This woman found municipal bonds worth $1 million at an estate sale. City refuses to pay

At an estate sale in Blue Springs, Shannon Mobley sifted through the contents of an antique trunk. It was there, buried under doilies and afghan blankets, she discovered a trove of municipal bearer bonds from Mountain Grove.

"I had no idea what a coupon bearer bond was, I just thought it looked important and kind of like money but wasn't sure," Mobley said.

Mobley acquired the bonds, which were issued in the late 1960s to purchase or construct an electric light distribution system in Mountain Grove. Each bond was issued with a value of $5,000, with a 6% interest rate. Mobley said she has around 72 of them.

For the past several years, she has been trying to collect on the bonds, which she said are now worth more than $1 million. But her attempts — met with resistance from city leaders in Mountain Grove — have raised a number of unanswered questions.

How do bonds work?

Leonid Pugachev is an associate professor at the University of Missouri-St Louis Department of Finance and Legal Studies. He said bonds are split into two categories: general obligation bonds and revenue bonds. Revenue bonds, like Mobley's, are to be paid back using the revenue from the project being funds. In other words, Mobley's bonds would have to be paid out by the revenue brought in by the electric light distribution system Mountain Grove built.

Investors often invest in municipal bonds because of the low risk associated with the investment. It's assumed that an entity like a city will always be there, and they have a contractual obligation to pay back the money. Pugachev said perhaps the biggest advantage to municipal bonds is the tax deductibility — the returns on the investment in municipal bonds cannot be taxed by the federal government.

"The way income tax usually works is that federal income taxes are much higher than state income taxes," he said. "So there's a substantial cost savings for not having to pay taxes on the income that I generate from my municipal bonds."

Bearer bonds are similar to traditional bonds but do not have a registration requirement — rather than being registered to a specific, named owner, they can be redeemed by whoever possesses them. These are less common nowadays because of the risks that anonymity can bring.

Since the 1960s, the bank that was backing the Mountain Grove bonds has changed hands and names multiple times. According to correspondence between Mobley and the U.S. Bank Global Corporate Trust, the bonds were issued by Merchants-Produce Bank in Kansas City, which then was renamed to Merchants Bank and acquired by several other banks through the years, eventually leading to Bank of America. The city of Mountain Grove is the last known paying agent for the bonds, according to the trust's research.

Pugachev said the issuing bank and the fact that it has changed hands through the years would be irrelevant when it comes to the obligations of the city. Similarly, who the bonds were originally issued to would not matter — the current bearer of the bonds, in this case Mobley, has the right to cash them out.

A legal battle left unfinished

Mobley said Mountain Grove's city attorney, Joshua Brown, initially verified the bonds as legitimate. Following initial conversations, Mobley said, she was unable to get a hold of him or have her phone calls returned.

In a phone call with the News-Leader, Mountain Grove Mayor Fred VanBibber called the situation "frivolous" but directed further questions to Brown.

When the city stopped responding, Mobley turned to state departments, including the Securities Division within the Secretary of State's Office and the Unclaimed Property division in the State Treasurer's Office. In April 2021, she filed a lawsuit.

Brown would not offer further comment when contacted by the News-Leader, instead pointing to the arguments the city filed in the lawsuit, which was dismissed in June.

Asked about Mobley's statement that he authenticated the bonds in their initial conversations, Brown said "I would have to go back and look at my notes on that."

"I'm not really in a position to make any sort of statement, beyond just referring back to the litigation that was ultimately dismissed," he said.

Although Brown implied the lawsuit case was tossed on its merits, or lack thereof, court records show the lawsuit was dismissed not because the judge sided with one side over the other but rather because there were no actions being taken. Mobley said she instructed her attorney not to move forward with the case after being advised to hold off in case the state could take action later, and because she was not willing to pay the steep attorney fees that taking the case to trial would entail. Documents on Casenet show the judge moved the case to the dismissal docket after almost two years of no action, dismissing it without prejudice, which means Mobley could refile it later.

Court documents show the city argued in its defense that Mobley had failed to establish that the issuance of the bonds was lawfully authorized and binding on the city or that the city engages in the sale of electricity and would therefore have a revenue through which to pay the bonds. It also raised the notion that her claim would be barred by the statute of limitations.

Both newspaper archives and city ordinances validate that the bond issue passed in a Nov. 18, 1967, election. According to the Poplar Bluff Republican, the $975,000 bond to fund an electrical light distribution system was approved by voters, 882-498.

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Is it too late?

Missouri statute, as well as a digital copy of the language on Mobley's bonds, notes that a revenue bond "does not constitute a debt of the municipality within the meaning of any constitutional or statutory limitation." While the bonds were issued decades ago, Pugachev said it is unlikely that they would be "expired," though that is more of a legal question. He said if the municipality has not declared bankruptcy and the project which the bonds funded still exists, the bonds should still be valid.

Currently, the city of Mountain Grove does not generate its own electricity. Instead, it purchases power from two cooperatives — Se-Ma-No Electric and Intercounty Electric. Deloris Shelton, the city's finance officer, said as far as she knows that has always been the case and the city has never generated its own power.

Heather Kidwell, director of communications for Intercounty Electric, said the cooperative took over the electrical system serving Mountain Grove in the summer of 1985. According to court documents, Mobley's bonds were eligible for early call in 1980 but became due in full on Nov. 1, 1992. Kidwell said the cooperative handles all parts of providing electricity to the city, including the infrastructure in the city and the billing. The same is true for Se-Ma-No Electric. Dan Sisco, CEO and general manager of Se-Ma-No, said they collect the franchise tax, franchise fee and city tax through billing that goes to Mountain Grove.

Other sources indicate the city was purchasing power even earlier — and that the attempt to build its own bond-backed electric system was a source of controversy in the past.

The bonds were a topic of legal wrangling when Sho-Me Power Corporation of Marshfield filed an injunction against the city after the bond was approved, with the power company arguing it would suffer "irreparable injury and harm" since Sho-Me and Mountain Grove had entered into a contract that said the city would purchase power from Show-Me for 15 years, according to an October 1969 article in the Springfield Daily News.

Ultimately, the judge in that case dismissed the injunction; an appellate court later upheld that dismissal. Both Se-Ma-No Electric and Intercounty Electric are members of what is now Sho-Me Power Electric Cooperative.

Pugachev noted the revenue bonds would still be valid only if the original project for which the bonds were approved still existed in some fashion. A new entity, like the two cooperatives, would not be responsible for the debts of the original project, he said. Ultimately, it could be up to the legal system to determine who, if anyone, is responsible for the debt.

In search of the money

Scott Harper, the director of Unclaimed Property at the State Treasurer's Office, said that after five years of not being able to locate the owners of particular bonds, an entity — whether the paying agent or the issuer — is supposed to turn the money over to the state as unclaimed property.

"The reason why we don't necessarily know when we have some bearer bonds is they don't have any owner names, and so they just turn over local money," he said. "So we rely on those holders to come in to turn it over, provide documentation on that, and we don't have any documentation that shows that we received that (from Mountain Grove)."

If the money was turned over to the state, the city would have to provide a letter with proof of that happening and with details on the amount of money and interest due on the bonds. Harper said the department has not yet received one from Mountain Grove about these bonds. He also said the bonds being revenue bonds shouldn't impact that money being turned over.

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Aside from the question of whether electric revenues ever were generated, it's also unclear whether the city has the means to pay out Mobley's bonds. The city's most recent financial report, filed June 30, 2023, shows more than $5 million in cash unrestricted assets. The November cash report included in the city's minutes, the most recent that was publicly available, showed more than $6 million in the bank account by the end of the month.

The city's financial track record is not the most pristine. A 2011 audit resulted in the lowest rating from the state auditor — "poor." The audit noted issues with golf course operations, contracts, personnel management and multitude of issues related to budgeting, financial conditions and monitoring. After a follow-up in 2012, almost all of the auditor's recommended improvements were in progress or implemented.

Pugachev said if the city is found responsible for the bonds and refuses to pay them out, the consequences would be similar to what happens when an individual defaults on a loan. The case could head to bankruptcy court, city revenue could be garnished and any future loans or bonds would be much harder to obtain.

While the situation currently is at a standstill, Mobley insists the money should be paid.

"You can invest all this money in their stuff, but they're not going to pay out, basically," she said of frustration she's experienced to date.

Marta Mieze covers local government at the News-Leader. Contact her with tips at mmieze@news-leader.com.

This article originally appeared on Springfield News-Leader: Mountain Grove bearer bonds worth $1 million at center of dispute