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.