Nicholas Watson in Prague -

History hangs heavy over Central and Eastern Europe, a region called the "Bloodlands" by Yale historian Timothy Snyder in his seminal work on the region in the 20th century. With reparation lawyers like Edward Fagan about, sleeping dogs will never be allowed to lie.

Fagan, a US lawyer famous for courting controversy wherever he sticks his subpoena, on November 28 took his mission to have validated some alleged outstanding dollar bonds issued by the Czech spa town of Karlovy Vary in 1924 - when it was known as Carlsbad - a step closer to an international lawsuit. The suit, expected to be filed by December 13, could have far-reaching implications for the Czech Republic and other countries in the CEE region.

In letters sent to Czech President Vaclav Klaus, Prime Minister Petr Necas, government ministers, and other top officials at the Finance Ministry on November 28, Fagan details his frustration at being given the run around by Deputy Minister of Finance Jan Gregor, Karlovy Vary Mayor Petr Kulhanek and Czech National Bank Governor Miroslav Singer. He complains that the trio unnecessarily blocked his attempts to have authenticated some 8%, 30-year City of Carlsbad municipal sinking fund gold dollar bonds currently in his possession.

In an earlier letter sent to Kulhanek and Singer in October, Fagan requested a meeting so that the authorities could authenticate, validate and make payment on what he claims are still outstanding bonds denominated in $500 and $1,000 amounts. By his estimates, the total outstanding debt including interest payments comes to around $506m. "I wanted to start the process and without a big to-do to find out whether the paper that I had was worth money or not," Fagan tells bne in a phone interview from Florida.

The lawyer says he travelled to the Czech Republic at the end of October with the bonds, which he says he acquired from an undisclosed location in the Czech Republic ("and there's a lot more of them out there"), with a view to meeting either of the men. However, after a promised meeting with Gregor failed to materialise, he returned to the US to plot his next move: the letter of November 28.

Fagan claims, perhaps somewhat disingenuously, that he has been "amazed" by the Czech government's "unbelievable" response to his efforts "to quietly, professionally and respectfully address this issue directly" with the finance minister, the governor of the Czech National Bank and the mayor of Karlovy Vary.

Yet nothing Fagan has done during a long career pursuing claims against governments and institutions could be termed quiet: he successfully sued Swiss banks for a reputed $1.25bn on behalf of Jewish survivors of the Holocaust; he has history with the Czech Republic after threatening legal action over its nuclear power plants; and he has been disbarred from practising law in New York and New Jersey for "misappropriating" clients' funds.

Inevitably therefore, as soon as he sent his October letter - which was of course leaked to the press - the Czech finance ministry set about rubbishing his claims. Their actions included "fraud, deceit, attempted manipulation of the media and public opinion and other conduct that violates their duties as public officials and which diminishes the public trust," Fagan claims in his November 28 letter.

Without a hint of irony, Fagan goes on to warn that, "This adversarial situation could further deteriorate to a point where what could have been addressed expeditiously and professionally, become [sic] a cause célèbre and a 'media circus'."

Of course, a media circus is exactly what's ensued, not least because, ironically, Prague is due to host a conference next year on the 2009 Terezin Declaration - a series of measures agreed by 46 countries to ensure the restitution of Jewish assets and property seized by the Nazis, amongst other things. But behind the headlines, does Fagan have a case?

Settled

The Czech government argues the former Czechoslovak Socialist Republic [CSSR], which was dissolved following the end of communism in 1989 and has today become the Czech and Slovak Republics, had offered to settle all outstanding claims against the bonds in the 1980s, as part of a deal to settle bond debts before the state was returned 22 tonnes of gold that had been seized by the allies after World War II. "This settlement was accepted by our US counter-party and sealed by an international agreement," the finance ministry said in a statement.

However, Fagan argues some bondholders didn't get paid, a fact clearly in evidence in that the bonds he's currently holding haven't been cancelled. "When a bond is redeemed, the authorities don't give it back to you clean, they punch a hole in it. These bonds I have are pristine, meaning they were never cancelled and the final payments were never made," Fagan says.

The Czech government also argues the bonds expired decades ago, but Fagan says a US court has established that bonds expire at the later of two dates: either up to 30 years after the maturity, or seven years after the first attempt to validate the bonds. "The clock starts when you attempt to validate the bonds. My clock on these Karlovy Vary bonds just started so I have plenty of time."

Furthermore, Fagan says under US law the clock can't start to run until a bondholder has the ability to make a claim and because the Czech Republic was a communist country, it is only since the 1989 revolution that a bondholder could realistically make a claim. This, he says, applies to other former Communist bloc countries where he also intends to make claims on unpaid bonds. The next target is Poland, whose port city of Danzig (now called Gdansk) issued bonds during the interwar period when it was a free city under the League of Nations' control. "Polish, Czech, Romanian, Hungarian and former East Germany - I've been acquiring bonds from these countries over time," he says.

Fagan says that since the Czech government refuses to meet him and validate the bonds, it has essentially freed him to file a lawsuit in the US, where the bonds were sold. He expects to formally notify the parties in the lawsuit on December 13. "I hope to hear back from you on or before I return on 13 December 2011 to hand-deliver the complaint," he says in the letter.

In the meantime, Fagan says he intends to take other measures against the Czech state, such as applying to international regulators to prevent the government from issuing more bonds on the grounds that it has failed to honour its previous debts, and looking to have the gold that was returned to the Czechoslovak state in the 1980s frozen since it hasn't abided by the agreement to honour all historical bond claims.

Fagan is under no illusions about how he is being portrayed by the governments he is targeting and certain sections of the media. "There is the possibility of people saying, 'oh, here he comes again'. That's okay, I recognise that. But the reality is that do you really want to take the risk if the paper is real and there's a possibility of the claim being upheld, and do you want to risk playing the publicity game with a publicity hound like me?"