The Case of the Missing Bonds (Damage/Loss Appraisal Report)

Confederate bonds…it was not the type of case this fine art/antiques damage/loss appraisal firm usually takes on, but the more I explored the case with the client the more I thought the matter involved a modicum of common sense and extensive evaluation experience, rather than a specific knowledge of the obsolete bond market.  Added to this was that as a Southerner whose family had once had its own collection of worthless Confederate money, and as the editor of the New York Chapter Newsletter whose habit it was to file away information on expanding personal property markets, I had accumulated a considerable file on recent activities in the Confederate bond area.

In 1865 at the conclusion of the Civil War (or The War Between the States), Confederate bonds had value only as sentimental collectibles.  Despite a creeping increase over the following century, the cost of acquiring one of these artifacts had been hovering until recently under $25.  Then, in the fall of 1987, a single lot, consisting of approximately 85,000 pieces of Confederate numismatic material, was auctioned at Sotheby’s London.  This lot, “including Bearer Bonds, Confederate States of America,” with the ten percent buyer’s commission, realized $655,645.50.

The California dealer who bought the bonds with a Texas partner, claimed it was the largest such private hoard ever sold, and predicted that his corporation, a Dallas-based coin and old bond dealership, would sell the bonds in smaller wholesale lots that would fetch in excess of $2 million.  Too late, of course, for the long gone British and European investors who had contributed $60 million towards those bonds and the Southern cause during the early 1860s.  Since there was no Internaitonal (sic) Monetary Fund to protect investors in those free-wheeling days, the only recourse the investors might have had was through the Council of Foreign Bondholders, founded in 1868, primarily to assist British moneymen to pursue defaults in America.

(As a matter of fact, there is one outstanding case in the USA that the Council is still trying to collect on, which involves Mississippi. Today the British under Margaret Thatcher are once again attempting to privatize financing through the sale of share and bonds of formerly state-owned companies and utilities.  It is one way to make a fortune or, as in the case of the Confederate Bonds, not make a fortune and then wait a century and a quarter and try to capitalize on this risky form of capitalism by selling the bonds as collectibles.)

Recently there has been a vigorous renewal of interest in the collecting of old bonds and shares, primarily on the part of bankers, brokers and money managers in the USA, West Germany and Britain.  Although many of the collectibles are in the under $100 range, others have reached the $5,000 mark.  As with other types of personal properties, one takes into consideration rarity, condition and aesthetics.

With that background in mind let’s return to February 8, 1988.  The record breaking bonds, back in the USA, had been separated into manageable lots.  One of these lots had been inventoried and was exhibited at a trade show on the West Coast.  On that date this bond lot, consigned to a major airline for transportation as checked baggage, simply disappeared.  It was not available for claim after the flight reached its Dallas destination. 

The rest of the hoard had not been itemized, either by the auction house or by its new owners, so there had never been an appraisal of the collection.  Lacking an appraisal, we began with the bulk numbers.  We calculated that the average price at auction, including the buyer’s premium, for the entire group was $7.7 per item.  The items involved in the loss totaled 2,854 in number.  The insureds (sic) claimed the loss was $85,700; by that calculation the average price for each item would have been $30.02.

The last major sale of Confederate material had been in September 1987, in Richmond, Virginia, capitol of the Confederacy.  It had been conducted by NASCA, researchers in inactive and obscure bonds and stocks and, it turned out, under bidders at the London sale.

In conference with representatives of NASCA, it was determined that it would be unrealistic to attempt to assign individual values to the missing items.  The fact is, that in attempting to replace on an individual basis within a truncated period of time, for instance, 500-700 of one type of bond, the market would be severely altered, artificially affecting the value of those specific bonds.  It was our contention that the only way to deal with the missing items was to assume that they must be bought in bulk, not as individual lots.  This made considerable sense since it is common practice at obsolete bond auctions to sell large lots, designated as “Dealer Lots,” at a price that is far less than the individual items times the number in the lot.  This also applies to retail sales of similar bonds, as it does for other property items when large purchases are accompanied by related discounts.  It was determined that there is no confirmed single price for the bonds-one dealer might charge $18, while another might sell the same item in similar condition for $25.

Further clouding the issue was the publication, subsequent to the London sale, of a magazine aimed at contemporary numismatists and owned by the dealers who had bought the Confederate hoard.  Like a Playboy centerfold, right where the magazine falls naturally open, was the announcement of “a unique opportunity for dealers, collectors and investors” to purchase the 1861 Montgomery Loan Bonds, the 1862 Battle of Shiloh Bond, the 1863 Pink Issues, etc.  Accompanying this appeal was a list of prices – if you cared to enclose a check.  Now we could compare some prices.  The price requested for one of the bond sets was $1,200, while at a recent auction the same set sold, in four different lots and in fine condition, for between $600-$700.  We had another comparison.  In the Richmond auction sale 12 dealer lots of a certain bond (500 items total) realized $5,670.  The value of 500 similar bonds as given in the insureds’ (sic) claim was $14,000.  There were other comparables, and because we had access to the auctioneers we were apprised of the condition of all the bonds involved.  What we found most interesting was that, although neither the auction house which sold the bonds nor the purchasers of the bonds had ever inventoried the entire hoard prior to sale, the under bidders (NASCA) at the London auction had examined and inventoried the entire collection before bidding.  After extensive research and review of bond auction catalogs we made the following recommendation:

The insured was to be offered his total stated retail price minus 30 percent, or reasonable dealer commission.  Our decision was based on the fact that purchase had been in bulk.  Sotheby’s did not provide itemized evaluation of the bonds, nor did they provide prices realized on that basis.  (The entire auction, consisting of one massive Confederate Bond lot, was over in less than 15 minutes.  Part of the proceeds from the sale are being kept in an escrow acount (sic) against any claims that might be made by heirs, if any, of the numbered bonds-should the claimants be able to satisfy the bank that the claim is valid).  Therefore it is difficult to cite auction value as opposed to retail value in this case.

The bonds were to be sold on an individual basis following a promotional campaign that might entail several months of advertising and commercial offerings.  There would be extensive clerical work involved in disposing of the hoard.  The 30 percent we cited would include the cost involved in this promotional campaign, as well as the overhead cost.  We believe the value we placed on the missing items represents actual retail price since it is well above the probable auction costs for these items as incurred by the owner, although below the projected price the owner hoped eventually to receive.

As we stated, the average price paid at the London auction by the insured for the bonds was $7.7.  Using that average price as an indication of what was paid, approximately, for the missing bonds, the total would be $22,004.  The claimed replacement price given by the insured was $85,700.  We would also note that these missing items are not considered rare in the numismatics world.

Our recommendation was that the insureds (sic) be offered a settlement of $59,990; above secondary market value, but below projected retail.

The owners had publicly stated in published articles and interviews that their intent was to buy the bonds at auction and sell them for a sum in excess of 2 million dollars.

The average price for the bonds in question, according to the owners’ total value, was $30.02.  Multiplying by the number of bonds in the entire collection would result in a selling price of $2,572,714-or the projected value after promotion, a figure four times the auciton (sic) price and a speculative figure that might not be realized until years after the advertising campaign.  The suggested settlement allows for an immediate profit on the part of the insureds (sic) without including the additional profit they had anticipated from the final sale of 85 thousand Confederate Bonds.

When I was a child there was an expression I must have heard at least twice a day on a regular basis: “Save your Confederate money boys, the South will rise again!”  Think I ought to plan a trip home and spend it in the family attic.


Copyright © 1988 ELIN LAKE-EWALD. All Rights Reserved.