Hunt Brothers Accused of Manipulating Silver Futures in ’79 and ’80
Federal regulators Thursday charged controversial Texas millionaires Nelson Bunker Hunt and W. Herbert Hunt and four associates with having manipulated the silver futures market in 1979 and 1980 in a scheme that ultimately produced more than $1 billion in losses for the two Hunt brothers and threatened the stability of a major brokerage house.
The administrative complaint by the Commodity Futures Trading Commission has been awaited for years since the Hunt’s celebrated buying spree. Officials of the CFTC said its investigation has been going on in one form or another, and with varying intensity, since the silver market crashed in March, 1980.
The Hunts’ role in the silver market has already been the subject of investigations by Congress and the Securities and Exchange Commission, but this is the first formal legal action to be taken by a government agency against them.
The commission’s complaint is the latest in a series of financial and legal setbacks to strike the Hunt brothers--the scions of famed oil wildcatter H. L. Hunt.
Hunt International Resources Corp., a sugar refiner and oil driller owned by trusts of the two brothers, reported last week that it is in default on $295 million in debt, lost almost $90 million in the fourth quarter ended Sept. 30, 1984, and has a negative net worth of $112 million.
Company officials said Thursday that paychecks for some of its employees bounced last week after banks cut off funding to some of the company’s operations.
The Internal Revenue Service is also seeking $238 million in back taxes from Nelson Bunker Hunt, his family and a family-controlled oil company in connection with cash transfers that Hunt made to his children to finance silver trading in the children’s accounts. The IRS contends that the transfers were gifts, although Hunt characterized them as loans in 1980.
The two Hunt brothers named in the commission’s complaint and their co-defendants could face penalties of up to $100,000 apiece for each violation of the law, a category that theoretically could encompass every one of scores of trades they made. A commission official said that, if penalties are imposed, they are likely to come to several hundred thousand dollars each.
The commission can also ask that the defendants be barred from trading in any commodity on any official U.S. futures exchange.
A statement issued on behalf of the Hunt brothers from the offices of Hunt Energy Corp. in Dallas said the “thrust of the alleged charges is baseless. . . . The acts were totally above board and within the spirit and the letter of all applicable laws and regulations.”
From September, 1979, through March, 1980, according to the allegations in the administrative complaint, the Hunt interests maintained bullion and futures positions that played a significant role in driving the price of silver to $50 per ounce in mid-January, 1980, from less than $9 the previous September.
Silver prices later crashed to less than $11 in late March, 1980, an event that apparently cost the Hunt interests more than $1 billion.
The commission charged that the Hunts and their associates acquired more than 100 million ounces of silver bullion in the period covered by the complaint. At the same time, they established long positions in silver futures contracts--agreements to buy the metal at a later date--that represented a potential demand equivalent to 130% of the total U.S. industrial consumption of silver in 1979 and half of the entire world silver production that year.
The silver craze of 1979 and 1980, which ultimately saw people lining up to cash in family heirlooms and old coins, was broken in January, 1980, when New York’s Commodity Exchange Inc., under commission pressure, imposed limits on the futures positions of traders.
Bache & Co. Threatened
That March, the price plunged sharply, severely weakening the Hunts’ financial condition and posing a threat to Bache & Co., their broker and lender, which was owed more than $200 million by the Hunt interests. Ultimately, a bank consortium was formed to bail out the Hunts and Bache with an emergency loan.
The commission’s complaint also names Naji Robert Nahas, a Brazilian citizen alleged to have participated in the silver speculation with Bunker Hunt; International Metals Investment Co., identified as a Bermuda corporation partially owned by Hunt interests; Norton Waltuch, a former floor broker on the Comex, where silver futures are traded, and a former vice president of ContiCommodity Corp., a major futures firm; Advicorp., a Geneva-based investment advisory firm, and two Advicorp shareholders, Jean-Jacques Bally and Pierre Alain Hirschy.
Currently Inactive Member
A spokesman for ContiCommodity said Waltuch is no longer employed by the firm and added that the company “denies the allegations that it or any of its employees engaged in improper activity.” Waltuch is currently an inactive member of Comex, the exchange said. He and the other individual defendants could not be reached for comment.
Commission Enforcement Director Dennis Klejna said the investigation of the Hunts’ silver trading took nearly five years, in part because of the complexity of transactions, many of which took place in London and Zurich.
“We have had our difficulties in getting information from abroad,” he said. Among other problems, the commission was never successful in obtaining a statement from one defendant, Nahas, who has been living in Brazil out of the agency’s reach.
