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US lawyer Ed Fagan to sue Czechs over spa bonds, target future state bonds, ‘Nazi gold’


US lawyer Ed Fagan is to sue the Czech Republic, a few ministers, and Karlovy Vary’s mayor over claims related to a 1924 bond issue

Ed Fagan has dropped the soft approach for hard legal action foto: © ČTKČeská pozice

Controversial US lawyer Ed Fagan is launching far-reaching legal action against the Czech Republic and individual ministers after failing to get cooperation over his bid to verify whether the state has failed to honor commitments relating to a bond issued by the western Bohemian spa town of Karlovy Vary in 1924. The country’s ability to borrow money in future and some 22 metric tons of looted “Nazi gold” returned to the state in the 1980s could be at stake.

In letters released exclusively to Czech Position on Monday, Fagan outlines how he is proceeding to sue the Czech state in US courts, with separate individual proceedings also taken against Finance Minister Miroslav Kalousek (TOP 09) and his deputy minister, Jan Gregor, and as well as Karlovy Vary major Petr Kulhánek (Karlovy Vary Citizens’ Alternative, KOA).  

The notification letters were due to arrive on Monday evening in the e-mails and fax machines of Prime Minister Petr Nečas (Civic Democrat, ODS), all government ministers, and the head of state, President Václav Klaus, as well as those of other top officials at the Finance Ministry.

Fagan, who is pursuing what he says could be a non-payment claim of $506 million (around Kč 10 billion) on behalf of holders of the 1924 bonds, says there is no going back on his legal action, which will be formally notified on Dec. 12.  “If they [Czech authorities] start to cooperate now, they can mitigate damages — but they will not stop a law suit,” Fagan told Czech Position on Monday morning.

‘If they start to cooperate now they can mitigate damages but they will not stop a law suit.’

The prominent US lawyer is enraged over the Czech state’s refusal to help him verify whether the bond claim is authentic and especially over the actions of the Finance Ministry, which he charges with “fraud, deceit, attempted manipulation of the media and public opinion, and other conduct that violates their conduct as public officials and which diminishes public trust.”

In particular, Fagan highlights the refusal of Deputy Finance Minister Jan Gregor to fulfill a promise to meet him in person by the end of  November to discuss the claim. He had been promised a meeting when he “door stepped” the Finance Ministry on Nov. 1 and talked with its head of protocol; now the ministry says that its official only promised to inquire about a meeting and “does not regard a meeting on this matter as appropriate.”

Nečas and Cabinet in the dark

Fagan said he decided to circulate his letter because he believes that Nečas and his Cabinet ministers are unaware of what the Finance Ministry is up to — and the costs that the Czech state, and ultimately the taxpayers, might have to face as a result.

“What I want is for the government and the ministers to understand what the Finance Ministry is doing. I don’t think that other ministers have any idea what [it] is doing or not doing,” added the US lawyer, putting the blame firmly on the Finance Ministry for creating an “adversarial situation” which “may become a cause célebre and a ‘media circus.’”

Fagan has in the past piloted many headline-grabbing legal cases, such as the cause of the families of Holocaust victims against Swiss banks, western banks helping South Africa’s apartheid-era regime, and on behalf of Romanian villages against the makers of the film “Borat” starring Sacha Baron Cohen (one of his few legal losses).

In the Czech Republic, Fagan is best known for offering to represent opponents of the Temelín nuclear power plant before the second unit went online in 2002.

‘For a relatively small issue, they are exposing themselves to much bigger problems.  It looks like they are trying to play a game.’

The US lawyer warns that the Finance Ministry has dug itself into a deeper hole by refusing to talk about the Karlovy Vary bond claim. “What has really surprised me about this process is that, for a relatively small issue, they are exposing themselves to much bigger problems. It looks like they are trying to play a game,” he commented.

Fagan estimates the legal step of suing the Czech Republic will cost him and other bond holders up to $5,000 in extra costs. “On the other hand, and in my opinion, you, the Ministry of Finance, citizens of the city of Karlovy Vary, the Czech Republic and innocent Czech citizens will almost certainly be required to pay hundreds of thousands of dollars (or millions of Czech crowns) for US and Czech lawyers to represent you in a case that did NOT have to be filed,” Fagan said in his letter to deputy minister Gregor.

Ironically, cooperation with the Czech government and other authorities might have shown the bond claim was invalid or could not be authenticated, Fagan added. Meanwhile, his threatening letter holds up the example of the escalating legal costs and eventual damages of $353 million paid by the Czech state in the arbitration over ownership of TV Nova brought by US multi-millionaire Ronald Lauder against Central European Media Enterprises (CME) as an example of what could be in store over the Karlovy Vary bonds.

“I submit that the conduct in which you, minister Kalousek, officials of the Ministry of Finance, officials of the Czech National Bank and officials of the city of Karlovy Vary, have engaged related to the bonds is the same as the conduct that led to the spectacular damages the Czech Republic had to pay in the CME versus Czech Republic and Lauder versus Czech Republic cases,” he added in the letter.

Cutting off Czech borrowing

Fagan says he is also ready to take the far-reaching step of trying to block future bond issues by the Czech state on the grounds that it has failed to honor debts from the previous Karlovy Vary issue along with international agreements concerning settlement of such outstanding debts. If successful, this could have a drastic impact on government financing, since the Czech Republic, like most states, can only meet everyday public expenditure needs through borrowing, overwhelmingly on international markets.

“The Czech state has to get permission from areas where they want to sell bonds, whether it is the US or EU. If a country is in default with regard to prior bond obligations, then it can be refused permission to issue new bonds,” Fagan explained, adding that he would be approaching EU and other authorities with a view to get them to ban future Czech bond issues. “Blocking bond issues is a very realistic scenario,” he told Czech Position, saying that there were historical precedents for such a step.

‘If a country is in default with regard to prior bond obligations, then it can be refused permission to issue new bonds.’

Going for Nazi gold

Fagan further warns that a massive hoard of almost 22 metric tons of Czech gold expropriated by Nazi authorities during WWII, which was handed back to Czechoslovak authorities under an international agreement in the 1980s, should also be frozen pending an outcome of the bond dispute. The three-way agreement between US, British, and Czechoslovak governments committed Prague to honoring historical bond claims in return for the gold being handed back.

The US lawyer also wants to highlight what he sees as Czech bad faith over the Karlovy Vary bond issues and its public pledges backing a fast and far-reaching settlement of the claims of surviving Holocaust victims. Many of the original Karlovy Vary — and other Czech bonds which he suspects might not have been honored — were bought by Jews, Fagan says. 

Meanwhile, the Czech Republic’s public posture is that it is in the forefront of moves to settle Holocaust restitution claims, for example staging the 2009 Terezín Conference and final declaration calling for a fast settlement of claims, with another international conference over restitution to be held in Prague in 2012.

See related article: US lawyer Ed Fagan seeks Nazi gold in Czech Republic, as well as bond settlements.’

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