$134 billion in smuggled bonds almost surely a scam

[MikeWB]

$134 billion in smuggled bonds almost surely a scam
June 17th, 2009

My inbox is bulging with gossip about the $134 billion in supposed smuggled bonds seized by Italian customs agents on June 5 from two Japanese men. The news is old, but William Pesek's comment in Bloomberg this morning gave the second-day story some legs.

The idea that $134 billion in U.S. Treasury securities held by some government have gone walkabout and somehow were stolen by a Japanese gang is fairly preposterous. The securities almost certainly are forgeries. Forged securities (except for the occasional bearer bond) never are traded, because it is too easy to verify authenticity. But there is a scam as old as the Spanish prisoner story involving fake collateral. I've seen purported certificates of deposit of nine-figure denominations forged with the letterhead of South American or Russian banks. The object was to get a brokerage account somewhere to accept them as collateral.

The most likely explanation is that the supposed Treasury securities were intended as props in a scam. Perhaps something resembling the Bernie Madoff operation required visual proof that the proceeds of a Ponzi scheme were invested in something real; perhaps the corrupt employee of a minor bank intended to use the securities as fraudulent collateral for brokerage loans. The fact that the Italian authorities stated that they required time to determine authenticity is very odd. An email to the Treasury Department should have taken care of that.

There may be an espionage angle; this is the sort of thing we've come to expect from the North Koreans. I am reliably informed that during one year not so long ago, North Korea's single largest export was counterfeit Marlboro cigarettes. North Korea has been caught red-handed counterfeiting US currency. Why not government bonds?

[hurensohn]

It can also be that the Treasury has been printing far more toilet paper than they want to admit to.

[LordLindsey]

There is ZERO chance that "I" will ever believe that 134.5 BILLION DOLLARS in 500 MILLION DOLLAR INCREMENTS is counterfeit because who would be so fucking stupid to buy them without verifying via the serial numbers on each bond?  This entire situation is damage control as something went horribly wrong along the way and now that they know that people are simply NOT going to forget this, the stage is being set for a dismissal of this story as "just another set of fraudulent documents."

BULLSHIT.  Plainly and simply put--BULLSHIT.

LINDSEY

[MikeWB]

They're fake dude. I work in finance and have traded bonds on a fixed assets desk for about 5 years from 1997-2002. I've never seen a paper treasury bill because they stopped printing them in 1980s. Each bill has a serial number and those serials can be cancelled or nulled. It's not hard to do a check to see if the bills were real or not.

To put it in perspective, UK holds $128B of U.S. debt and Russia has $138B. If these were real, they'd be 4th largest holder of US debt which is impossible.

These were probably North Korea fakes and these Japanese guys were smuggling them in to sell them to some idiots or they were had by some other crook.

 Every few years some idiot is caught with fake paper t-bills or bonds. Few years ago, Don Johnson (Miami Vice actor) was the idiot that was carrying $8Billion worth of fakes. Some guys were carrying $3 TRILLION  worth of worthless paper: http://goldismoney.info/forums/archive/ ... 20524.html It's all fool's gold.

[LordLindsey]

Mike, if you are so certain about this, then please explain to us in detail how this can happen and people are willing to accept in ANY form $135 BILLION in fake bonds or OTHER cash instruments which can be easily verified to be real or not.  Maybe I have simply become so cynical that I don't trust ANYTHING any longer, but I want you to explain to ALL of us how this can happen, and in such a massive amount of money.

We all want to know, not just I.

LINDSEY

[MikeWB]

Mike, if you are so certain about this, then please explain to us in detail how this can happen and people are willing to accept in ANY form $135 BILLION in fake bonds or OTHER cash instruments which can be easily verified to be real or not.  Maybe I have simply become so cynical that I don't trust ANYTHING any longer, but I want you to explain to ALL of us how this can happen, and in such a massive amount of money.

We all want to know, not just I.

LINDSEY

People don't understand how bonds work. It's true that there's quite a few old paper 30y t-bills out there but they're not that common. When you see a treasury bill, it looks very official and when you handle it, it feels like money (it's embossed etc) and people do fall for fakes.



You have a lot of people who fall for Nigerian scam letters and this is probably the same type of a scam where people sell a t-bill for 5-10% of face value claiming that it's stolen or that they need to sell it fast etc. None of these fakes probably reach a bank and mob just passes them around until some idiot pays few million for a billion dollar t-bill and they try to cash it.

All t-bills are electronic and you don't have to see a printed version. I think that you can still order a printed version but it takes time to get it and you have to pay $$$ for printing. It's also less safe since it can be stolen so no one prints them anymore.

If Japan wanted to sell $100B in bonds, they would have done it electronically. Paper ones can be tracked just like electronic ones so there's really no advantage to ship a box of paper to Switzerland to sell it. US gov will know what Japan is doing with them since they have to pay interest on them.  If they had paper ones, they would have shipped it in a diplomatic pouch so no customs officer could inspect it. The notion that some 2 guys would ship $130B of t-bills in a suitcase along with their underwear is ludicrous and Japanese gov are not idiots.

But yeah, no need to be too cynical since there's a lot of idiocy out there

[LordLindsey]

I could be wrong, but I still don't understand the ENORMOUS amount of money involved and how people can fall for this if what you are saying is how things are, Mike.  As I have often said, I admit if I am wrong, and I could very-well be wrong, but this is such a massive thing that deserves a complete investigation because this really is a very big deal no matter what the authenticity of the paper is.

LINDSEY

[MikeWB]

Lindsey, the bigger the lie, the more they believe it. People will inspect a $100 bill more carefully than a million dollar bond and will pay tens of thousands of dollars for it because they think that it must be worth something. It's a very powerful con psychology.

[hurensohn]

I'd still not rule out the possibility that the US government is peddeling authentic paper to anyone who will accept it. If they would dump it on the market (electronically) it would be known but if they issue authentic paper in it's physical form it would not be immediately known.

[MikeWB]

Heh, look what FT printed today:

Mafia blamed for $134bn fake Treasury bills
By FT reporters
Published: June 18 2009 19:52 | Last updated: June 18 2009 19:52
One summer afternoon, two "Japanese" men in their 50s on a slow train from Italy to Switzerland said they had nothing to declare at the frontier point of Chiasso.

But in a false bottom of one of their suitcases, Italian customs officers and ministry of finance police discovered a staggering $134bn (€97bn, £82bn) in US Treasury bills.

Whether the men are really Japanese, as their passports declare, is unclear but Italian and US secret services working together soon concluded that the bills and accompanying bank documents were most probably counterfeit, the latest handiwork of the Italian Mafia.

Few details have been revealed beyond a June 4 statement by the Italian finance police announcing the seizure of 249 US Treasury bills, each of $500m, and 10 "Kennedy" bonds, used as intergovernment payments, of $1bn each. The men were apparently tailed by the Italian authorities.

The mystery deepened on Thursday as an Italian blog quoted Colonel Rodolfo Mecarelli of the Como provincial finance police as saying the two men had been released. The colonel and police headquarters in Rome both declined to respond to questions from the Financial Times.

"They are all fraudulent, it's obvious. We don't even have paper securities outstanding for that value,'' said Mckayla Braden, senior adviser for public affairs at the Bureau of Public Debt at the US Treasury department. "This type of scam has been going on for years.''

The Treasury has not issued physical Treasury bonds since the 1980s – they are handled electronically – though they still issue savings bonds in paper format.

In Washington a US Secret Service official said the agency, which is working with the Italian authorities, believed the bonds were fake.

Officials in Tokyo were nonplussed. Takeshi Akamatsu, a Japanese foreign ministry press secretary, said Italian authorities had confirmed that two men carrying Japanese passports had been questioned in the bond case but Tokyo had not been informed of their names or whereabouts.

"We don't know where they are now," Mr Akamatsu said.

Italian officials, while pointing out that hauls of counterfeit money and Treasury bills were not unusual, were stunned by the amount involved. Investigators are looking into the origin and destination of the fakes.

Italian prosecutors revealed last month that they had cracked a $1bn bond scam run by the Sicilian Mafia, with the alleged aid of corrupt officials in Venezuela's central bank. Twenty people were arrested in four countries.

The fake bonds were to have been used as collateral to open credit lines with banks, Reuters news agency reported. The Venezuelan central bank denied the accusations.

By FT staff in Rome, Tokyo, New York and Washington

Copyright The Financial Times Limited 2009