Brooklyn Judge Shocks Switzerland, Says It Owes $125 Billion
Feb. 05, 1996
NEW YORK (AP) _ The default judgment itself was a routine decision after two Swiss government agencies never defended themselves against charges that one of their banks lost $600 million in assets.
It was the size of the judgment in a state court in Brooklyn _ $125 billion _ that exploded the story onto Switzerland's front pages. That's more than three times the amount of Switzerland's annual tax revenues.
The judgment left banking regulators in the global financial capital fuming. It ``threatened to have grave consequences for the Swiss financial sector and Swiss bank branches in the United States,'' the central Swiss National Bank wrote to government authorities in the Swiss state of Ticino.
``Fear is running rampant there,'' plaintiff's attorney Richard R. Rio said of the Swiss reaction. ``They're completely petrified that their whole economy is going to go down the tubes.''
While news media in Ticino have reacted with alarm, newspapers in the German-speaking majority of Switzerland have treated the story with disbelief. ``Riddle-guessing in Ticino about mysterious `proof documents'' was the subheadline in the respected business-oriented daily Neue Zuercher Zeitung last Friday. The paper said the demand for ``astronomical sums'' was ``grotesque.''
The roots of the case date to 1961, when Grant Sterling Higgins, a Seattle real estate salesman who had been convicted of passing bad checks, died of heart disease in California's San Quentin Prison at age 36.
Higgins and his father had collected mining contracts for gold, silver and oil. His estate, the Granville Gold Trust, was handled by his brother, Robert G. Higgins of Spokane, Wash.
Court papers claim the estate was worth at least $600 million in 1966, when the trust was created at the Inter Change Bank in Chiasso, Switzerland. When the bank went broke a year later, many of the estate's documents were lost, according to court papers.
For the next 22 years, Higgins tried unsuccessfully to get information about the trust as the Swiss liquidated the bank's assets, said Abdul Hafeez Muhammad, a financial speculator whom Higgins hired in 1988 to try and recover the money.
But Swiss officials said they never heard about the claim until 1989, two years after the statute of limitations expired on the 1967 bankruptcy.
Muhammad said Higgins agreed to pay him 40 percent of whatever he recovered, so he hired lawyers who assembled documents that proved many of the assets existed.
One such asset was a mine in California's San Bernardino County estimated to contain $950 million in gold, Muhammad said. Since the trust failed to maintain the property, the land reverted to the state and is now part of the national park system, he said.
At a 1994 hearing, estate attorney Rio presented testimony to show the investment would have grown to $125 billion. Since the two Swiss government bankruptcy agencies that liquidated the bank _ Commissione del Fallimento/Inter Change Bank and Ufficio Esecuzioni e Fallimenti _ never showed up in court, state Justice Gerald S. Held ruled in the estate's favor on Oct. 3, 1994.
Swiss authorities now say it was impossible that $600 million was deposited because the bank had nothing near that amount in total. Paul J. Bschorr, a New York lawyer representing the Swiss, said his clients were never told to appear in court and believed they were not subject to a judgment from a U.S. state court.
``We believe we will ultimately prevail in overturning this,'' Bschorr said.
The case has been moved to federal court in Brooklyn. A hearing was scheduled for Feb. 28.
Rio said default judgments are often rescinded when the other side shows up. ``If it's a state court default judgment, they give them out like candy. But the Swiss don't know that,'' he said.
Alex Pedrazinni, Ticino director of justice and police, called it ``the most unbelievable story that Ticino and presumably federal authorities have ever had to deal with.''
And not just the Swiss are crying foul. After Rio sought to freeze Swiss assets through the foreign banking arm of the U.S. government, Thomas C. Baxter of the Federal Reserve Bank of New York said in an affidavit that the effort could ``undermine the confidence that is critical to the willingness of foreign governments to purchase U.S. government debt.''
Swiss articles about the judgment also have focused on the history of Muhammad, the financial speculator.
Muhammad said the Republic of Guinea accused him of stealing diamonds and sentenced him to death. The African country released him, but he was convicted of wire fraud in North Carolina in 1984 for sending telexes about the diamonds.
Instead of prison, he was sent to a hospital for treatment of a psychotic mental condition and freed a year later.