antique financial instruments they were peddling.

As Sen. Joseph Lieberman of Connecticut concluded during last September's campaign finance hearings, it is a "story which, if true, is hair-raising, and it is the ultimate indictment, among the many we have heard, of the existing campaign finance system."

When Meddoff's call came, Morgan was feeling pretty comfortable about his Saginaw deal. Bayvest was faxing him good tidings: On October 17, 1996, they sent word that Morgan could expect his first $20 million by month's end.

Still, Morgan had been in sales too long to spend the money before it arrived. So he continued about his business of buying and selling old bonds, which was how, five days later, he came to be on the phone with Meddoff, a document-dealer based in Fort Lauderdale.

"So, I'm talking to Warren," Morgan recalls. "And he says, 'How's that Saginaw deal coming?' And I said 'Warren, it looks like this one's real.'"

Dressed in a deep turquoise shirt, black jeans, a beautiful filigreed tricolor belt buckle and hand-made lizard boots that Vanity Fair reported cost $4,000, Morgan, a born storyteller, pauses for emphasis. "And then Warren said, 'You know, you've got a heck of a tax problem.'"

As Morgan knew, Meddoff wished to make political contributions. Big ones. Two years earlier, when Meddoff and one of his clients were trying to close a multi-billion-dollar contract to sell old German bonds to a former Eastern Bloc country, Meddoff and the client had promised both political parties $5 million donations to help grease the international machinery in which their deal apparently was snagged.

"For two years," Morgan says, "Meddoff had been worried about that obligation to raise $5 million. So he asks me, 'Would you consider donating $5 million from your first payment to the DNC [Democratic National Committee]?'"

For a number of reasons, not the least of which was his potential tax bill, Morgan wanted to help out Meddoff and his client. After all, as Morgan recalls, his bundle from Bayvest "was more money than I could spend." More than he needed for himself. More than he needed for his three kids, all of whom were grown and embarking on careers of their own. More than he needed to accomplish his dream of retiring to a Hill Country ranch and "welding the gate shut from the inside."

"So I said, 'Tell you what,'" Morgan recalls. "'I'll consider it on three conditions. Number one, if and when I get the money. Number two, if it's fully tax-deductible. And number three, I want a letter from a top-ranking member of the IRS, saying we've analyzed it, it's OK, and it's forever unauditable.'

"He told me he was going to meet with Clinton that night, and said, 'I want your permission to open discussions.' So I said OK."

Within the next eight days, one of the president's top advisors would fax documents that could be construed as advising Morgan and Meddoff on how to circumvent tax laws--and then, recognizing the slip-up, allegedly ask Meddoff and Morgan to shred the documents.

The trade in antique bonds is based on a simple premise: Someone, somewhere will eventually make good on paper orphaned by forgotten, bankrupt enterprises and overthrown governments.

Just who will pay up isn't clear, though Morgan isn't shy about offering suggestions.

"This is a trillion-dollar conspiracy, is what it is," says Morgan, spreading his wares on the Dallas Observer's conference table. "What we're dealing with are deadbeats. Deadbeat countries. Including our own."

On the table, carefully encased in plastic, are exact color duplicates of the two Saginaws that were to produce a historic contribution to the DNC. (According to the Center for Responsive Politics, a D.C.-based watchdog group, even Big Tobacco, the largest lump-sum donator to the '96 campaign, never contributed more than $3.8 million at a time.) Appropriately enough, they are a dark bottle-green--the color of money.

"I want you to see that I'm not holding anything back," says Morgan. He's upset about the way he's been portrayed in congressional hearings and the media. Senators have described Morgan publicly as "a bizarre, questionable individual [who] needs checking out." Even Vanity Fair, which interviewed him briefly for an article that ran in its September issue, described him as "a mysterious character whose stories don't always add up."

"That hurt me," says Morgan. Personable and seemingly sincere, Morgan is a familiar mix of shrewd operator, folksy aphorist, and naif. A near-genius at working people through offering friendship and trust, Morgan wants to make sure he's not caricatured here as a rich, crude ignoramus. "See? I don't have dollar bills coming out of my pockets," Morgan says.

From the living room of his rented, single-story Richardson home, Morgan runs Vaduz Limited Partnership, the business through which he peddles these old instruments. Dishonored bonds. Disavowed bonds. Defaulted, fit-for-use-as-wallpaper bonds.

Vaduz is named for the capital city of Liechtenstein, a tiny European nation renowned for its stamp museum and its banking secrecy laws. Judging from a list of his wares, though, Morgan's business might more accurately be dubbed Four Horsemen Trading. For Morgan's inventory reads like a catalog of the world's unnatural disasters from the past 150 years, the screw-you-I'm-not-paying paper left over from 19th-century railroad bankruptcies, Chinese revolutions, and German National Socialism, to name but a few of the calamities that have made Morgan's trade possible.

The Saginaws are typical. Organized in 1872 pursuant to an act of the Michigan Legislature, the Chicago, Saginaw & Canada Railroad was supposed to provide rail service from St. Clair, in eastern Michigan, to Grand Haven on Lake Michigan. In the grand tradition of 19th-century railroad robber barons, its organizers used their legislative fiat as a license to loot. Laughably undercapitalized, the railroad survived just four years before folding in 1876. Along the way the CS&C issued bonds, secured by a mortgage on the railroad's land. (Most went to insiders or were sold at steep discounts.) In 1882, a court-appointed receiver sold the land, and a special master appointed by a federal court determined the priority of the railroad's creditors. The bondholders were wiped out.

The leftover bonds are beautiful. They feature two intricate vignettes, artists' renderings of Bunyonesque railroad workers standing amid logs and of work-shirted, muscled men building a railroad depot. Behind them, also encased in plastic, is a "Certification of Authentication" issued by Fidelity Secured Deposit Corp., a Huntington Beach, California-based company that caters to this strange world.

Yet none of this explains why they might be worth $300 million. Asked why anyone would pay such sums for pretty but hardly unique financial instruments issued by a defunct railroad, Morgan smiles knowingly. "To some, they're just beautiful documents," says Morgan. "To some, they're live instruments."

At times, he is careful to cloak his beliefs. "It's like I told that prosecutor in D.C.," Morgan says, referring to his testimony last spring before a Washington grand jury looking into alleged campaign finance violations, "I'm not wealthy. I own a lot of instruments, and I don't know what they're worth."

At other times, though, he clearly suggests that the documents have more than just aesthetic value. Morgan shows the "Certification of Authentication" accompanying the Saginaws. It contains a bunch of half-literate hocus-pocus about how the documents were "authenticated," replete with grammatical errors, misspellings, and mysterious capitalization. After that comes a history of the CS&C that seems to track the line through a litany of railroad mergers and receiverships that culminates with the nation's largest railroad, CSX.

The implication is clear: CSX is somehow on the hook for these things.
And what a hook. Morgan's paperwork includes a valuation that sets the bonds' worth at seven figures.

Morgan also has hired certified public accountants to take a stab at guessing the bonds' value. In a report dated April 25, 1997, a local CPA explains in excruciating detail how he computed "[t]oday's value of the bonds [the two Saginaws], applying the Gold Standard to the amount of unpaid interest and principal due."

Welcome to the world of gold-clause accounting. Here's how it works: Like all the bonds in which Morgan deals, the Saginaws have a "gold clause" that purports to require that principal and interest are paid in "United States gold coin of the same weight and fineness" as gold coins on the date of the bonds' issuance. Based on this clause--the validity of which is at best dubious--Morgan's accountant calculated the face value of the Saginaws and the interest allegedly due on them at a cool $5,242,536.19. Per bond. (Morgan's contract with Bayvest noted it was offering amounts "substantially in excess of" the market value of the bonds.)

The only problem is, President Roosevelt declared gold clauses unenforceable in 1933. Though the law changed again in 1977, the courts have uniformly declined to enforce them in old bonds.

Still, though the reasons remain deliberately foggy, Morgan apparently isn't the only one who believes the Saginaws have more than just historical or aesthetic value. Morgan produces a folder thick with faxes from companies offering to "buy" the Saginaws, or at least to place them in one of a dozen "trading programs" administered by offshore concerns.

Bayvest is typical of these eager suitors. Ostensibly headquartered in the Channel Islands, yet another haven of banking secrecy and drop-box corporations, Bayvest's offices appear to be located in Toronto, Canada. And it appears that from safely over the border, beyond the reach of the U.S. Securities and Exchange Commission, Bayvest was faxing Morgan indications that they were extremely pleased. According to faxes Morgan produced for the Observer's inspection, the bonds had been accepted for trading in a "certain high-yield, capital enhancement financial strategy."

In response to the Observer's inquiries, Mark Mansfield, the Bayvest representative with whom Morgan apparently dealt, claimed he was "not familiar with" Morgan or his company. When Mansfield's apparent communications with Morgan are read back to him, he claims he'll "have to get back with" the reporter on whether they're genuine, and declines an offer to have the contracts faxed to him for inspection.

Asked what exactly capital enhancement strategy means, Morgan is at first vague. "What they do with them is their business. It's like I told the FBI when they asked. These things are like a gun. It isn't the gun that kills someone. It's what they do with the gun that makes them bad."

Upon closer questioning, though, he resists the obvious conclusion: that they were being offered to investors somewhere, presumably with the suggestion that they had more than historic value.

Instead, Morgan offers a more fantastic explanation. He points to repeated phrases in the contracts mentioning "Federal Reserve" programs. Morgan believes, in effect, that the bonds were to be sold to the Federal Reserve, the nation's central bank, which Morgan believes is running secret programs to "get these things off the street." He says, however, that the Fed will deny this because they don't want it to be known.

He's right--about part of it, anyway.
Harvey Rosenbloom, an economist at the Federal Reserve Bank of Dallas, doesn't even want to be quoted. "I just don't want to give any credibility to this, even by commenting," he explains. But when some of Morgan's bonds are mentioned, Rosenbloom can't help himself; it's clear from his guffaw that he's heard it all before.

"These scams have been going on forever, before there was a Federal Reserve," he says, "and they'll still be going on when there isn't one anymore."

Far from fazing Morgan, however, Rosenbloom's response only reinforces his beliefs. "They deny it," he says. "They always do." By way of response, Morgan points to a typical clause in one of his dozens of contracts. The clause provides that "after the second year" of the "program," the bonds "are considered redeemed and sent to the Federal Reserve." Asked why the Fed would want to keep a lid on such a program, Morgan simply shrugs. "Why? I dunno. It's all a very secret business."

Morgan is correct--although the secrecy seems to have more to do with the law than with the Federal Reserve. According to three sets of experts consulted by the Observer, the historical document business smells a lot like securities, mail, and wire fraud.

By the time he came to the attention of the White House, Morgan had been trading antique bonds for eight years. "I got into it as a way to finance real estate," he says. "As you may recall, we had a banking crisis here in Texas."

Since then, he's gotten to the point where he "makes a pretty good living" off selling the bonds, which he buys for anywhere from $250 to $1,000 apiece and sells for whatever multiples he can get. (According to two traders, the Saginaws, for example, currently go for anywhere from $25,000 to $35,000 apiece, in 1997 cash, though it's unclear who exactly is willing to pay that price.)

But Morgan wasn't looking for a pretty good living. He was after the Big Payoff, which has yet to come. Yet even after eight years, he does not doubt that these "programs" actually exist. "I know they're real, because I've talked to people who've been paid," Morgan says. (He can't give names, though, because "they're all sworn to secrecy. They all signed confidentiality agreements.")

Like many of those in the business, Morgan has been looking for the Big Payoff in one form or another for most of his adult life. Morgan was raised in Lawson, a small burg near Seagoville that no longer exists; his father died when he was 3. "My mother had to borrow money to bury my father," he says. "She didn't remarry till I was 26." Obviously bright, Morgan graduated from North Dallas High School in 1955, at age 16; when he turned 17, he joined the Navy and for three years was a radar operator in an anti-submarine squadron.

After the Navy, he attended college at North Texas State, graduating in 1962. He immediately went to work teaching history at W.W. Samuells High School. He left the DISD in '66 to work for a chemical company as a sales manager. By the early '70s, he set out to make his fortune as an entrepreneur. Beginning in '73, Morgan shows up as officer and director of a series of corporations, among them laundries, restaurants, chemicals, even a hot tub dealership at Dallas' Old Town shopping center.

By the mid-'80s, like a good chunk of Dallas, Morgan turned to real estate to generate his pot of gold. In 1987, someone introduced him to a fellow named Charlie Knapp, the former head of American Savings & Loan, the first of the high-flying S&Ls. Sure, the feds were grousing about the pile of bad loans Knapp had left behind at American when they forced him out in 1985. But when Knapp vowed that his newest venture, Trafalgar Capital Corp., would become one of the largest mortgage lenders in the country, Wall Street pretty much believed him. So who was Bill Morgan to question Knapp, whose boasts had landed him on the front page of The New York Times' business section?

"He was going to finance real estate out of his supposed reservoir of cash," Morgan says. Knapp was to be the "financial partner," the source of funds; Morgan was to be the "development partner," the one who found the property and did all the work in exchange for a 50 percent share in the deals.

In 1987, while working for Knapp, Morgan met a California attorney named Lawrence W. Taggart. At the time, Taggart, a controversial former California S&L commissioner, was head of Knapp's nascent mortgage lending business, Trafalgar Capital. Despite his grandiose plans, Knapp had some very real difficulties. For one thing, real estate lending had virtually dried up, leaving Knapp and his associates scrambling for a way to finance deals.

"Larry [Taggart] was the guy who introduced me to the bonds, when we were trying to find a way to finance real estate," says Morgan.

Like most of the people with whom Morgan wheels and deals, Taggart is an interesting character in his own right. He is best known as the man who approved Charles Keating's purchase of Lincoln Savings and green-lighted Lincoln's investment in the sorts of speculative deals that eventually led to the largest S&L bailout in history. Then, only weeks after resigning as commissioner, Taggart went to work for Lincoln as a consultant. In 1986, just before signing on with Knapp, Taggart also did a stint as a $10,000-a-month consultant and lobbyist for yet another S&L, Don Dixon's Vernon Savings & Loan. By the time regulators closed Vernon in 1987, more than 96 percent of its loans were in default.

By 1989, both Taggart, who could not be reached for comment, and Morgan were out of a job. Knapp's stash of real estate cash turned out to be illusory. But what really hastened Knapp's demise was a nasty racketeering suit filed by Morgan over one of the first deals Morgan and Knapp closed. The soured deal involved the purchase of a half-interest in an Austin development, the Circle C Ranch.

"We flew to California and closed the deal," Morgan recalls. "Fifteen minutes after the closing, when we'd all left, Knapp goes in to Trafalgar Securities [the escrow agent] and pulls the deed from escrow, then gets on a plane for Phoenix. He pledged that deed to an S&L, saying he owned it free and clear."

When Morgan found out, he sued Knapp--and laid out the fraud publicly in his pleadings. "It was my job as a citizen to report that crime," Morgan says, chuckling. The FBI, who'd been angling after Knapp for years, wasn't slow to snap up the bait. "When that agent called me," Morgan says, "I asked him, 'What's your favorite color?' When he asked me why, I said, 'Because I'm about to deliver you Charlie Knapp's ass, and I want to know what color ribbon to use.'"

Knapp went to jail in 1993, largely on the strength of Morgan's testimony.

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.

But all their arguments are little more than idle wind when it comes to persuading today's Germany to honor the old regime's obligations. To do that requires considerably more clout than that carried by men such as Morgan and Meddoff. It requires unheard-of political muscle when it comes to persuading the State Department to convince Germany to voluntarily pay up to retire the old regime's obligations. Hence the plan for hefty donations to U.S. political campaigns.

In the early '90s, Morgan was meeting many characters from the strange new world of historical bonds. One of those was a Dallas attorney named Jim Choate.

"I had a client nine years ago who brought one of these [Weimar Republic] bonds in and asked me if I thought it was collectible," Choate recalls. "It was being offered to him as collateral for a loan."

Now 62, Choate, who for many years was a trial lawyer in Dallas, was at first suspicious. "I said I couldn't issue an opinion fast enough for him to be able to make a decision," Choate continues. "The fellow who brought the bond to me also brought a couple of memos done by a law firm in New York." (That memo, along with Choate's, is among the assorted pieces of paper in a homemade "German Gold Bearer Bond" book being circulated by dealers around the world.)

"So I got interested in them. It took me a couple of years before I got comfortable enough to write the opinion you've seen."

Choate is referring to an opinion on whether the Weimar Republic bonds can be collected upon. He has issued the opinion to dozens of traders around the world. It purports to show why "certain Pre-World War II gold bearer bonds issued by various German entities during the period from 1924 to 1936" are collectible. The opinion--a selective recitation of history and possible arguments--drew belly laughs from the legal and financial experts contacted by the Observer.

"It's sort of a late-life crusade for me, to make them honor their debts," Choate continues. He neglects to mention that it could be an immensely profitable crusade if his views of history and international law were to prevail, since at some point during the early '90s, he, too, began to buy and sell Weimar bonds. Though he began with the German bonds, he has since expanded into others: Chinese, Japanese, Mexican, even American railroad bonds. He also makes a good living issuing opinions and travels around the world testifying as an expert witness in court cases involving various sorts of paper.

Morgan and Choate soon hooked up with historical document dealers on the East Coast. In 1989 or 1990, a consultant at the Boca Raton, Florida, office of Bear, Stearns introduced Morgan to Warren Meddoff, former air traffic controller turned car-dealership manager turned real estate broker who wanted to turn historical-document dealer. At the time, Meddoff, who had recently been canned by the real estate brokerage he worked for, was interested in Weimar Republic bonds. Like Morgan, Meddoff was working his way into the business as a broker for bond-owning and -holding principals.

Somewhere along the way, Meddoff acquired as a client a Miami businessman named Jed Baron. Baron, now 40, is the son of one Alvin Barone. According to news reports, Barone, an associate of Jimmy Hoffa's, served time in federal prison in the late '70s for taking kickbacks from the Teamsters.

In '91, Baron moved to Las Vegas. A wealthy young man, he apparently began buying up Weimar bonds, using a corporation called Jelico. (It's sometimes hard to tell who actually owns the bonds, since, as Morgan explains, many dealers get the serial numbers and try to do deals claiming they own the bonds--and then try to buy the bonds from the actual owners if they hook a deal.) According to Meddoff's testimony before the Senate Governmental Affairs Committee, Baron's partner in the bonds is a San Diego-based businessman.

By late '94, Meddoff, Jelico, and the San Diego businessman were trying to unload Weimar bonds on former Eastern Bloc countries.

By 1995, Meddoff, Baron and the San Diego man had a contract to sell 493,000 Weimar Republic bonds to the badly strapped Republic of Bulgaria. According to Meddoff's testimony before the Senate committee this fall, they "approached the Bulgarian government to utilize documents that we had in our group's possession to...offset debt to Germany."

In other words, at the suggestion of Meddoff and his clients, Bulgaria intended to use the full face value of the bonds--$3 billion, based of course on the gold clauses--to set off against debts it owed Germany.

Before they could complete the deal, however, someone in Bulgaria apparently got wise. "I [was] informed by high-level officials within the Bulgarian government," Meddoff testified, "that they had been approached by individuals from our embassy...[who] were saying, 'Well, maybe you shouldn't go ahead with this deal.' "

Naturally, Meddoff and his associates thought their elected representatives could help.

In February 1995, Meddoff sent a letter to then-Sen. Bob Dole. The letter offered to donate $5 million to the Republican's presidential bid, if and when the Bulgarian deal closed. It also mentioned the trouble they were having with meddlesome U.S. embassy personnel. "You have been previously notified of individual government employees interfering in this transaction, contrary to policy...We appreciate your attention to this matter and will keep your staff informed of our progress."

Around this time--early 1995--Meddoff may have made the same offer to the Clinton White House. "I'm fairly confident...that there was a letter directed to then-chief of staff at the White House, which I believe at that time was Leon Panetta," Meddoff testified in deposition this summer.

Within the bond dealers' rumor mill, the letter to Panetta apparently grew into a meeting. Morgan says he was told by more than one person that Meddoff and his clients had a meeting with someone at the White House around that time--or so they all said. "Depending on which version you believe," Morgan relates, "someone in the White House said, 'If we do this for you--help you collect--what's in it for us?' And that's when Meddoff promised them a contribution." (Meddoff did not return repeated phone calls seeking his side of the story.)

Neither political party responded to Meddoff. The Bulgarian government fell, and with it went the contract.

A year later, though, Meddoff and company were at it again. In February 1996, Meddoff attempted to set up a meeting at the White House over a new Bulgarian deal. To that end, he sent the president, unsolicited, a copy of the contract they had signed.

"I thought the president would want to know about a contract of that size," Meddoff later said of the $11 billion deal. (As before, it fell through.)

According to Meddoff's Senate testimony, the White House never responded. At the same time, though, he was telling Morgan a different tale. In the summer of 1996, Meddoff faxed Morgan a hilarious memo designed to look as if it came from Leon Panetta, White House Chief of Staff from 1993 until just after the '96 election. Written on what looks like official White House stationery, the letter, dated February 9, 1996, purports to advise Meddoff about how the president wishes the Weimar bond situation to be handled.

The letter states that the president believes that American courts would not only order Germany to pay up, but also to pay up based on gold clause calculations. This the government cannot allow, "Leon" explains, since international financial mayhem would surely follow. "Leon" instead suggests a time-honored capitalist strategy: dump 'em on the Russians. ("We strongly suggest that you pursue acquisition by the Russian Federation...")

"Each one of these things is a different game," Morgan explains, showing some of the different bonds he owns or has access to. Today he has brought along Asian instruments: two Chinese nationalist government bonds, as well as copies of Japanese bank CDs he says he received from "the Vatican's representative."

The Chinese bonds, issued on September 14, 1912, just months after the imperial Chinese government fell, were among the first issues of the Chinese nationalist government. In 1949, the Chinese nationalists, led by Chiang Kai-shek, finally retreated to Taiwan. The People's Republic of China disavowed the bonds.

Issued in London on a satiny white paper that appears to contain silk, the instruments are printed in black with red highlights and are, if possible, even lovelier than the Saginaws. "Their calculated gold value is a half a billion dollars," says Morgan. "Apiece. And it's because of the change of status of Hong Kong, and because China needs to put its economy on a Western basis, that they need to get these things off the books."

Perhaps. But the problem is that this game has been played before. And with little or no luck, thanks to a very simple legal principle: sovereign immunity. The bottom line is that in a dozen cases, some involving Chinese nationalist bonds, federal circuit courts have uniformly held that foreign governments have immunity from bondholders' suits.

Which is why, in the end, all the debates and talk of "dirty tricks" are so much sound and fury. Take the Weimars, for example. If Morgan and his colleagues are correct and Germany is determined to deny all claims, they aren't going to have much luck collecting there. And since the odds of getting any U.S. court to entertain a lawsuit on the bonds are almost nil, there's no way to enforce payment.

Nevertheless, many of the players insist that Germany will eventually be forced to pay something on the bonds. And they're faxing offers around the world, with promises of gold-clause-based payoffs based on "sinking" funds that may no longer exist and secret, "quick-pay trading program[s]" administered by central government banks, most notably our own.

The real reasons for all the secrecy, though, may have little to do with conspiratorial theories of international banking. Two of the securities and international law experts the Observer consulted say that the contracts smell of fraud. "This is one cut above the old Nigerian letter scam," says one international lawyer who specializes in investment banking at a major Dallas firm. "The only thing that's more speculative than this would be selling interests in buried treasure, based on they think they've got the map."

"We're seeing real problems with these foreign bonds, ancient bonds," says Harold Degenhardt, district administrator in the Fort Worth office of the U.S. Securities and Exchange Commission.

Degenhardt points to recent actions the SEC has brought against a Miami brokerage that was trying to trade the Weimar bonds, as well as a recent New York case against a number of people trading in fraudulent Japanese bonds and Argentinean certificates of deposit.

In a recent case, a California lawyer and several of his clients were convicted of fraud for attempting to sell financial instruments allegedly issued by the Dai-Ichi Kangyo Bank in Japan. The prosecution's theory was that the lawyer and his clients "deliberately closed [their] eyes to the fact that these financial instruments were worthless" because they were fake. The defendants had a fantastic story about a secret fund administered by Gen. Douglas MacArthur after the war, which was supposed to be used to rebuild Japan but instead was returned to Japan by President Nixon in a secret deal to get elected.

The instruments seem to be the same ones that some of Morgan's associates are peddling. Indeed, after showing the copies of the CDs, Morgan launches into the same fantastic historical tale.

Told about the the case of the California lawyer, Morgan responds that his associate's Japanese instruments are different from the fraudulent ones. When it is pointed out that there do seem to be many fraudulent documents floating around in his business, Morgan first panics. "I never represented they were real," he says of the obvious frauds, such as the alleged Panetta letter. He then points out that he sells all documents with no representations other than as to authenticity. Finally, he results to emotional manipulation: "I came to you with the open palm of friendship," he says, "and now you're gonna bushwhack me."

And while Morgan seems to genuinely believe in the validity and worth of his instruments, he does ignore a lot of red flags.

For example, Morgan produces a blatantly fake New York Times story parroting the party line about the Weimar bonds. The story, which Morgan's "Vatican representative" purportedly got "killed" through his connections, carried a dateline of April 28, 1995, and the byline of one George Preston.

The New York Times has never had a correspondent named George Preston.
Meanwhile, even the man who says he smuggled many of the Weimars through Checkpoint Charlie fears that the gold-clause madness is simply a means of perpetrating fraud.

"The worst part of this is that there are people selling these things based on the gold equivalents," says D'Angelo. "I think that's probably illegal, and I'm pretty concerned about that sort of thing." He cites the Peruvian bonds as an example. "The going price for the Peruvians now is $3-$5 million in cash. There are a lot of scams being played, a lot of people using these as collateral at inflated values and putting them on the balance sheets of companies."

Indeed, last spring British authorities shut down an insolvent insurance company whose primary asset was the Weimar bonds--carried at calculated gold values, of course.

"It's just like P.T. Barnum said," says D'Angelo. "There's a sucker born every minute." But perhaps none bigger than those inhabiting the DNC.

When Tennessee Sen. Fred Thompson wrapped up campaign finance hearings this fall, what followed from Meddoff's phone call was legend--at least among those who followed the campaign finance scandals.

On the evening of October 22, 1996, Meddoff, by day a vice president and "director of government affairs" for a Danish-owned corporation, by night a historical document dealer and financial consultant to third-world republics, attended a $1,500-a-plate campaign dinner at the Biltmore Hotel in Coral Gables, Florida. After the president spoke, Meddoff made his way to the front of the ballroom and handed Clinton a card. On the back was a succinct message: "My associate is prepared to donate $5 million to your campaign.

The "associate," of course, was Morgan.
According to Meddoff's testimony before the Senate Committee on Governmental Affairs this fall, the president took "two steps, looked at the card, turned around," and then came back to Meddoff. "Let me have another one of those cards for my staff," said the president. Two days later, Clinton's deputy chief of staff, Harold Ickes, dialed Meddoff from the White House. It was the opening serve in a furious courtship of phone calls and faxes between Meddoff and Ickes, during which time the number Morgan was to donate grew from one payment of $5 million to $5 million per payment--a breathtaking total of $75 million.

This panhandling process climaxed on October 30 and 31, with Ickes placing a desperate phone call to Meddoff. "They had an immediate need for funds," as Meddoff later recalled the conversation, "could we possibly send [them] out within the next 24 hours. He asked for, you know, a million and a half."

Meanwhile, back in Dallas, Morgan had his own problems: Bayvest had defaulted on the contract.

"Warren's calling me, saying he's getting calls from Ickes at 10, 2, and 4, they're throwing bolts of lightning at him from the White House,'" Morgan recalls. "So I said, maybe we can get an advance."

Morgan believed that if he could demonstrate he had White House connections, Bayvest might be encouraged to push through its dealings with the Saginaws.

"Warren says, 'The White House wants to know how they can help.' So I said, 'Maybe they could write a letter.' Then Warren said, 'Would you like one signed by the president himself?' And I said, 'Yeah, that'd be nice.'"

Instead, Ickes faxed Meddoff and Morgan a list of charitable organizations that support Democratic causes to which the money was to be wired (in addition to $500,000 to the DNC). Ickes then turned Meddoff over to Democratic National Committee Chairman Donald Fowler to complete the deal.

Unlike Ickes, though, Fowler smelled a rat. For one thing, there was Meddoff's day job as legislative liaison for a Danish company. Then there was the fact that no one knew who these guys were. Yet even then, Fowler and the DNC were willing to pursue the donation until Meddoff started babbling about the Central Intelligence Agency.

"I asked him for references," Fowler later recalled before the Senate. "He told me, 'Here are a few numbers you can call, but if they answer something about the CIA, don't be surprised.'...After I hung up from that telephone conversation, I forgot about that contribution."

Instead, Meddoff alleges, within the hour Harold Ickes called him back, concerned over the fax about the donations. "He just said, 'I shouldn't have sent that,'" Meddoff testified this fall. "'Could you please just shred it?'" (In his own testimony before the Senate committee, Ickes later denied Meddoff's allegation--sort of--saying he didn't recall giving Meddoff any such instructions.)

In the end, neither the DNC nor Morgan ever saw any of the buckets of cash promised from the Saginaws. But Morgan, ever hopeful, hasn't given up yet. Whether he is self-deluded, a scam artist, or a little of both is an open question.

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