Edited by Thane Peterson

Will pre-World War II German bonds someday be redeemed -- and pay investors a king's ransom? A Michigan bond house's efforts to market a batch of such controversial bonds (see Up Front, "Weimar Bonds: A Chunk of History, a Whole Lot of Risk," 11/25/96) is landing the firm on the wrong side of the Securities & Exchange Commission. On Feb. 4, the SEC filed a civil lawsuit in the U.S. District Court for the Southern District of Florida against J.W. Korth & Co., a Farmington Hills (Mich.) outfit that had been marketing some 1924 and 1930 defaulted German bonds from its Miami office.

The SEC is concerned that bonds are invalid. Its suit is aimed at getting the certificate numbers of the bonds, which J.W. Korth has refused to provide. "We have information that the vast majority of pre-World War II German bonds in circulation will not be honored by the German government," says Spencer C. Barasch, assistant regional director of the SEC's Miami office. "We don't know if these bonds [sold by J.W. Korth & Co.] will fall into this category until they turn over the information." German authorities assert that many such bonds are invalid because they were stolen and recirculated by the Russians at the end of World War II. J.W. Korth & Co. says that isn't so and insists that Germany should cash out bondholders.

J. W. Korth, the firm's president, says that since Germany has never published a list of the certificate numbers of so-called "lost and stolen" bonds, he fears that authorities there will simply take any list he provides and declare the bonds lost or stolen, thus rendering them invalid. On Jan. 30, Korth filed a formal complaint with the SEC, the Treasury Dept., and the State Dept., asserting that Germany is using a "manipulative and deceptive practice" by not publishing a list of the bonds it claims were lost or stolen.

The next chapter in the tale: In about 20 days, Korth expects to be in a Miami courtroom before a federal judge, explaining why he does not want to turn over the certificate numbers. "We're happy that this happened because it focuses the issue," says Korth. "The real issue is whether the bonds are valid, or whether they're stolen. And if Germany is not willing to publish a list [of lost and stolen bonds], no one will know."

By Suzanne Woolley in New York and Gail DeGeorge in Miami