Some traders made a killing during the chaotic price decline. The press reported that Armand Hammer, who ran the multinational oil and gas company Occidental Petroleum, “made $119 million on futures market silver and gold transactions … as prices were plunging.”99 Hammer said the company had been developing silver and gold mines in Nevada and took advantage of the price spike last January and sold silver when it was “$41 an ounce and above.” He said we “closed out our silver contracts … in the last week or ten days,” a nice example of futures markets hedging anticipated production. Henry Jarecki’s head silver trader, Sal Azzara, told his boss on Friday morning, March 28, “We had a pretty good year last night.”100 Sal anticipated frenzied trading between dealers after Comex closed on Silver Thursday, so he set up a makeshift operation in Henry’s Manhattan apartment at UN Plaza, which had the necessary telexes and telephones. He bought silver all night from New York brokerage firms needing to liquidate and immediately sold the bullion to European companies looking for bargains. Prices fluctuated between $8 and $12 throughout the night, and Azzara traded more than 15 million ounces, always for a profit of at least a dollar an ounce rather than the usual nickel or dime. Henry smiled because he made a lot of money and because it reminded him of arbitraging Nescafé coffee between Basel and Heidelberg.
The Hunts’ downfall fit Jarecki’s portrait of failure. He had warned in his March 1979 Euromoney article that a trader cornering the market requires an exit strategy because when he sells, “his selling, and that of those who watch his activities, rapidly causes the price to fall; the price shoots downward even more rapidly than it rose,” a prophetic description of events in March 1980. Jarecki had advertised his expertise to the Hunts and in retrospect suggested: “Maybe I could have taught them how to escape if they asked. There is only one way when you’ve successfully undertaken a corner, and that is to transform what you own into something else. With silver, they could probably have found a sovereign oil-producing entity from which they could have bought crude oil and paid for it in silver. They could have persuaded the leaders of some such country that it would strengthen them … to back their money with silver. … The Hunts tried a variation of my idea … [with] silver-backed bonds. But it was all too little and too late. … It was done in too great a rush. … I could have advised them on all that, but they wouldn’t have listened.”101
Bunker, Herbert, and Lamar Hunt had assets worth more than $5 billion on Friday, March 28, 1980, and owed $1.7 billion in silver-related loans and obligations, making them among the richest families in the world despite the billions they lost in silver, but they still faced the threat of bankruptcy for failure to make scheduled payments.102 They had no cash to pay Engelhard Minerals & Chemicals the $434 million due on Monday, March 31, in connection with the January EFP that, in retrospect, was one of the worst trades in history, almost as bad as the Red Sox selling Babe Ruth to the Yankees for $100,000 cash in 1920. The Hunts, mostly Bunker and Herbert, had agreed to pay almost $700 million for silver worth about $200 million at current bullion prices.103 Milton Rosenthal, the silver-haired chairman of Engelhard, his vice chairman, David Tendler, and his legal staff flew to the Hunt offices in Dallas on Saturday, March 29, to collect their debt, but as one Engelhard participant said, “It was pretty clear that there wasn’t much free collateral around.”104 He also noted, “The Hunts weren’t apologetic at all. They said those were the facts and the facts were bad. For people who had just lost $2 billion, they were as calm as any people I’ve ever seen.” Bunker’s observation during the discussions, “A billion dollars isn’t what it used to be,” perhaps explains their unruffled demeanor.105
Negotiations dragged on for three days, and in a complicated transaction the Hunts gave Engelhard a 20% interest in their Canadian oil and gas property in the Beaufort Sea, relinquished any claim to the 19 million ounces of silver in the EFP, and gave up 8.5 million ounces of bullion they had pledged as collateral.106 The New York Times headline, “A Deal’s a Deal, Said Engelhard,” suggests a victory for the New York Stock Exchange–listed company, but Engelhard accepted a speculative package, bullion worth about $350 million and a minority stake in unproved Beaufort Sea reserves, because it had no choice.107 Years later Engelhard wrote off the Beaufort Sea property, but at the time Rosenthal accepted it rather than declaring all-out war by putting the Hunts into bankruptcy because a default by the Hunts might have been worse.108 Milton Rosenthal said he was confident that “we obviously could have recovered a judgment,” but he worried that a lawsuit would have tied up the Hunts’ assets in the courts, would have required a detailed disclosure to Engelhard stockholders, and might have created a replay of Silver Thursday that could have bankrupted some brokerage firms.109
Paul Volcker also worried about the financial turmoil following a bankruptcy and approved a $1.1 billion bank loan to the Hunt family’s Placid Oil Company to consolidate the remaining silver-related debts of Bunker, Herbert, and Lamar, which totaled about a billion dollars after settling with Engelhard.110 The transaction, which Volcker described as designed to “greatly strengthen the security position of the creditors,” needed his approval to assure that it did not violate the prohibition against speculative bank loans in the president’s credit restraint program.111 In his testimony before Representative Benjamin Rosenthal, chairman of the House Subcommittee on Commerce, Consumer, and Monetary Affairs, Volcker admitted: “I recognize that the outcome, while plainly desirable in the interests of the creditors themselves and financial stability generally, could have as a byproduct some stabilization of the financial position of the Hunts themselves.”112 Although Volcker did not say the Hunts were “too big to fail,” the thin and bespectacled Rosenthal was not pleased and pushed Volcker for details:113
ROSENTHAL (R): Is it a correct statement to say that the Hunts are presently negotiating a loan from a group of banks for about $1 billion?
VOLCKER (V): Yes.
R: Have you in any way indicated the Federal Reserve would be cooperative with the banks in assisting them making that loan?
V: Our principal interest in their negotiation … is that this credit should … provide the maximum assurance that it will not contribute to further speculation in the silver commodities or securities markets.
R: Are you going to make any money available to these banks?
V: No.
R: How will this affect the credit markets altogether?
V: To the extent that the position of banks and other lenders is strengthened … it adds stability.
R: Do you know if it is a loan to two individuals?
V: This loan … will not be to the Hunts or the Hunt family, it will be to the Placid Oil Company.
The distinction between the Placid Oil Company and the Hunt brothers carried dire consequences for Bunker, Herbert, and Lamar. Trusts established for the six children of Lyda Bunker Hunt jointly owned Placid Oil Company.114 Placid was a major moneymaker, earning $153 million on revenues of $756 million in 1979 from its oil and gas businesses, including operations as producer, refiner, and pipeline owner.115 In March 1980 the Morgan Guaranty Trust Company put the value of Bunker, Herbert, and Lamar’s share of Placid at $1.9 billion.116 But by lending money to Placid rather than to the three brothers, the banks in effect forced all the trustee owners to guarantee repayment of funds used for the benefit of the silver speculators. Bunker’s oldest sister, Margaret Hunt Hill, who had a soft spot for Bunker and his lifelong battle with food, nevertheless had “never liked the way Bunker and Herbert were wheeling and dealing.”117 She forced her brothers to mortgage their property to Placid to back their obligations to the family company.
The silver crisis passed, Bache stock began trading again on Wednesday, April 2, 1980, but the list of assets pledged to Placid by Bunker, Herbert, and Lamar made headlines.118 Under the banner “When a Billionaire’s Piggy Bank Breaks,” the U.K. Guardian gave the world a glimpse of what living like a Hunt meant.119 The brothers pledged businesses located througho
ut the United States, including “Mississippi cotton plantations, … an old bowling alley in Dallas, … citrus groves in California, and car parks in Anchorage, Alaska.”120 Herbert contributed his collection of rare Roman and Greek statues, and Lamar listed personal property that might have strained his marriage, including his wife’s mink coat and her diamond ring. He demonstrated fair play by pledging his Rolex watch and his Mercedes. But Bunker, of course, made the biggest splash with his list of some five hundred thoroughbred horses, including Dahlia, the filly that had won the King George VI and Queen Elizabeth Stakes at the Ascot racecourse in back-to-back years, and Trillion, which came in second at the Prix de l’Arc de Triomphe race, where he met and wooed Mahmoud Fustok and Naji Nahas.121
It was embarrassing but the worst was yet to come.
CHAPTER 20
* * *
THE TRIAL
REPORTERS, COMMODITIES TRADERS, AND TRIAL BUFFS PACKED THE wood-paneled courtroom in the U.S. district court on Foley Square in downtown Manhattan on Wednesday, February 24, 1988, to glimpse the Texas billionaires who had lost a legacy trading silver eight years earlier.1 Some of the old-timers may have recalled seeing other men turn wealth into misfortune, like Jesse Livermore, who reportedly made $100 million selling short before the 1929 stock market crash only to lose it all five years later. Or Ivar Kreuger, the Swedish entrepreneur called the match king because he controlled world match production, who built an international business empire during the 1920s and committed suicide in 1932, when exposed as a fraud. But the curiosity-seekers in the federal courtroom on February 24, 1988, wanted to see the 250-pound Bunker Hunt, considered the richest person in the world a few years earlier, defend his reputation in a civil trial against charges by Minpeco, the Peruvian government’s marketing arm, that he and his brothers, Herbert and Lamar, had manipulated the price of silver for personal gain and caused almost $150 million in damages, which could be tripled under the antitrust laws.2 Minpeco’s civil trial in federal court suspended the CFTC’s Division of Enforcement proceedings against Bunker and Herbert that had begun in 1987.3
Federal Judge Morris Lasker, a young-looking seventy-year-old with neatly parted dark hair, sat behind the raised podium in front of the room, and six jurors plus alternates, teachers and housewives from Manhattan and the Bronx, were boxed-off to his right. Minpeco’s lawyers and two officers of the company sat facing the judge in the first pew-style bench, and behind them were lawyers for the Hunts and attorneys for Mahmoud Fustok and IMIC, also named in the complaint. But there was no sign of Bunker, Herbert, or Lamar anywhere in the courtroom, nor would there be for some time. Defense lawyers had decided to keep the brothers away to prevent plaintiff lawyers from calling them as witnesses and instead would bring them in when the defense began its case.4 It is a common enough tactic, made possible here because the defendants lived beyond the one-hundred-mile limit to the subpoena power of the court, and defense attorneys wanted jurors to see the Hunts accompanied by a favorable narrative. Judge Lasker told the jury “there is no obligation under law for a defendant to attend the trial,” but the strategy turned into a disaster.5
Trials begin with opening statements by attorneys to tell the jury what they expect to prove. The plaintiff usually goes first, and Mark Cymrot, forty-one years old with a then-fashionable thick black mustache, started for Minpeco by saying the Hunts “were greedy, that they were power hungry, and that they were unscrupulous.”6 He intended to show that they “rigged the silver market [and] that they cheated, that they drove up the price of silver, and they did it intentionally.”7 He accused the Hunts of violating the Sherman Antitrust Act by conspiring with others, including Mahmoud Fustok and Naji Nahas, to manipulate prices. Judge Lasker had already explained that the Sherman Act prohibited “two or more people [from entering] … into an agreement … to fix prices” and had defined manipulation in layman’s terms as “roughly speaking … to cause prices to rise or fall in an artificial way.”8 Cymrot told the jurors not to expect “Bunker Hunt or Herbert Hunt or Mr. Fustok or Lamar Hunt to come here and say, yes I conspired. … They deny it.”9 Cymrot said the evidence was “something like a jigsaw puzzle” that jurors would have to piece together but offered a compelling chart as a visual aid.10 The panoramic picture above the windows on the wall opposite the jury showed a line tracing silver prices from 1968 through 1987. The chart stretched almost the length of the courtroom and accentuated a history of slowly rising prices, beginning at around $2 an ounce in 1968 and ending in 1987 at about $7, interrupted by a skyscraper-like spike in January 1980 to $50 anounce.11 The chart dominated the courtroom for the entire trial, according to one defense attorney, forcing the Hunts to disown responsibility for the abnormal jump in prices.12
Paul Curran, a stocky fifty-five-year-old who had served as the U.S. attorney for the Southern District of New York, opened for the Hunts by saying that Minpeco has the “burden of proving facts” and emphasized multiple layers of facts in this case.13 He said even if Minpeco proved a conspiracy, for example, they would still have to prove that the conspiracy caused “the price of silver to go up higher than it would have gone anyway.” He then explained that “the evidence as distinguished from the conjecture will show that the price rise was caused by events in the world, political and economic … but were at this point in history more frequent, more powerful, more compressed, than before or since. That’s because silver, just like gold, is an investment commodity that people want to hold in times of turmoil.”14 Curran added that silver is “much more erratic than gold” to explain why it increased twice as much and then reminded jurors of the chaotic period eight years earlier when inflation “reached double digit levels,” when “Iranian terrorists invaded the United States embassy in Teheran and seized the American hostages,” and then “the Russian army invaded Afghanistan.”15
Both Cymrot and Curran sounded persuasive and the jurors paid attention—no one dozed off just yet—but Judge Lasker had told them before the opening statements, “Whatever any of the attorneys has to say about the facts of this case does not constitute evidence. You don’t start to judge the evidence until you hear the witnesses.”16 Trouble for the defense began when Cymrot, unable to call Bunker, Herbert, or Lamar to testify in person, showed the jury unflattering videotapes of the brothers.
A pair of black television screens propped up in front of the jury box aired a video showing a grainy frontal image of a well-dressed Bunker Hunt seated at the head of a long mahogany table covered with file folders.17 It looked like a casual business meeting in Bunker’s dining room, with half-filled drinking glasses set in front of three or four men in shirt sleeves seated along the sides of the table, but it was a deposition, oral sworn testimony, of Bunker Hunt taken by Mark Cymrot in a conference room of a Dallas law firm. Bunker did not smile for the camera because a deposition, used to discover information from witnesses before trial, feels like a colonoscopy but worse because it is with a lawyer. The attorney pokes the witness to extract incriminating answers while the witness tries to block the lawyer from learning too much. The confrontation resembles a bare-knuckles boxing match. A court reporter sat adjacent to Bunker to record his words for subsequent transcription, lawyers sat on both sides of the table monitoring the proceedings, and a cameraman videotaped the sessions.
Cymrot began the deposition with a simple question about a well-known episode:18
CYMROT (C): Mr. Hunt, in March of 1980, did you issue a press release from Paris in connection with silver-backed bonds?
HUNT (H): I knew about it. … I don’t think it’s correct to say I released it.
C: (hands Hunt a page) Okay. Let me direct your attention to … a document entitled “Announcement,” and at the bottom it says Mr. Nelson Bunker Hunt … 26–3-1980 … Now is that your signature on that document?
H: (pushes his glasses up the bridge of his nose and holds the page close to his face as though checking counterfeit currency) I can’t tell. It’s pretty blurred. It’s some facsimile.
C: Does it appear to be your signature?
H: I couldn’t promise you it is, but it’s some similarity to it.
C: (looks surprised) You have some doubt about whether it’s your signature?
H: I’ve answered your question.
C: (shrugs and moves on) Did the press release involve a group of silver owners who owned in excess of 200 million ounces of silver at that time?
H: (shakes his head) I don’t know.
C: (points to a copy of the press release in front of Bunker) Let me ask you whether that’s the press release that was issued?
H: (looks at the document and then flips it back to Cymrot) I don’t know. I don’t have that … close a recollection of it.
Bunker’s verbal sparring over a signature may be fair play at a deposition, although pointless given the press coverage accorded the original announcement, but 200 million ounces of silver would never escape the Texan’s recollection. His feigned amnesia may have displeased Cymrot at the time, but it became a bonanza when shown on screen at trial. Bunker sounded evasive, uncooperative, and untrustworthy, and his body language conveyed disdain for the proceedings, convincing the jury that he was lying when he later protested innocence. In post-trial interviews members of the jury said the videotapes showed the defendants to be “less than frank in explaining their actions” and “particularly damaging was Bunker Hunt’s changing his testimony about his role in the silver-backed bonds.”19
The Story of Silver Page 25
