$10-Million Fine Levied on Nelson Bunker Hunt : Commodities: The fine settles a case in which the Texan was accused of rigging the silver market. The penalty is the largest ever assessed by the Commodities Futures Trading Commission.
One-time Texas billionaire Nelson Bunker Hunt will pay a record $10-million penalty and be barred from all commodity trading under a settlement of civil charges that he tried to rig the silver market in 1979 and 1980, the Commodities Futures Trading Commission said Wednesday.
The penalty, the largest fine ever levied by the CFTC, will be collected only after Hunt pays his “multimillion-dollar debts to the Internal Revenue Service,” the CFTC said.
The CFTC settlement is tied to agreements between Hunt and the IRS, giving the Treasury the rights to the bulk of Hunt’s bankruptcy estate in return for disposing of tax claims. Hunt agreed to the settlement without admitting or denying the charges against him.
Most of Hunt’s financial holdings, now under control of a bankruptcy court, will be consumed by federal income tax payments and by legal judgments to private firms and individuals who sued in connection with the silver market surge.
Hunt and his brother, William Herbert, and six other defendants allegedly acquired more than 100 million ounces of silver bullion in an attempt to corner the supply of the metal and manipulate the market. Silver prices soared from less than $11 an ounce in September, 1979, to a record $50 an ounce in mid-January, 1980, and then collapsed below $11 by the end of March. The price of silver was $5.64 an ounce on Wednesday.
The Hunts’ massive silver purchases--a combination of the actual metal and futures contracts calling for delivery of more silver at a later date--violated CFTC rules against market manipulation, the regulatory agency said. By concentrating the buying surge in such a short time, the Hunts drove the price of silver to artificially high levels, according to the CFTC.
As prices climbed, the Hunts used their silver holdings as collateral to borrow large sums of money to buy even more silver. The purchases were so great the market was “unable to meet their demand at non-artificial prices,” the CFTC said in its original 1985 complaint.
When the commodities exchanges applied limits on trading activity to cool the speculative surge, the Hunts tried to open new accounts in the names of other persons and corporations to keep driving up the price, according to the CFTC. Silver prices ultimately collapsed as new supplies poured into the market and after the Federal Reserve Board issued a stern warning against providing loans to finance speculation in silver.
Under the agreement, Nelson Bunker Hunt is barred from trading in silver or any other commodity in the United States, a sweeping and irrevocable exile from the markets where the erstwhile billionaire once played a big role.
The CFTC expects to collect the $10 million in stages. The agency will be a creditor in the bankruptcy proceeding for $1.5 million. The IRS gets the lion’s share, expecting to receive 80% of the money disbursed in the bankruptcy proceeding.
After Hunt emerges from bankruptcy, the CFTC would obtain the remaining $8.5 million from any inheritances received by Hunt, whose fortune was first built by his father, the legendary Texas oilman H. L. Hunt. Once again, the IRS has first call on inheritances and future earnings.
CFTC officials agreed that the agency would come behind the IRS in its claims because all of the money collected in penalties goes to the same destination, the U.S. Treasury.
Authorities are negotiating a similar settlement with William Herbert Hunt.
Nelson Bunker Hunt filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in 1988. The bankruptcy judge halted CFTC proceedings against Hunt, but the action announced Wednesday provides a settlement of the agency’s civil complaint.
