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Victims of the default, who thought the bonds were a safe haven for their money, were feeling outrage and despair. Many elderly bondholders were depending on the securities for retirement income, but the bonds that had been bought as recently as March 1981 for $5,000 sold last week for as little as $700. Robert Kahn, 69, a former court reporter living in Hollywood, Fla., and his wife Selma, 67, had $10,000 invested in Whoops Nos. 4 and 5 bonds. Says he: "I felt secure. That was the whole point of buying the bonds. I didn't want to make extra money. I just didn't want to lose what I had. I'm not a rich man." For Theo Fullmer, 70, and his wife Bettie, 63, of Rexburg, Idaho, the Whoops default was their second disaster. In 1976 the Teton River Dam collapse in Idaho destroyed a motel they had owned for nearly 13 years. After the U.S. Government paid them about $100,000 for their loss, they invested $80,000 of it in Nos. 4 and 5 bonds. Says Bettie, who now works as a cook at the local high school: "You wouldn't believe how frugally we have lived and how frugally we will have to live. I haven't been sleeping. Not a wink."
Insurance companies, which own about 15% of the Nos. 4 and 5 bonds, are probably the biggest losers. According to A.M. Best Co., an insurance-industry research firm, Aetna Life & Casualty held $50 million worth of the securities at the end of last year, while Fireman's Fund, a unit of American Express, had $48.9 million at risk, and Kemper had $24 million. None of these companies, however, has fallen into financial trouble. Says an Aetna official: "Our losses will not be insignificant. But our other assets are very secure, and our foundation is very, very solid." Aetna's Nos. 4 and 5 bonds represent little more than one-tenth of 1% of its $44 billion portfolio.
Bondholders eager to reduce their losses are banding together to sue virtually everyone with any connection with the default. Besides Whoops, the defendants include a group of 88 utilities in the Northwest. They had originally agreed to pay for the plants, but later some of them backed out of their contracts. Other suits name such prominent brokerage houses as Merrill Lynch, Prudential-Bache Securities, Smith Barney and Salomon Bros., which enthusiastically sold the Whoops bonds. They are accused of withholding crucial information about the agency's deteriorating finances. Even Moody's Investors Service and Standard & Poors were hauled into court because they gave the bonds high ratings. "They are all responsible," says Melvyn Weiss, one of the lawyers representing bondholders.