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Quatloos! > Investment Fraud > HYIP & Bank Debentures > Morganthau Bonds

Morganthau Bonds

286 F.3d 1014

United States Court of Appeals,
Seventh Circuit.

Santiago V. MARQUES and Carey Portrnan, Plaintiffs-Appellants,

FEDERAL RESERVE BANK OF CHICAGO and Unknown Shareholders of the Federal Reserve
Bank of Chicago, Defendants-Appellees,
Federal Deposit Insurance Corporation, Defendant.

No. 01-2522.

Argued March 6 2002
Decided April 16, 2002.

Before POSNER, EVANS, and WILLIAMS, Circuit Judges.

POSNER, Circuit Judge.

The plaintiffs brought suit against the Federal Reserve Bank of Chicago and the Federal Deposit Insurance Corporation, plus the shareholders of the federal reserve bank (the other national banks inthe bank’s federal reserve district, 12 U.S.C. 222, 282; Lewis v. United States, 680 F.2d 1239, 1241 (9th Cir. 1982)), which are individually liable for the bank’s debts “to the extent of the amount of their subscriptions to {the bank’s] stock at the par value thereof in addition to the amount subscribed.” 12 U.S.C. 502. The plaintiffs claim to be the agents for the owners of $25 billion in bearer bonds that the bank had issued back in 1934 in exchange for 1665 metric tons of gold. They want the bank ordered to redeem the bonds for face value plus simple interest at 4 percent since 1934 (although the bonds matured in 1965); the total amount of money they are seeking is thus close to $100 billion.

The suit is preposterous. There is no record of any such bond issue, and as the national debt of the United States was only $28 billion in 1934, as a year later the entire stock of gold owned by the United States had a value of only $9 billion, and as no securities issue by a U.S. government entity exceeded $100 million before 1940, the claim that in .1934 a federal reserve bank issued bonds that virtually doubled the national debt and added $25 billion in gold to the government’s gold holdings can only cause one to laugh. What is more (not that more is needed), although the price at which the government bought gold was fixed at $35 an ounce effective at the beginning of that year, the plaintiffs are claiming that the federal reserve bank bought gold from their predecessors at a price of $467.02 an ounce. The plaintiffs further undermine their case by arguing that there is an international conspiracy to deny the validity of these bonds, a conspiracy pursuant to which the plaintiffs’ documents expert, who certified the genuineness of the bonds (in an unsworn and evasive report), has been repeatedly arrested and then released without charges being filed.

The bank’s lawyer told us without being contradicted that the Department of Justice has declined to prosecute the persons involved in the fraud because no one could possibly be deceived by such obvious nonsense. We are puzzled by this suggestion.

The Treasury has established a Website warning the public against the class of frauds (called “Morgenthaus,” after Henry Morgenthau, Jr., the Secretary of the Treasury in 1934) of which the bond issue alleged in this suit is one (the others also involve supposed $25 billion bond issues).

There is no ceiling on gullibility. Mr. Portman, the plaintiff who argued the appeal pro se, is one of the deceived— if he is not one of the deceivers, another and perhaps more plausible possibility, Portman having recently submitted a demand to the Federal Reserve Bank of Cleveland that it pay him $125 billion to redeem a similar set of fictitious 1934 vintage “Federal Reserve Bonds.” We are sending this opinion to the Justice Department for whatever further consideration the Department may wish to give the fraud.

But though the suit is absurd, the appeal, from the denial of the plaintiffs’ Rule 60(b) motion to vacate the judgment that the district court entered in response to the bank’s motion for summary judgment, is not. The plaintiffs attempted to dismiss their suit voluntarily under Fed.R.Civ.P. 41(a)(1). Had they succeeded in their attempt, the dismissal would have been without prejudice, and so they could reinstate the suit without facing the bar of res judicata. They can’t do that if the judginent granting the bank’s motion for summary judgment—a judgment on the merits and therefore with prejudice— stands.

The reason they give for having wanted to dismiss their suit is, naturally, preposterous—that they were in serious negotiations in Spain with the U.S. Government and hoped that the government would acknowledge the legitimacy of their claim so that they could sell the bonds to Russia. But one. doesn’t need a good reason, or even a sane or any reason, to dismiss a suit voluntarily. The right is absolute, as Rule 41 (a)( I) and the cases interpreting it make clear, Commercial Space Mgmt. Co. v. Boeing Co., 193 F.3d 1074. 1077 (9th Cm 1999); Marex Titanic, Inc. v.The Wrecked & Abandoned Vessel, 2 F.3d 544, 546(4th Cit. 1993); Eastalco Aluminum Co. v. United States, 995 F.2d 201, 204 (Fed.Cir.1993); Matthews v. Gaither, 902 F.2d 877, 880 (11th Cir.1990) (per curiam), until, as the rule states, the defendant serves an answer or a motion for summary judgment. The plaintiffs filed their notice of voluntary dismissal, and the bank served a motion to dismiss the Suit under Rule 12(b)(6), on the same day. A motion under Rule 12(b)(6) becomes a motion for summary judgment when the defendant attaches materials outside the complaint, as the bank did, and the court “actually considers” some or all of those materials. Berthoid Types Ltd. v. Adobe Systems Inc., 242 F.3d 772, 775-76 (7th Cir.200 1); see also State ex rel. Nixon v. Coeur D’Alene Tribe, 164 F.3d 1102, 1107 (8th Cir.1999); FinLey Lines Joint Protective Bd. Unit 200 v. Norfolk Southern Corp., 109 F.3d 993, 997 (4th Cir. 1997); Aamot v. Ka.ssel, I F.3d 441, 444 (6th Cir.l993) (“conversion [from a Rule 12(b)(6) motion to a summary judgment motion] takes place at the discretion of the court, and at the time the court affirmatively decides not to exclude the extraneous matters ); Garita Hotel Limited Partnership v. Ponce Federal Bank, FS.B., 958 F.2d 15, 18 (1st Cir. 1992); 9 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure ~ 2363 (2d ed. 1995). But the judge did not convert the bank’s motion to a motion for summaryjudgment until later.

And anyway we do not know which document, the plaintiffs’ notice of voluntary dismissal or the defendant’s motion to dismiss, came first. The plaintiffs argue that the bank acknowledged in the district court that the notice of voluntary dismissal was filed before the motion to dismiss was served, but the only record of this acknowledgment is a transcript that the parties neglected to make a part of the appellate record. However, the district judge, rather than make a finding on which document came first, appears to have believed that as long as they were on the same day, it didn’t matter. (It is unquestioned that the plaintiffs did succeed in dismissing the FDIC as a defendant under Rule 41(a)( 1), and it is not a party to this appeal.) We cannot find an appellate case on who has the burden of proving the sequence of the submissions, but Keaz v. Monarch Life Ins. Co., 126 F.R.D. 567 (D.Kan. 1989). places the burden on the defendant, sensibly, as it seems to us, since it is the defendant that is asserting the right to prevent the plaintiff from dismissing the suit.

Both because the district judge did not convert the motion to dismiss to a motion for summary judgment before the plaintiffs filed their Rule 4 1(a)(1) notice and because the defendant failed to show that its motion was served before the plaintiffs’ notice, were the appeal from the judgment in favor of the bank it would be clear that we would have to vacate the judgment and remand the case to the district court with directions to permit dismissal under that rule. But we must consider the bearing of the fact that the appeal is not from the judgment, but rather from the denial of a Rule 60(b) motion to vacate the judgment. A legal error by the district court is not one of the specified grounds for such a motion. In fact it is a forbidden ground, Russell v. Delco Remy Division, 51 F.3d 746, 749 (7th Cir. 1995), because if permitted it would enable a losing party to appeal outside the time limits for appeals without excuse, since the existence of the error would be apparent from the district court’s judgment and thus could be corrected on appeal within the time allowed for taking an appeal. BelLy. Eastman Kodak Co., 214 F.3d 798, 801 (7th Cir.2000); ~Yeuberg v. Michael Reese Hospital Foundation, 123 F.3d 951,955 (7th Cir. 1997); Bank of Cal fornia, /“[A. v. Arthur Andersen & Co., 709 F.2d 1174, 1176-77(7th Cir.1983); Hess v. Cockrell, 281 F.3d 212, 216 (5th Cir.2002); Plotkin v. Paczjfic Telephone & Telegraph Co., 688 F.2d 1291, 1293 (9th Cir. 1982).

However, the fourth subsection of Rule 60(b) authorizes a void judgment to be vacated. As an original matter, we might doubt whether an error that results in denying a plaintiff his right of voluntary dismissal is so fundamental or grave that it should be treated as void, implying that the judgment could be vacated many years after it had been entered even though the error that had made it invalid when entered had not been called to the judge’s attention in a timely fashion. Rule 60(b)(4) is primarily intended for cases where the suit in which the judgment sought to be vacated was entered was outside the jurisdiction of the district court, as in Pacurar v. Herniy, 611 F.2d 179 (7th Cir. 1979); see also United States v. Zima, 766 F.2d 1153, 1159 (7th Cir.1985), which this suit was not.

There is, however, considerable and unchallenged case authority (including decisions by this court) that a judgment on the merits that is entered after the plaintiff has filed a proper Rule 41 (a)( 1) notice of dismissal is indeed void. E.g., Beck v. Caterpillar Inc., 50 F.3d 405, 407(7th Cir. 1995); Byan v. Smith, 174 F.2d 212, 214-15 (7th Cir. 1949); Duke Energy Trading & iV.’farketing, L. L. C. v. Davis, 267 F.3d 1042, 1049 (9th Cir.2001); American Soccer Co. v. Score First Enterprises, 187 F.3d 1108, 1112 (9th C ir. 1999); Bonneville Associates, Limited Partnership v. Barram, 165 F.3d 1360, 1364 (Fed.Cir. 1999); Meinecke v. H & R Block, 66 F.3d 77, 82 (5th Cir.1995) (per curiam); Safeguard Business Systems, Inc. v. Hoeffel, 907 F.~d 861 864 (8th Cit. 1990); Foss v. Federal Intermediate Credit Bank, 808 F.2d 657, 660 (8th Cir.1986); WiLliamsv. Ezeib 531 F.2d 1261, 1264 (SthCir.1976). The cases further make clear that although not every “void” judgment is subject to collateral attack, only those where the voidness is unarguable, Zn re Edwards, 962 F.2d 641, 644 (7th Cir. 1992), the refusal to vacate under Rule 60(b)(4) an unarguably void judgment is an abuse of discretion. Robinson Engineering Co., Ltd. Pension Plan & Trust v. George, 223 F.3d 445, 448 (7th Cir.2000); Blaney v. West, 209 F.3d 1027, 1031 (7th Cir.2000); United States v. Indoor. CuLtivation Equipment From High Tech Indoor Gqrden Supply, 55 F.3d 1311, 1317 (7th Cit. 1995); see generally Hertz Corp. v. Alamo Rent-A-Car Inc., l6F.3d 1126, l130(llthCirA994); Williams v. Brooks, 996 F.2d 728, 730 (5th Cir. 1993) (per curiam); Jalapeno Property Management, LLC v. Dukas, 265 F.3d 506, 515-16 (6th Cir.2001) (concurring opinion).

We are therefore compelled to reverse the judgment and direct the dismissal of the suit, without prejudice, under Rule 41(a)(1). Should the plaintiff attempt to bring a new suit similar to the one they are dismissing, namely a fraudulent and possibly a criminal suit, they will be subject to appropriate sanctions.


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LITIGATION RELEASE NO. 17988 / February 19, 2003




(U.S.D.C. Western District of Oklahoma, Civil Action No. CIV-01-999-W)

The Securities and Exchange Commission announced that on February 18, 2003, the Honorable Lee R. West, U.S. District Judge for the Western District of Oklahoma, entered a default judgment against Garry W. Stroud, ordering him to pay disgorgement and prejudgment interest in the amount of $1,044,879, a $956,379 civil penalty and enjoining him from further violations of the federal securities laws. Previously, Judge West issued emergency orders, including a temporary restraining order, preliminary injunction, assetfreeze and the appointment of a temporary receiver against Stroud, who operated his scheme from British Columbia, Canada.

On June 28, 2001, the Commission filed suit against Stroud in federal district court in Oklahoma City, Oklahoma. The Commission's complaint charged Stroud with conducting an ongoing Internet investment scheme that fleeced over 2,200 investors worldwide of approximately $1 million since 1998. According to the Commission's complaint, Stroud, operating under several fictitious businesses, used Internet websites and e-mail to hawk seven spurious investments, including so-called "Morgenthau Gold Bond Certificates," foreign gold-mining projects, and "prime-bank" trading programs, promising investors extraordinary returns with little or no risk. The complaint further alleged that these investments were, in every case, pure shams and that Stroud had not paid a single investor the promised returns. Stroud was assisted in the scheme, according to the complaint, by Adele Louros, whom it named as a relief defendant. Moreover, according to the complaint, Stroud targeted his fraudulent investment offerings mainly to investors who were recently defrauded in another investment scheme. That scheme, known as E-Biz Ventures, was the subject of a Commission enforcement action in January 2001 involving over 20,000 investors and over $9 million. SEC v. E-Biz Ventures, et. al, Lit. Rel. 16886, February 1, 2001. The Court previously entered judgment by default against Louros on July 30, 2002.

The court also ordered Stroud to provide a post-judgment accounting of all investor funds he obtained, to repatriate all assets outside the jurisdiction of the Court and further issued a permanent injunction against future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder.


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