Speculating on Germany's Past Soldiers of Fortune

During the 1920s, the cash-strapped German government acquired foreign capital through loans. Germany did not pay all of its loans back though, and the remaining bonds could be worth billions today. Now soldiers of fortune, speculators and lawyers are launching a money-hungry onslaught on Germany's central bank.
Von Christoph Pauly und Wolfgang Reuter

Every beautifully-designed, hand-made bond is graced with an image of Cologne's famous Cathedral. A heroic Germania keeps a watchful eye over the Rhine River, and the top part of the bond, in squiggly writing, reads "German External Loan 1924."

Ronnie Fulwood, a strawberry farmer from Florida, proudly presents one of these bonds that helped the German Reich inject fresh cash from the New World into its ailing municipalities and companies during the 1920s. But these opulently designed bonds were not exactly what they seemed: Ten years after they were issued, Adolf Hitler halted all interest payments and repayments.

Now the bonds cast their magical spell on speculators and soldiers of fortune, and for a good reason: The loans have to be repaid in "gold coins from the United States, with the standard weight and fineness applicable and valid on Oct. 15, 1924."

According to well-versed lawyers and financial mathematicians, a $1,000 bond from those days would be worth $840,000 today -- largely due to the interest accumulated and the fact that the dollar was directly coupled with the gold price until 1971 (that price has literally skyrocketed since). Today, several thousand of these bonds still exist around the world.

Someday -- at least according to the calculus of their owners -- the claims will experience a renaissance. And one day, they say, payday -- their payday -- will come. In fact, if Germany had to pay back all the gold bonds still in circulation, the country would be broke.

But investors like Fulwood don't want to wait any longer: He's the first to take on Germany's Bundesbank, or central bankk, to force the government to pay up. On September 10, Fulwood filed suit in the 13th Judicial District, Hillsborough County, in Tampa, Florida.

According to court documents, the strawberry farmer isn't exactly asking for small change, either: Fulwood is demanding $382.5 million for 750 bonds.

Other bond owners are also preparing to launch legal battles. In the United States, a group of investors has formed, seeking to turn 2,000 of the old bonds into cold, hard cash. In Italy, say insiders, the grandchild of former Ethiopian emperor Haile Selassie holds 20,000 of the bonds. And a U.S-based lawyer claims to represent the heir to Japan's emperor, who allegedly owns "countless boxes filled with these bonds."

A $500 billion legal jackpot?

It is hardly surprising that American lawyers are now sniffing a huge multi-billion dollar windfall. But for Germany, the proceedings could pose a grave danger. Nominally speaking, individual repayment claims of up to $1 billion are still pending, say experts. That includes claims against the German Reich, but primarily against companies and municipalities. But taken together, these bonds could be worth around $500 billion today.

Even though Fulwood's suit has not yet been served, the investor announced his step in writing as early as late August. The Bundesbank, meanwhile, claims that it's not the proper defendent for this particular suit.

The overall legal position is somewhat cloudy, and it is anything but clear that things are going to be to Germany's advantage at the end of the day. According to the authorities overseeing the controversial bonds, the 1953 London Debt Agreement applies. The agreement established the repayment of bonds, although not in gold, as the original terms and conditions had mandated back in the 1920s.

At the time, Josef Abs, who would later become chief executive of Deutsche Bank, negotiated the agreement. Being a state-level contract, it cannot interfere with the assets of its citizens. For private investors, the agreement, therefore, merely represented an offer for exchanging the debt at a fraction of the actual claim value. Those who did not concur retained their claims.

On that specific issue, the London agreement states: "In no way does the agreement modify the terms of the debt to which it applies." In an April 1953 letter to the US Senate, then-President Dwight Eisenhower wrote: "It is important to state that this agreement does not restrict the rights of the creditors."

Past German governments have said they would not consider creditors who are unwilling to recognize the London agreement until the final payments -- as mandated by the agreement -- had been made. Germany issued its final payment in 1994, and Chancellor Helmut Kohl's government also announced the completion at that time.

Lost records

In addition, bonds are governed by the so-called foreign bond validating statute. Underlying this somewhat bulky term is the claim the Red Army plundered several hundred thousand numbered gold bonds from the Reichsbank's safe during its invasion of Berlin in April 1945. Also, these claims suggest that the filing department vanished along with the gold bonds, which also means that it's impossible to ascertain nowadays which bonds were actually stolen and which ones were, in fact, acquired rightfully.

For that reason, the law mandates that owners have to prove beyond reasonable doubt that their bonds were located abroad before Jan. 1, 1945, if they plan to take advantage of the debt offerings.

However, the whole story about plundering the Reichsbank's safe is somewhat dubious and suspect. After all, the Nazi regime's gold and dollar reserves had been hauled from the Reichsbank safe to the mines in the eastern German state of Thuringia several months earlier to ensure that they were safely stored. The U.S. Army was quicker and discovered the reserves hiding there before the Russians did.

In his book The German Financial Time Bomb which is to be published shortly, the American investor Jeffrey Weston concludes that the entire story about the plundering was fabricated.

According to Weston, Germany's Federal Securities Administration, a national agency that also acts as a notary and depository of the government and certifies its borrowing, had repeatedly denied payments by arguing that the bonds it examined actually stemmed from the Reichsbank safe. The agency also told Fulwood, the Florida strawberry farmer, that his bonds were among the so-called "pieces lost in Berlin" and could, therefore, not be accepted as legitimate.

But the big question is this: How does this German agency actually know which bonds were in Berlin at the time? After all, the filing department, which could help provide proof, also vanished into thin air in 1945. And if the agency does, in fact, know -- why do bond owners have to prove that their bonds were not stolen? And why does the agency keep the infamous list under wraps -- so far at least?

Weston, who during his 14 years in investing has also focused on the history of gold bonds, believes that the agency has collected the ID numbers of the bonds it has seen and compiled them on one big, secret list. The objective, he argues, would be to have creditors leave empty-handed.

Still, there are other unsettled legal issues: At which court must the suits be filed? Can the claims be subject to a statute of limitations? And if that's not the case, is the claim also valid for those speculators who just recently discovered and bought bonds?

All these questions need to be clarified with respect to the three bonds types currently being scrutinized and a total of 95 others issued between 1924 and 1930. However, even the Bundesbank admits that the main types, the so-called Dawes and Young bonds, are not completely worthless. They may have been declared "weak" bonds in 1958, but in valid exceptions, a retroactive recognition through the court in charge -- in this case, the Frankfurt State Court handling validation of securities lost in World War II -- is possible.

Lawyer: These suits have a decent chance of success.

Andre Sayatz, a bond expert for the international law firm Baker & McKenzie, looked at the issue from a legal-scientific angle. Sayatz says the suits in the United States have a good chance of succeeding. "It is strongly looking as if U.S. law will apply to most of the bonds and that U.S law needs to be applied here." And in principal, a foreign ruling could also be enforced here in Germany.

In any case, the somewhat muddled legal situation is now attracting a whole host of honest investors as well as fishy businessmen wanting to capitalize immediately on investors' hopes for a future multi-billion dollar windfall.

According to documents in Fulwood's suit, he owns records stating that "properly authorized and properly acting representatives of the Federal Republic of Germany" had declared his gold bonds as "valid, enforceable, unlimited and acceptable." The Bundesbank had provided an "irrevocable guarantee commitment" on Dec. 5, 2003, he claims.

But at the Bundesbank no one seems to recall any such letters. "The Bundesbank has not sent any documents with the content claimed here," says senior legal director, Bernd Krauskopf, adding that the Frankfurt-based institute isn't even the appropriate authority for recognizing gold bonds.

A mysterious prince

According to Fulwood, the correspondence in question took place with Giulio Bissiri, a descendant of Ethopian emperor Haile Selassie. Fulwood says he provided Bissiri with many of his bonds, hoping that Bissiri would cash them in with the German authorities. Now Fulwood has also sued Bissiri.

Bissiri is president of the company Amdec Worldwide Holding S.A., a corporation governed by Luxembourg law. He claims he has never received or seen any such letters. Moreover, Bissiri says he acquired the said bonds in the 1990s from a U.S.-based lawyer who had assured him that he was selling them on behalf of his client, Ronnie Fulwood.

Amdec is located on the Kirchberg, a district of Luxembourg's capital where many banks have opened branches. The address, 231 Val des Bons Malades, is a plain residential house, though one half of it houses a few offices. The Espirito Santo Financial Group has an office on the ground floor. Neither the mailbox nor a company sign point to Amdec's presence here.

"Yes, sure," says the receptionist, sitting behind a glass window in the foyer, and her words indicate surprise, "Amdec has its office here." Then she grabs the phone. Sitting in a small conference room, the visitors, at last, are allowed to talk to a man named Gerard Muller on the phone.

Muller isn't very talkative. He's only the company's trustee, Muller says, and he is quick to point out he is working under a non-disclosure agreement. But he does confirm that Amdec owns gold bonds from the Weimar Republic era. "That is, in fact, true," he says. How many are there? Muller can't say. The confidentiality, you know. Please understand.

That said, the company is, in fact, listed in the commercial register. Bissiri is listed as its president, and the name Muller also comes up at one point. Officially, he is a member of the supervisory board. Otherwise, though, the file is rather small.

He may carry a low profile on paper, but Mr. Bissiri is pretty well-known at the Grand Hotel Ritz in Rome. The employees respectfully address him as "Prince." For his audience with DER SPIEGEL, he has rented a conference room. Joseph D'Angelo, 83, an AIDS expert and head of the biotech company Americare Health Scan, introduces himself as Bissiri's adviser.

The conversation with these "bond hunters" occasionally drifts off into bizarre tangents. Does he actually own the bonds, does he have anything to do with them? Bissiri tries to be as vague and elusive as possible. D'Angelo, however, blabs a bit. He asks whether it's good or bad for the prince that the issue is now being discussed in public.

And then he continues: "The prince is actually a really good man," says D'Angelo, Bissiri was not focused on his own advantage. "If the Germans pay their debt, then the Prince will donate $1 billion to aid African AIDS programs."

The bond hunters

Apart from the ominous prince, other groups wanting to sue over the bonds are emerging, and their approach is somewhat more eloquent. Take the U.S. investors Chester Gray and Alfred Moresi, for example. They have formed the investment firm GrayMore LLC. In a "confidential" pamphlet that is "not to be reproduced" and that dons ID numbers on each existing photocopy, they outline their plan for "qualified investors."

The two men -- Gray holds a 65-percent stake in the firm, Moresi the other 35 percent -- have contributed a total of 2,000 gold bonds to the firm with a face value of $1,000 each. But in order to goldcoat their bonds, they need money for the upcoming legal proceedings. The two investment company owners have earmarked a $7.5-million budget for two years.

In order to generate that money, they want to sell off 13 percent of their firm. New investors need to fork over $141,000 for 0.25 percent of the company. That's the equivalent of 3 percent of the original loan's "legal claim value."

But for investors with a knack for gambling, the firm's advantage may be to their own disadvantage because the one-two punch of Gray-Moresi calls all the strategic shots, at least in regards to the planned lawsuits. While that keeps the investors on the sidelines and out of potentially nerve-wracking involvement, it also limits their influence.

The pamphlet addresses the project's risks, namely the complete loss of capital. Gray and Moresi are working on three fronts: Besides negotiations and preparations for a suit, Gray and Moresi want to do some professional lobbying as well.

Meanwhile, another group, emerging around a former investment banker, is taking the diplomatic road through Washington in trying to cash in on the bonds. And back in Florida, strawberry farmer Fulwood is in talks with other bond owners. Soon the group wants to sue the German government in a US court.

For Berlin these efforts do, in fact, pose some danger. After all, class-action suits are more effective and dangerous than attempts by individuals and scattered creditors. But this streamlining of legal efforts may also provide an opportunity: An out-of-court settlement or a ruling covering all bonds could end the discussion once and for all.

Translated from the German by Patrick Kessler