Chris Estrella, a Filipino social worker, says he led a troop of five porters out of a Mindanao jungle in January 2000 with a weather-beaten iron and leather box crammed with $25 billion of U.S. government bearer bonds.
“The elders of the Umayamnon tribe told me an American plane crashed in their river in the 1930s,” Estrella, 47, says by mobile phone from a footpath between the tribal village and Davao, the largest city on the Philippine island. “The river dried up in the 1990s, and the natives went into the plane and found 12 boxes that contained $300 billion in bonds.”
Each box, emblazoned with the Great Seal of the United States and the words “Federal Reserved Bond,” held five gold coins struck with a portrait of George Washington on one side, Estrella says. They rested atop stacks of certificates purporting to have been issued by the Federal Reserve Bank of Atlanta in 1934 and redeemable in gold bullion. The notes bore the signature of then Treasury Secretary Henry Morgenthau Jr.
Such fixed-income instruments, also known as coupon bonds, belong to whoever holds them, rather than to a registered owner. Vouchers representing interest payments were attached to the 30-year bonds that were denominated in amounts of as much as $100 million. Estrella says he later brought three other similarly filled chests out of the jungle.
What happened next led to the unraveling of what Scott Winslow, a financial-instrument specialist, bond collector and founder of Professional Authentication Services & Standards Co. in Bedford, New Hampshire, calls an episode of “remarkably unique” deception. It secured Estrella’s place in what the U.S. Secret Service says is one of the most sustained and exotic attacks ever mounted against U.S. currency, and it illustrates how even sophisticated businessmen can be duped.
“Chris brought two boxes to the Apo View Hotel in Davao, and I gave him $46,280, above what I usually give him to buy provisions for the Umayamnons,” says Ronaldo Quiwa, 68, a Mindanao construction executive who serves on the board of the insurance subsidiary of Manila-based Landbank of the Philippines and is a member of its risk-management committee.
“Then we took them to Peping’s house,” Quiwa says.
That would be former Philippine Congressman Jose “Peping” Cojuangco, the 77-year-old brother of former President Corazon Aquino, who helped topple the regime of Ferdinand Marcos, and uncle of current President Benigno Aquino III. The Cojuangco clan also includes Peping’s cousin, Eduardo Cojuangco, chairman of San Miguel Corp., the country’s largest listed company, which has interests in beer, power and telecommunications.
“We opened two trunks in my living room,” Jose Cojuangco says by phone from his home in Manila. “I wanted to believe what was inside because after Marcos was overthrown the governor of Mindanao found gold bullion hidden in the jungle. During the 1990s, Manila’s hotels were filled with foreign treasure hunters. I met people who had 40, 50 boxes of bonds, and I looked at them. They were different from ours. What a mystery.”
Nonetheless, both men say they brought no urgency to solving the puzzle. Quiwa says he let the loot sit in a Manila closet for two years.
In the summer of 2002, Quiwa took the two boxes of bonds across the Pacific to Garden Grove, California, for review by Kurt Schwalbe & Associates, a document-examination firm. Schwalbe’s signed one-page report dated Aug. 18, 2002, says he examined “250 Federal Reserve notes with 33 interest coupons attached from box 9494” and “determined them to be genuine as to date and origin.”
Quiwa says the analysis didn’t satisfy him.
“Schwalbe’s report was not complete enough,” he says.
The phone number on the report is no longer working, and further efforts to locate Schwalbe proved unsuccessful.
From California, the chests went to New York, where they were stashed in a closet in an apartment in the Rego Park section of Queens belonging to Quiwa’s brother, a pediatrician.
“We were nervous,” Ronaldo Quiwa says, sipping sweetened coffee in the kitchen above his brother’s clinic. “We could never firmly establish whether the bonds were real or fake, or if somebody was trying to set us up.”
Jose Cojuangco contacted Bloomberg News last month.
“There’s $50 billion in U.S. Treasury bearer bonds we’d like you to take a look at,” he said. “Would you mind?”
Cojuangco said he still wanted to believe the bonds were real. After all, they came from Mindanao, an island regularly ravaged by typhoons and inhabited by the demon horse Tikbalang, the vampire Aswang and armed insurgents who have made kidnapping an industry. As Quiwa says, it’s a place where there’s nothing extraordinary about a tropical rain forest chieftain trying to figure out U.S. Treasury bond coupon yields.
It wasn’t the first time a cache of bogus U.S. bonds emerged from the Philippines.
“We were matching wits with the underworld on an op in southern Italy when the call came in,” says U.S. Secret Service Special Agent Robert Gombar, head of the agency’s Rome office.
The date was June 16, 2009, and Gombar, 65, recalls rolling his eyes at the news delivered by Italy’s Guardia di Finanza fiscal police via his liaison officer in Rome.
“The Guardia caught two Japanese guys secreting U.S. Treasury bonds in the false bottom of a suitcase aboard a freight train about to cross into Switzerland,” Gombar says, twirling a pencil behind his desk inside the U.S. Embassy in Rome. “It was suspicious, so we jumped an express north.”
What Gombar found in the border village of Ponte Chiasso was a stack of 1934 U.S. Treasury bearer bonds with a face value of $134 billion, making the two suspects the U.S. government’s fourth-biggest creditor at the time, behind Russia with $138 billion of U.S. debt and ahead of the U.K. with $128 billion.
Although a local magistrate released the suspects because of a lack of evidence of intent to sell or proof the pair was involved in the manufacture of what turned out to be a suitcase of sham bonds, the incident marked the sixth time Italian authorities had called upon Gombar to authenticate a haul of what looked to be smuggled U.S. securities. Like most of the other cases, this one pointed to Asia: The two Japanese suspects had arrived in Italy from the Philippines, Gombar says.
“We call these bonds hybrid counterfeit instruments because there’s no such thing as a $500 million Treasury bond,” explains Gombar, who has chased global funny-money rings from the Secret Service’s Rome outpost since 1998. “It’s like counterfeiting a $3 bill, something that doesn’t exist.”
Although Treasury securities were shifted from paper to electronic form in the 1980s and the government stopped issuing bearer bonds in 1982, Gombar says the pre-World War II provenance of the bogus bonds, stamped with Morgenthau’s forged signature, remains a lure in the con artist’s tackle box.
“People are gullible,” Gombar says. “Even those who work in the financial world. The $134 billion worth of 1934 Morgenthau bonds seized in Ponte Chiasso was nearly five times more than America’s $27 billion national debt that year.”
The largest U.S. Treasury bond ever issued had a face value of $10 million, says Gombar’s partner, Special Agent Michael Giovanniello. Only about $105.4 million in outstanding bearer bonds have yet to be cashed in, he says.
“Bogus bonds are officially referred to as fictitious financial instruments,” Giovanniello, 44, says. “Counterfeit financial instruments reflect something that actually exists. Either way, it’s a fraudulent scheme that we’re extremely interested in pursuing.”
The Secret Service averages about 100 cases a year related to bonds and other fictitious instruments, resulting in about 70 arrests, says Special Agent Edwin Donovan, a spokesman for the agency in Washington. The average annual loss to victims is about $11 million, he says.
Gombar says his first whiff of the bond con came in 1976, while working in the agency’s Los Angeles office investigating a similar bluff involving Venezuelan government paper.
“Nowadays the bonds are almost always U.S. Treasuries from the 1930s, and the forgers have grown more sophisticated,” Gombar says. “They go to great extremes, putting them in antiquated treasure chests stuffed with newspaper clippings from the 1930s. It takes a great deal of time and trouble to print these bonds and establish the con.”
Across the Atlantic, in New Hampshire, financial-instrument specialist Winslow takes one of the gold coins from Quiwa’s treasure chest shown to him by Bloomberg News and flips it in the air. It falls on an oak table in his office with a clink.
“Cheap metal,” he says.
$100 Million Bond
He runs his fingers over a $100 million bond. It is lithographed instead of engraved, as are real federal debt issues, Winslow says. Printed on faded sepia paper is the same portrait of George Washington that appears on a $1 bill. Thirty coupons are attached, each bearing the promise: “Will pay to bearer four thousand dollars in United States gold coin.”
“I’ve never seen forgeries like these,” says Winslow, who for 27 years has authenticated bonds for governments, companies, museums and private collectors.
He describes the box set of 250 Umayamnon bonds as a series of 10 historically inaccurate and haphazardly assembled $100 million “bundled instruments,” each packet designed to represent and lend support to an illusionary $25 billion “United States of America Federal Reserved Bond.”
The validation documents, all printed on paper in fonts Winslow says didn’t exist in 1934, include a Government Insurance Certificate, Treasury Certificate, Gold Bullion Certificate, General Bond Certificate and a Global Immunity Certificate that promises “the redeemer will be free from criminal offense and covered by complete immunity.”
And in case the bearer should misplace an item and need to authenticate ownership at the bank, the chest comes with a microfilmed “Federal Reserved Bond Inventory List.”
“For a collector, these counterfeit bonds are awesome because somebody spent a lot of time trying to justify their authenticity,” Winslow says. “It’s a marvelous deception.”
Bond collector Sylvan Feldstein, 70, an analyst at Guardian Life Insurance Co. of America in New York and co-author of “The Handbook of Municipal Bonds,” a history of and guide to the bond trade, also was impressed.
“The only problem might be a lingering federal criminal issue,” says Feldstein, who declined to place a value on the Umayamnon paper. “Counterfeiting bonds goes back to colonial America. After the Civil War, the South Carolina legislature authorized $4 million in general obligation bonds, but Governor Robert Scott printed $20 million worth. He gave some to his girlfriend, and they became known as ‘whorehouse bonds.’ There’s always a market.”
Moving a magnifying glass across one of Quiwa’s bonds in a Manhattan conference room, Malcolm Barber, chief executive officer of Bonhams auction house, says there are clients willing to pay for pulp fiction with a 30-year maturity whose time ran out in 1964.
“The market value would be determined by the story behind the scam,” he says.
The Umayamnon bonds first appeared in the Philippine wilderness courtesy of “tao-boung, the white men who fell from heaven,” says Estrella, who for the past 20 years, according to Cojuangco and Quiwa, has helped government officials tend to the needs of the 18 indigenous and mostly Muslim clans that inhabit the archipelago’s easternmost island, encouraging them to break ties with the radical Islamic group Abu Sayyaf. He says the chests were given to him by a datu, or tribal chief.
“I believe the bonds are real,” Estrella says. “A datu does not tell lies.”
Cojuangco says he never doubted Estrella’s account of how he obtained the bonds.
“There were allowances from the government to get information from the areas where he works,” Cojuangco says. Ronaldo’s role was to help develop those assets, so there was nothing special about contributing money to Chris’s efforts.”
Gombar says the story of the plane crash is one he has heard many times over the years and is fictitious.
“We’ve never been able to find and shut down the manufacturing plants,” he says.
Giovanniello says agents came close in February 2001, when a joint Secret Service and Philippine National Police unit detained Archie Mingoc, Filipino, with $2 trillion worth of pretend U.S. bonds in Cagayan de Oro, a city on Mindanao.
The hunt began three years earlier, Giovanniello says, when U.S. Customs Service agents discovered billions of dollars of fraudulent bonds in the luggage of a Filipino priest at Los Angeles International Airport. It eventually led to a shanty outside Cagayan de Oro, where police found two more suitcases. One was filled with $773 billion in fake bonds. The other held $1.38 trillion worth of bogus federal paper.
“It’s always the same vanished-treasure story,” Gombar says of the persuasive hustle based on the Wall Street maxim “old debt never dies.”
“The con can work in two ways,” he says. “The holder sells the bonds privately for pennies on the dollar or is somehow convinced to visit a bank, attempting to use the bonds as collateral or cash them in for full value.”
Gombar and Giovanniello, who continue to follow leads on the gang that can’t counterfeit straight, say possession of a fictitious fiscal instrument isn’t necessarily a crime.
“It all depends on whether you have possession with intent to defraud,” Gombar says. “We once came across a Filipino priest bringing them into Italy from Manila. He’d been conned. The question is whether the guy with the bonds actually believes them to be real and then walks into a bank to redeem them.”
Quiwa says he intends to use the $50 billion in his brother’s kitchen closet as wrapping paper.