Some new investors are learning the hard way about the high number of bond scams that are out there. It's easier for scam artists to sell phony bonds, or to misrepresent the performance of a bond to inexperienced investors. Many investors purchase the phony securities and don't think about them again for years to come. How do you avoid being taken for a ride by crooks? It starts with awareness, dealing only with reputable issuers, and knowing the dangers. Here are the most common bond scams in circulation today.
1. Historical Bond Fraud/Railroad Bonds
The United States Department of Treasury, describes the Historical Bond Fraud. Historical bonds were valuable at one time, but they are no longer worth anything as securities. The bonds are collected and traded. They include railroad bonds issued by Canada, Saginaw, and Chicago Railroads as well as a few others. There are approximately 15,000 different historical bonds in circulation. While they are interesting for collectors, the truth of the matter is that they hold no financial value as securities. Scammers are selling them with the claim that they are worth the face value. Other fraudulent bonds that have surfaced include old bonds issued by the Mad River and Lake Erie Railroad Co, East Alabama, Cincinnati Railroad Co, Galveston, Houston & Henderson Railroad Co, York River Railroad Co, and Richmond Railroad Co.
2. Bond fraud
Scammers have also used the Noonday Mining Co. bond scam. Quatloos reports that these are historical bonds. Scammers convince their victims that these bonds are payable in gold by the United States Government. They assert that there is a special sinking fund that is used to recover the face value of the historic Noonday Mining Co. bonds. This is a complete and total lie. They are not payable in gold or through any other method. The mining bonds are worthless unless you want to keep them for collectibles.
Claims were made about the enforceability of the value of historic bonds. There were quite a few collectors who were in possession of them. In addition, there were those who have bought historic bonds, believing the lies that they were told about the financial backing from the US government and the value of the bonds at the time of purchase. The situation escalated into a legal action that was heard in the supreme court with pondering of the facts and a ruling after a thorough examination of the situation. The courts ruled in 1996 that such bonds are not valid obligations. Scammers also claim that they are backed by the US Treasury Department. These bonds have never been backed by the Treasury, so this is yet another lie.
3. Historic bond trading programs
Another scam that is perpetuated with historic bonds is a high-yield investment trading program. Scammers claim that these programs are backed by the Federal Reserve Board, a Federal Reserve Bank, the United Nations, the World Bank, or the International Chamber of Commerce. These are all scams that have been made up to sound like a legitimate investment opportunity. There is no such program. The IMF has frequently been named as a financial backer of this type of bond scheme and it warns consumers to avoid becoming a victim. Con artists who learned that there were more savvy investors in the world who couldn't be duped into buying the worthless historic bonds devised the bond trading program scam to make the investment sound more legitimate. While some still fell for the old con, others have learned the hard way that something that sounds too good to be true, is likely to be a scam.
4. Limited Edition Treasury Securities Bond scams
Treasury Direct warns consumers about the Limited Edition Treasury Securities bonds scams that they have recently investigated. This vile scam involves individuals and groups from foreign countries who attempt to sell fictitious securities that they claim are backed by the US Department of the Treasury. They incorporate the names of well-known banks and brokers/dealers to make them sound legitimate. The US Department of the Treasury denounces these scams for what they are. There are no special limited edition securities issued or backed by the US government. They are completely made up. Watch out though. Scammers are crafty and they obtain information about legitimate securities in their elaborate hoaxes. They use some of the language that is commonly associated with the descriptions, so it's easy to be taken in by their lies. Only deal with TreasuryDirect when purchasing any kind of US-backed security.
5. Morganthau Federal Notes and Bonds scams
You should also be on the lookout for bogus securities that are called Morganthaus. These fake notes and bonds are named after the Secretary of the Treasury from 1934, Henry Morganthau. The notes are forgeries that are believed to have their origins in the Philippines. The lie that is perpetuated to sell the notes is that the United States had them shipped to the freedom fighters in the Philippines during the era of World War II for the purpose of easing the war effort. Some of the notes are sold in boxes that are called "Federal Reserve" boxes. The scammers sell them with other certificates including FDIC Insurance, Global Immunity, and Gold Bullion certificates. Although the notes are fairly crude in their design, this is explained away because of their supposed date of print. The US Department of the treasury has debunked these notes and bonds as fraudulent. They are not a currency as claimed by some scammers, and they are not bearer bonds. They are worth nothing more than the paper that they are printed on.
It's wise to be suspicious of any federal notes or bonds that are not sold directly by the issuing party. US Treasury backed bonds are sold by TreasuryDirect. They require a user account that is protected by special security features to keep your information safe. Don't be taken in by any of the thousands of bond scams that are out there.
Written by Allen Lee
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