From: tcmay@netcom.com (Timothy C. May)
Date: Wed, 17 Nov 93 14:16:15 PST
To: cypherpunks@toad.com
Subject: (fwd) Mega-Bond Scandal
Message-ID: <199311172215.OAA06311@mail.netcom.com>
MIME-Version: 1.0
Content-Type: text/plain



Cypherpunks,

At the October meeting of the Bay Area branch of the Cypherpunks I
described a massive bond scandal involving the fraudulent recycling of
tens of billions of dollars of bonds, possibly more than $100 billion
worth.

Here's an article with some details for the rest of you. I pulled it
off alt.conspiracy, always an entertaining group. (One post even cited
evidence the Mafia sold the bad bonds to Russia and Eastern Europe for
use as collateral on loans from the West. Indeed, it looks like these
bad bonds are mostly sitting in vaults as collateral. If so, some huge
defaults could be coming.)

Some links to crypto and our group:

- fraud exists with paper-based systems, too (some have criticized
digital money--reasonably so, I think--on the grounds that it had
better be _very_ secure and very solidly debugged before release)

- digital signatures on bonds could head off future repeats of this
sort of situation

I've edited the poster's introductory speculations.


Newsgroups: alt.conspiracy
Subject: Mega-Bond Scandal
From: financial.opportunities@canrem.com (Financial Opportunities)
Distribution: world
Message-ID: <60.28194.4607.0N18B1FE@canrem.com>
Date: Mon, 15 Nov 93 11:06:00 -0400
Organization: CRS Online  (Toronto, Ontario)


___________________________________________

    By Jennifer Gould
    SPECIAL TO THE STAR

   At least $150 billion in "cancelled" bonds and
stock certificates have been lost or stolen in
a massive fraud, which involves five major
American banks and could threaten the stability
of some Eastern European and ex-Soviet republics,
investigators say.
   It's the biggest international banking fraud in
history, masterminded by Italy's Mafia and carried
out with the co-operation of a worldwide Russian
mafia network headquartered in Vienna, said one
private investigator.
  To put the scam in perspective, the total equals
almost one-third of Canada's gross domestic product
for 1992 - and it's more than three times larger
than Canada's deficit.
   Private investigators hired by the Russian
government have been in Toronto for the past six
weeks hunting for stolen Russian bonds, which are
linked to the international fraud, sources say.
  And a German member of parliament was recently in
the United States to launch another investigation
that includes some European aspects of the fraud,
an intelligence source said.
  The bonds are showing up around the globe - from
a drug bust in the United States to an alleged deal
in the former Yugoslavia and, police suspect, in the
hands of a 26-year-old Montrealer.
   European police are trying to track some of the
missing bonds through Interpol, as is the Federal
Bureau of Investigation....
   Most of the North American securities in the scam
are corporate bonds that were supposed to have been
cancelled in the mid-1970s and early 1980s, according
to American court papers filed by the U.S. Securities
and Exchange Commission [SEC].
   The commission fined Citibank $750,000 last year
for mishandling the bonds.
   Bonds are IOUs issued by companies and governments
to raise money. When a bond changes hands in the United
States, the old certificate is supposed to be clearly
cancelled before being destroyed by the bond's transfer
agent.
   International criminals pulled off the scam because
some banks held on to old certificates, piling them up
in storage rooms, instead of destroying them while the
banks were switching from paper to computers, said Lani
Lee, an SEC investigator.
   Some of the bonds had holes punched into them, but
when they surfaced later the punch marks - often in the
shape of the bank's initials or name - were taken merely
as endorsement signs by other banks, Lee said, adding
that other bonds weren't marked at all.
   By the mid-1980s, five American banks had contracted
paper recycling companies to destroy the supposedly
useless bonds.
   But those companies - or a single corrupt
company, as at least one investigator believes
- never did this. And defying standard practice,
the banks didn't send their own officials to
witness the bonds' destruction.
_________________________________________

  Victims may not realize

  that they have been scammed

  until after the year 2000

___________________________________________

    An SEC investigation revealed that MSM Corp.,
a paper recycling company, was hired by Citibank
to destroy at least $111 billion [U.S.] in
securities, stacked up in about 3,500 boxes.
    It now appears that MSM was a Mafia-linked
operation with nothing more than a trailer parked
on the Jersey Citg waterfront, according to an
SEC document that quotes Citibank's own
investigators.
   The SEC fined Citibank, the largest
commercial bank in the U.S., in December, 1992,
after it did not notify regulators "on a timely
basis" once the cancelled bonds started
resurfacing and for not taking proper steps
initially to ensure the securities'
destruction, according to court papers filed by
the commission.
   The U.S. treasury department had censured
Citibank in June, 1992, saying it had failed to
safeguard the cancelled securities and failed "to
make required reports of potential thefts or
losses of securities to authorities."
    The department's Office of the Comptroller of
the Currency issued a 19-page report, criticizing
Citibank for not inspecting MSM, not witnessing
the bonds'destruction and not adequately cancelling
the securities.
    The bank also permitted "an undetermined, yet
significant" number of securities to survive the
cancellation process without any marks at all, the
report said.
    A senior official at another bank confirmed
that his bank and three others lost billions of
dollars worth of bonds the same way. It appears that
all five banks used companies controlled by MSM, says
one investigator.
    By the time the bonds started resurfacing, MSM
was shut down and its owner, Anthony "Buddy" Iazetti,
was dead. He apparently suffered a fatal heart
attack in 1989, the FBI says.
     It's believed the bonds were smuggled into
Canada, shipped from the Port of Montreal to
Palermo, Sicily, and then passed to unwitting -
or crooked - European bankers.
    Some banks in Eastern Europe and the former
Soviet Union were founded on loans that used the
dirty bonds as collateral, said one private
investigator.
    Police say improperly cancelled North American
bonds have so far surfaced in 16 countries - Britain,
France, Italy, Germany, Austria, Switzerland,
Liechtenstein, Spain, Luxembourg, The Netherlands,
Canada, the United States, Belgium, Hungary,
Poland and the former Yugoslavia.
  Financial institutions that have dished out loans
to banks that have used the bonds as collateral may
not realize they've been scammed for years, since
many of the bonds don't come due until the next
century.
   By then, many of the fraud artists may be
either difficult-to-trace pensioners or dead,
of natural causes or otherwise, investigators
say.
   The puzzling part is how long the scandal
took to unfold.
   Cancelled certificates, where Citibank was
the transfer agent, began showing up in March,
1987. Although the bonds continued to surface,
it took 4 1/2 years - until Oct. 28, 1991 -
before the bank reported all of the securities
sent to MSM. And this occurred only after a
request by U.S. authorities, said Joe Goldstein,
associate director of the SEC's enforcement
division.
    Citibank paid the fine in December, 1992,
without "admitting or denying the allegations or
findings," according to a bank news release at
the time.
    An internal Citibank investigation concluded
that no bank official did anything wrong, said
Amy Dates, a Citibank spokesperson.
    "We decided to pay to basically put this behind
us",Dates told the Star.
    At least one U.S. government investigator has
said this is exactly what Washington wants - because
to go further into the investigation could have
"drastic" consequences for the banking and political
systems of some countries, particularly fledgling
democracies.
    But Alan Block, a professor of the administration
of justice at Pennsylvania State University and noted
expert on the Mafia's ties to the garbage and recycling
industries, is calling for a full-fledged inquiry.
   "I get the feeling that the government doesn't want
to embarrass the banks," Block said. "It might have
serious geopolitical repercussions, and the banks may
have to bear the responsibility down the line."
    Juval Aviv, a New York private investigator working
on the fraud for a client he doesn't wish to name, said:
"This has the potential to shake the economy of the
Eastern bloc. The ramifications are tremendous. If
Congress and the public finds out, this could become
a major scandal.
"The American government is aware, but this is
being kept a big secret because they're afraid
to shake (Russian President Boris) Yeltsin's
banking apparatus and to scare investors in
other countries," he added.
    Citibank maintains that the bonds were
cancelled, even if they weren't destroyed,
and it was thus the responsibility of other
financial institutions to verify that the bonds
were still valid, Dates said.
    To this day, the face value of the missing
bonds and stocks - from Citibank and other
banks - has not been reported to the Securities
Exchange Commission's data base for lost and
stolen securities.
    According to the data base, only $20.1
billion in securities were reported lost and
stolen in 1991. That's the most recent, readily
available statistic, said Ester Saverson, special
counsel to the SEC.
    Dates of Citibank said: "We didn't report the
(face value of the) bonds because they were
cancelled and had no financial value."
    But Goldstein of the SEC said: "The value is
listed as zero, but our problem is that you can
have a certificate in circulation with no ouward
indication that it has been cancelled."
    Publicly, only two banks have been named in
the scandal: Citibank, which has stated that $111
billion worth of corporate securities it sent to be
destroyed are now missing, and the Chase Manhattan
Bank which has not been fined or publicly
reprimanded by any regulatory agency.
    Chase Manhattan has so far confiscated $7.5
million worth of bonds, part of a $100 million
batch that it sent to an outside company for
destruction, a bank spokesperson said.
    The bank's name surfaced in connection with
the only American court case in which someone was
convicted for trying to peddle the dirty bonds.
    Roman Abegg, a 57-year-old Swiss lawyer, was
caught tgng to peddle $763,200 worth of stolen bonds
to the Miners National Bank in Pottsville, Pa., to
use as collateral for a $465,000 loan in January,
1992, according to court documents obtained by The
Star....
    Citibank [known earlier as First National City
Bank], acted as transfer agent for most of the bonds
that wound up in Abeggs hands. Citibank, which
arranges for transfer of ownership, obtained them in
the 1970s and early 1980s.
    However, Chase Manhattan was the transfer agent
for some bonds Abegg possessed, said a spokesperson
for that bank.
   The bonds were held by both Citibank and Chase
Manattan until the mid-1980s, when they were sent out
for destruction and began their illegal trek across
the ocean and back.

                    - o O o -

Well, there you are, happy people. Don't think you're
going to see to much of *this* in the U.S. papers -
unless, that is, someone were to tip off the SPOTLIGHT!

                      Cheers!

                      John W.

--
..........................................................................
Timothy C. May         | Crypto Anarchy: encryption, digital money,  
tcmay@netcom.com       | anonymous networks, digital pseudonyms, zero
408-688-5409           | knowledge, reputations, information markets, 
W.A.S.T.E.: Aptos, CA  | black markets, collapse of governments.
Higher Power: 2^756839 | Public Key: PGP and MailSafe available.
Note: I put time and money into writing this posting. I hope you enjoy it.


-- 
..........................................................................
Timothy C. May         | Crypto Anarchy: encryption, digital money,  
tcmay@netcom.com       | anonymous networks, digital pseudonyms, zero
408-688-5409           | knowledge, reputations, information markets, 
W.A.S.T.E.: Aptos, CA  | black markets, collapse of governments.
Higher Power: 2^756839 | Public Key: PGP and MailSafe available.
Note: I put time and money into writing this posting. I hope you enjoy it.