Types of Historical Bonds Used for Fraud

treas.gov, Feb 10, 2005

Although all sorts of historical bonds are collected and traded, historical railroad bonds comprise the majority 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. Non-railroad historical bonds commonly used by scam artists include bonds issued by the Noonday Mining Co.

Lies Used to Perpetrate Historical Bond Fraud
Lie: Historical bonds are payable in gold.
Fact: Historical bonds are not payable, and they are certainly not payable in gold. Historical bonds are not valid obligations, and they have no value as investment securities. Moreover, 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 us. 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 within 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 very limited and quite well-known circumstances have we guaranteed obligations issued by private parties, e.g., the bonds issued by the Chrysler Corporation in the early 1980's.

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 programs" sanctioned by any, some, or all of 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, and/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 he could be helping some Third World country by forking over his money.

Lie: Historical bond trading programs yield high rates of return through the buying and selling of "debentures" 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 the 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. See, e.g., SEC v. The Infinity Group, 993 F. Supp. 324 (E.D. Pa. 1998) (prime bank instruments described as "fantasy securities") (28K TXT file, uploaded 9/28/98); SEC v. Lauer, 52 F.3d 667, 670 (7th Cir. 1995) (such instruments "do not exist") (12K TXT file, uploaded 10/5/98); SEC v. Daniel E. Schneider et al., No. 98-CV-14-D (D. Wyo. February 13, 1998) (order granting preliminary injunction; "prime bank trading schemes are fictitious according to readily available information") (22K TXT file, uploaded 9/25/98).