The Story of Silver

by William L. Silber

  Bunker’s in-person courtroom performance fared worse. Three months after the trial began Paul Curran led his client through direct testimony that allowed Bunker to tell his story. He explained his obsession with the white metal in a soft Texas drawl, saying he wanted “to invest in something I could get my hands on,” and, while panning the courtroom where his brothers, Herbert and Lamar, sat among the spectators, he added, “As far as the silver market goes, it was very bullish, almost euphoric.”20 When Curran asked about the alleged conspiracy, he became indignant, “I never participated in any conspiracy with anybody at any time.”21 Bunker admitted discussing the white metal as an investment—“I talked about silver with everybody”—but insisted, “I never knew anything about Fustok’s operation” and “I never knew what Nahas was doing.”22 Bunker said that he made independent trading decisions and did not conspire with anyone, including his brother Herbert. He sounded like an eagle scout until Mark Cymrot’s cross-examination.

  Cymrot focused on the relationship between Bunker and Herbert:23

  C: At any time during the period 1974 through 1980, did you and Herbert Hunt agree in advance on a particular day that you would buy silver?

  H: I don’t recall that ever happening.

  C: On occasion in the period of 1974 through 1980, when you and Herbert Hunt held the same amount of silver and the same contract … would you say that was a coincidence?

  H: I don’t recall that ever occurring but if it did occur, it would have been a coincidence.

  C: (places a fat stack of files on the table and begins showing Bunker documents with identical brotherly transactions): Mr. Hunt, was it just a coincidence that both you and your brother in November of 1979 contracted to purchase from Swiss Bank Corporation 750,000 ounces of silver … as indicated in these two memos?

  H: No. In this particular case, this Swiss Bank deal, as separate from the commodity exchanges, I think I did make this purchase … and I asked my brother if he wanted to make one. And in this case as I recall he said he did. …

  C: (shows him another document) These charts indicate that both you and your brother Herbert as of January 1, 1980, held London forward contracts with prompt dates of March 11, 1980, for 600,000 ounces each. Was it a coincidence? …

  H: I don’t recall why I bought those. Someone else would have to determine whether it was a coincidence or whatnot. I just don’t recall.

  C: Mr. Hunt, between early May of 1979 and mid-July, 1979, both you and your brother Herbert established substantial bull spread positions on the CBOT and Comex with the long legs in February, March, and May futures contracts. Was that a coincidence?

  H: No, I don’t recall that. I don’t know whether it was a coincidence. I wouldn’t say it was.

  The discussion between Mark Cymrot and Bunker Hunt of identical trades continued for about an hour, but the case was over well before that, according to Phil Geraci, a bright young lawyer on the Hunt defense team. “I thought I would throw up if I heard the word coincidence again.”24 Bunker’s claim that he and Herbert had not traded together lacked credibility and undermined his denial of a conspiracy with Mahmoud Fustok, Naji Nahas, Prince Faisal, and the other participants in the silver bond announcement of March 26, 1980.

  After the trial members of the jury said they took only a few hours to find Bunker, Herbert, and Lamar liable for manipulation, monopolization, fraud, and conspiracy, primarily because the Hunts had been evasive and inconsistent witnesses. 25 The jurors relied on a common sense principle, “false in one, false in all,” which Hunt lawyer Paul Curran had used to highlight errors in Mark Cymrot’s opening statement, but the phrase came back to haunt his clients.26 Bunker, Herbert, and Lamar had tried but failed to connect with the working-class jury by taking the subway from their hotel to the courthouse every day. No one cared. And the jury ignored when Lamar brought Willie Lanier, the former Kansas City Chief’s star linebacker, to sit with him in the courtroom.27 Jurors found it easy to convict the Hunts but fought amongst themselves for five days over the amount to award to Minpeco because witnesses had disagreed on whether the attempted manipulation raised prices.28

  An all-star cast of economic experts offered testimony, including Harvard’s Hendrik Houthakker for Minpeco and Yale’s Stephen Ross, Columbia’s Frank Edwards, and Stanford’s Jeffrey Williams for the defendants, but their statistical models failed to connect specific Hunt purchases with price increases in silver.29 The absence of a link should have exonerated the Hunts but political news, although considerable, also failed to fully explain prices, leaving too much to the jury’s imagination.30 According to jurors, the most persuasive connection came from plaintiff’s panoramic chart above the windows picturing massive Hunt silver holdings matched in time with the price spike, linking the two like thunder and lightning during a storm.31 Defense expert witness Jeffrey Williams said later, “As evidence becomes more complicated and a trial longer, the power of a simple memorable argument increases.”32 On Saturday, August 20, 1988, after considerable prodding by Judge Lasker and without further explanation, the jury awarded Minpeco $65.7 million in damages, tripled under the antitrust and racketeering statutes, bringing the sum to $132 million after deducting what the Peruvians had already received in other settlements.33

  The jury got the conspiracy part right. In a civil trial the standard of proof is “preponderance of evidence,” and the jurors heard too many coincidences countered by evasive Hunt testimony to reject the plaintiff’s claim of collusion. But that same standard failed to demonstrate that the Hunts and their allies drove up prices. The chronology suggests that unprecedented events, the massive accumulation of bullion, and a whirlwind of provocative news swept silver prices to near mythical levels, almost like the cyclone that whipped Dorothy to the Land of Oz. But the Hunt jury had to distinguish between the defendants’ accumulation and the unsettling news to measure Hunt liability, and nothing the experts offered helped. For example, plaintiffs proposed that gold prices reflected political and economic turmoil and silver increased twice as much, providing a benchmark for damage calculation.34 But that ignores the historical evidence that the white metal is twice as volatile as the yellow in normal times.35 The jury compromised by awarding Minpeco about one-third of its claimed damage, $65 million out of $150 million, perhaps giving each of the forces—economic, political, and conspiratorial—an equal share of the blame.36 But Minpeco’s loss was largely self-inflicted, acknowledged back then by Peruvian officials saying that their “need to buy … silver futures in late December … contributed to the metals’ sharp rise at that time,” which would have made the failure of Minpeco to collect even this smaller judgment an appropriate outcome.37

  On Wednesday, September 21, 1988, Bunker and Herbert filed for personal bankruptcy in federal court in Dallas, explaining in a formal statement released by a Hunt company executive, “Bunker and Herbert believe the jury verdict in New York is so unjust that they elected to seek Chapter 11 protection of the United States Bankruptcy Court in order to insure their ability to continue their businesses while at the same time appealing their silver case.”38 Bunker added a personal touch, “The thought of even a dime going to the government of Peru is repugnant.”39 The bankruptcy filings erected a roadblock on the path to Hunt money, temporarily suspending payment of their obligations and pushing Minpeco’s claims below that of secured creditors. Minpeco would have to detour through the bankruptcy court to receive its judgment.

  The white metal had already undermined the crown jewel of the Hunt fortune, forcing the Placid Oil Company into Chapter 11 in August 1986, after oil prices collapsed to under $12 a barrel and the company missed payments on the outstanding balance of the billion-dollar silver loan.40 Forbes magazine still counted the Hunts among the four hundred richest Americans after Placid’s bankruptcy filing but bumped them down the 1986 list, with Bunker’s net worth dropping from $900 million to $400, Herbert’s from $800 million to $350, and Lamar’s from $500 million to $250.41 The Hunts still made
fat targets for Minpeco’s claims, but, except for Lamar, who settled his smaller share of the judgment without declaring bankruptcy, the brothers made the Peruvians work for their money.42

  Bunker’s thick bankruptcy papers, filed on September 21, 1988, listed personal property worth $249 million and debts exceeding $1.2 billion, but his filing contested the biggest obligations of $600 million to the IRS and $500 million in litigation claims, including to Minpeco.43 His uncontested debts ranged in size from $36 million owed to Manufacturers Hanover Trust Company, the New York banking giant, to 67¢ owed the tax collector in Rockdale, Texas. A former bankruptcy judge in Dallas said, “In thousands and thousands of bankruptcy schedules I’ve never seen anyone list a 67 cent debt to a tax collector.”44 Not to be outdone, Herbert estimated his assets at $40 million and debts of $887 million, including the $36 million owed to the New York bank, for which both he and Bunker were jointly and individually liable, and personal obligations of $27.23 owed to Dennis Brannan of Coon Rapids, Iowa, and 36¢ to Anna Belle Langley of Houston. The bankruptcy papers listed valuable personal assets, including Bunker’s ancient coin collection and Herbert’s museum-quality Roman and Greek bronze statues, but added distractions such as Bunker’s 1979 Oldsmobile Cutlass worth $1,000 and Herbert’s wardrobe valued at $3,000. The big creditors, Manufacturers Hanover Bank and Minpeco, worried that the excessive detail resembled a pickpocket’s bump, a diversion to mask prebankruptcy transfers of assets by Bunker and Herbert to escape creditor claims. Hugh Ray, an attorney for the New York bank said, “We’re looking at all the transfers,” which presumably included Bunker’s shift of capital to overseas operations in New Zealand, Libya, and Yemen and Herbert’s sale of his 1973 Mercedes to pay off a $5,000 debt to his daughter, Lyda Allred Hunt.

  More than a year elapsed before the Hunts and their creditors agreed on a reorganization plan under Chapter 11 to settle outstanding claims. In a crowded Dallas courtroom on Friday, December 15, 1989, federal bankruptcy Judge Harold Abramson confirmed an agreement to appoint a trustee to sell Bunker’s assets, valued at about $150 million, including Australian land, the ancient coin collection, and his two-thousand-acre Circle T Texas ranch.45 On Thursday, December 21, 1989, the judge confirmed a similar plan to sell Herbert’s $125 million of assets.46 As part of the reorganization plan the CFTC settled its judgment against Bunker and Herbert with a $10 million fine for each and a lifetime ban against trading in the American commodities markets.47

  The bankruptcy trustees would conduct the asset sales over six years and the bulk of the proceeds, 80% of Bunker’s and 70% of Herbert’s, would go to the IRS to settle back taxes, with the remainder divided among the other creditors, including Minpeco, who would receive about 30¢ on the dollar.48 The final plan made everyone unhappy, creditors because they came away with so little and the Hunts because their lives would be transformed by the Texas-size garage sale.

  The liquidation of the Circle T ranch in Westlake, Texas, brought more than two thousand people to the auctioneer’s stand at Bunker’s favorite retreat. The crowd included art dealers, jetsetters, and bargain hunters from more than twenty-five states and seven foreign countries, with cars parked where Hunt cattle once grazed. Everything was for sale, including an oriental rug that went for $9,000, a Chippendale dresser that sold for $8,500, and an oak rocking chair with Bunker’s name burned into the back that Dallas resident Mike McCurley grabbed for $3,500. He said, “I’m going to use this as a constant reminder that no matter how big you get, you can always fall.”49 But the most personal item sold that day was a grinning bronze bust of Bunker that Houston Hunt, Bunker’s son, bought for $3,500. He explained, “We’re buying back a few things that meant something to us.” The press quoted an unnamed family member saying they were buying it because “we’re concerned that personal items, such as the bust, might end up as objects of ridicule as a centerpiece in a tavern or restaurant.”

  FIGURE 19. The Athenian decadrachm, Bunker’s favorite.

  Sotheby’s auction of the family’s art and antiquities collections on June 19, 1990, in New York City, attracted a more sophisticated audience. Bunker spoke philosophically about the event: “It’s not a happy situation. But in life you have to do things you don’t want to do. I doubt if I’ll ever be in shape to collect again. If I live long enough, I may have enough money to do something, but probably not.”50 He discussed his favorite coins in the collection, mentioning the silver Athenian decadrachm, minted in the early fifth century BCE, which cost him a record $272,000 in 1974 and would fetch twice that in the auction: “You enjoy seeing these things. They’re very beautiful.” Herbert was equally smitten by his collection of Byzantine coins, described by a private consultant to Sotheby’s as “on a par with many museum collections.” Herbert said, “I like the silver Byzantine coins. They’re rarer. There’re not as many of them that made it through time. They’re pretty too. I just like them.”

  Falling in love with the white metal had cost them a fortune.

  CHAPTER 21

  * * *

  BUFFETT’S MANIPULATION?*

  ON WEDNESDAY, JANUARY 14, 1998, ALMOST TEN YEARS AFTER THE Hunt case went to trial, the Wall Street Journal reported that the Commodity Futures Trading Commission had “increased surveillance in the silver futures market following allegations that several market participants were manipulating prices.”1 A price increase of almost 30% during November and December 1997, bringing the white metal to an 8½-year high of almost $6 an ounce, triggered the inquiry according to the Journal.2 A CFTC spokesperson said, “The Commission intensifies its surveillance efforts when unusual events or activities occur such as we’ve seen lately in silver markets.”3

  The CFTC had good reason to suspect foul play. Unlike 1979 and 1980, when investors took refuge in gold and silver to protect against rising inflation and political unrest, the near-30% jump in silver during the last half of 1997 came with global stability and a decline in gold prices of more than 13%, making manipulation the prime suspect in silver’s resurgence.4 Chase Manhattan Bank’s head of commodity risk analysis, Dinsa Mehta, said, “One has to treat with suspicion an overt attempt to muscle the commodity higher.”5

  A report in the Wall Street Journal that “silver stockpiles at Comex Warehouses dipped to … the lowest level since 1985” and rumors that “a lot of that silver has left the country” sounded like the Hunts were back in business.6 New York attorney Christopher Lovell revived names from that era by filing a lawsuit charging Phibro, the commodities trading arm of Travelers Insurance Company and originally the Philipp Brothers division of Engelhard In dustries, with moving silver from Comex warehouses to “non-reporting black hole locations” in England and elsewhere.7 The U.K. Guardian spiced the international scene with the headline, “Booming Silver Market ‘Rigged,’ ”8 and quoted a London bullion market trader, “It seems to us someone is doing something.” The Guardian reported that “both the Bank of England … and the London Bullion Market Association … are watching developments.”9

  The mysterious “someone” emerged from behind the curtain on Tuesday, February 3, 1998, in a press release from Warren Buffett’s Berkshire Hathaway Company: “Because of recent price movements in the silver market and because Berkshire Hathaway has received inquiries about its ownership of the metal, the company is releasing certain information that it would normally have published next month in its annual report. The company owns 129,710,000 ounces of silver. Its first purchase was made on July 25, 1997, and its most recent purchase was made on January 12, 1998.”10

  Buffett, at the time a spry sixty-eight-year-old with a white-hair comb-over, the most successful American investor in the second half of the twentieth century, suggested in the press release that he had completed accumulating the white metal: “Berkshire has no present plans for purchase or sale of silver.”11 The disclaimer failed to discourage speculators, who drove up silver prices by a significant 16% in two days following the Berkshire Hathaway announcement, reaching $7.59 per o
unce, the highest in almost ten years.12 They had every reason to jump on the bandwagon. In less than six months Buffett had bought 25% of the world’s annual production of the white metal, a performance worthy of Nelson Bunker Hunt.13

  Silver did not belong among Warren Buffett’s investments. He had led Berkshire Hathaway for more than thirty years, priding himself on picking companies that are “understandable, possess excellent economics, and are run by outstanding people,” qualities he examined as though he were considering a lifelong commitment.14 His investments lasted longer than most modern marriages. When Robert Goizueta, the CEO of Coca Cola, Berkshire’s largest holding in 1997, died in October, Buffett commented, “After his death, I read every one of the 100 letters and notes he had written me during the past nine years. Those messages could well serve as a guidebook for success in both business and life.”15 In discussing his acquisition of International Dairy Queen in 1997, he first gave some general information, “There are 5,792 Dairy Queen stores operating in 23 countries—all but a handful run by franchisees,” and then added a personal touch, saying that he and his partner Charlie Munger, vice-chairman of Berkshire Hathaway, “bring a modicum of product expertise to this transaction. [Charlie] has been patronizing the Dairy Queens in Cass Lake and Bemidji, Minnesota, for decades and I have been a regular in Omaha. We have put our money where our mouth is.”16 But Buffett would dismiss owning assets like precious metals that “will never produce anything, but that are purchased in the buyer’s hope that someone else … will pay more for them in the future.”17 His least favorite was gold, which he said would “remain lifeless forever.”18