by The Big Rich: The Rise;Fall of the Greatest Texas Oil Fortunes
The CFTC case against the Hunts went to court in Chicago in September 1977. The Hunts came away with a Pyrrhic victory. While the judge ruled they had clearly violated federal regulations, he refused to order any damages, telling the CFTC it had brought the wrong kind of action: rather than try to prevent the Hunts from buying more soybeans, it should have sued them for attempting to corner the market, a clear violation of the Sherman Antitrust Act. It was a prescient observation to make, because as later investigations would make clear, that was just what the Hunts were about to try to do.
II.
“Cornering” a market is defined as an illegal attempt, typically by a group of investors working together in secret, to buy enough of a particular commodity to be able to dictate its price. It is the rarest of economic crimes, and the chanciest, a scheme that not only requires massive amounts of capital but puts it all at risk. The last known attempt to corner the silver market was masterminded by a Bombay financier named Chunilal Saraya, who between 1907 and 1912 led a group of maharajas that bought enough silver to “squeeze” other buyers; that is, the Saraya group hoarded so much silver that, when others needed to buy it to fulfill margin-loan requirements, it was able to demand and receive sharply inflated prices from the desperate buyers. The British government ultimately intervened to end the scheme.
Modern antitrust laws make cornering a market all but impossible; the mere act of two independent entities secretly buying in tandem is against the law. (Hunt attorneys, in fact, advised Bunker that Great Western’s commodities purchases could easily be judged in violation, one reason Great Western faded from the Hunts’ plans.) But as Bunker’s conduct during the soybean case showed, he didn’t think much of federal antitrust laws, federal regulators, or federal trading limits; he considered all of it “red tape” a smart buyer simply worked around.
By 1978 the Hunts had been sitting atop their mountain of silver for five long years. Prices hovered around six dollars per ounce, the same level they had been when Bunker first toured the Comex in 1974. No matter what he tried, no matter what he bought, he couldn’t get the price higher. The fact was, he didn’t need to. The Hunts could have sold out then and realized a few hundred million dollars in profit. But like Clint Murchison Jr., doubling or even tripling his money bored Bunker. He wanted a true home run, the more intricately mastered the better.
His opportunity came on October 1, 1978, when, at a horse auction outside Paris, Bunker was introduced to a dark, slender thirty-five-year-old named Naji Robert Nahas, a Lebanese-born, Egyptian-raised, Brazil-based businessman who acted as a middleman for several Saudi Arabian sheikhs attempting to invest in South America. One of his clients was a Saudi named Mahmoud Fustok, who sometimes invested alongside Saudi Prince Abdullah Ibn Abdul-Aziz, the stuttering thirty-six-year-old who headed his country’s internal security forces; Prince Abdullah also happened to be second in line to the Saudi throne. That day outside Paris, Bunker, Nahas, and Fustok started out talking about horses. They ended up talking about silver. Yes, the two Middle Easterners agreed, it sounded exactly like something that might interest Prince Abdullah.
Bunker began to get excited. He ordered fifty copies of a bullish silver analysis in Myers’ Finance and Energy Report translated into Arabic and mailed to leading Saudi investors. At roughly the same time, the ubiquitous John Connally managed to introduce Bunker to a second group of well-connected Saudis, who he was helping with their first American investments. One was Khalid bin Mahfouz, a young man in his thirties whose family ran the National Commercial Bank in Jeddah, the largest bank in Saudi Arabia. The second was a seasoned Saudi middleman named Gaith Pharaon. It didn’t say so on either man’s business card, but both were widely regarded as front men for the Saudi Crown Prince himself, Prince Fahd, a plumpish, freewheeling casino gambler whose many roles included running the Saudi central bank.
What happened next has never been fully explained, given that all the Saudis involved would remain beyond the reach of government subpoenas. But it was the perfect moment for Bunker to gather a silver syndicate. During the winter of 1978-79 silver’s price, pushed by inflation and escalating interest rates, finally began to rise, to $6.50 an ounce, then $7, then $8. Was it then that Bunker and the Saudis hatched a conspiracy to corner the market? Everyone involved would always deny it, but the facts were there in black and white: on July 1, 1979, Bunker and Herbert formed a legal partnership on the island of Bermuda with front men representing Khalid Mahfouz and Gaith Pharaon, themselves almost certainly front men for Prince Fahd. Immediately this partnership, called the International Metals Investment Company—IMIC for short—began buying silver futures. In short order IMIC accumulated contracts representing forty-three million ounces of silver. Combined with the fifty-five million ounces the Hunts already owned, these purchases gave Bunker and Herbert indirect control of somewhere between 12 and 15 percent of the world’s silver supply.
Then, just as the Hunt-Saudi partnership began buying, Prince Abdullah’s front man, Naji Nahas, jumped into the market. Working through several accounts managed by a veteran broker at Conti Commodity Services named Norton Waltuch, Nahas managed to amass contracts representing forty-two million ounces of silver. Nahas’s purchases, in turn, were mimicked by a half dozen mysterious Arab trading companies. Word of the developing scheme had spread, it appeared; any number of wealthy Arabs were buying in Bunker’s wake in hopes of mirroring his profits.
But if half the Persian Gulf now seemed to know what was in the works, CFTC commissioners in far-off Washington hadn’t a clue. In fact, as reflected in minutes of the commission’s July 27, 1979, meeting, the agency’s top men had only the dimmest clues to the Hunts’ intentions.
“Can I ask one general question? The Hunts,” a commissioner named David Gartner asked at one point. He went on:
Every week we see them in something, silver, soybean oil, livestock, whatever. Do you think there’s any possibility these guys are just having fun, just horsing around? Like playing Monopoly like you and I might do, or nickel and dime poker. Is this a little game they’re going through? JOHN MIELKE, CFTC DIRECTOR OF MARKETS: Well, they’re playing with some awful big bucks. I was looking at their silver position and on Chicago and New York combined—and I’m talking basically about the two brothers, Bunker and Herbert—their position … is worth 475 million dollars. GARTNER: That’s a lot of money.
MIELKE: That’s a lot of money… .
GARTNER: It just seems to me there are people with a hell of a lot of money and not a lot to do with their time, fiddling around like you and I might play a game of checkers.2
One week later, the first reports of the IMIC and Nahas-Waltuch silver purchases began to inch across Wall Street ticker tapes. At first they attracted little notice. But by the third week of August, IMIC’s purchases were gaining steam. The price of silver responded, leaping to over $10 per ounce, to $10.61 on August 31. By the time CFTC commissioners returned from the Labor Day holiday, rumors of who was buying all this silver were flying fast and furious. Most traders assumed it was the Hunts. But even the Hunts couldn’t buy this much. Someone had to be helping them. The best guess was the Saudis. CFTC attorneys began trying to identify IMIC’s owners. Even if they could identify them, however, it was far from clear what the agency should do. At the CFTC’s September 7 meeting, commissioners argued whether it was worth doing anything at all. “We’re either going to get a nonanswer when we ask or the right answer, but even if we get the right answer—that it’s the Hunts or the government of Saudi Arabia—what do we do?” one commissioner asked. To which another responded: “This is economic warfare. Is Saudi Arabia trying to corner the market? They should get out of the market if they don’t give us the information.”
It took two more weeks for CFTC attorneys to identify IMIC’s owners, at which point Herbert Hunt confirmed the family’s involvement. Bunker, meanwhile, met twice in those early weeks with Norton Waltuch and his client Naji Nahas in Paris, presumably to align the two groups
’ purchase strategies. They continued to move in lockstep. All through September, the Hunt and Saudi buying plowed onward. Silver’s price rose as they did, hitting $17.88 on October 1. In time the mere sight of Norton Waltuch walking onto the Comex trading floor was enough to drive the price of silver up another fifty cents. By mid-October CFTC officials were beginning to catch on. They identified the two buying consortiums as the “Hunt group” and Norton Waltuch’s “Conti group.” It was then that officials of the two main silver exchanges, in Chicago and New York, realized they were facing their nightmare scenario:
They were running out of silver.
The Hunts and their allies now controlled 62 percent of all the silver in the Comex warehouse, plus 26 percent of all the silver held by the Chicago Board of Trade, the CBOT—in addition to all the silver they had stored in Zurich. It was the classic recipe for a market “squeeze.” If the Hunts and Saudis kept buying, they would soon control enough silver to dictate the world price. In Chicago, Board of Trade officials beseeched Herbert to stop buying. Herbert promised they would. Within days, however, CBOT officials noticed another eruption in purchases. A few calls traced it—not to the Hunts themselves, but to accounts controlled by their children. Bunker, meanwhile, accepted the CFTC’s offer to sit down with its staff in Washington to explain what he was doing. He proved the soul of reason. No, no, Bunker said, the Hunts weren’t trying to corner the market. Yes, he knew a Saudi or two. But a conspiracy? Oh, no, no, no, no. The last thing he wanted was to cause problems for anyone in the market.
The CFTC was satisified—for the moment. Not so the Chicago Board of Trade. The CBOT announced it would begin limiting silver holdings to three million ounces; anyone who held more had to reduce their positions by April 1980. Bunker was apoplectic. “You can’t do it!” he told a CBOT official. “You wouldn’t dare!” Pledging to fight the new limits in court, he told anyone who would listen that it was all one more Eastern Establishment conspiracy. Through it all, Bunker kept buying—and so did the Saudis. Silver hit $20 an ounce, then $25, then $30, before, on the last day of 1979, hitting an incredible $34.45 per ounce. In just four short months the price had more than quintupled.
At that point the CBOT, the Comex, and the CFTC realized something drastic had to be done. The Comex, the world’s largest commodities exchange, took the lead, announcing on January 7 that it would soon limit individual trading positions to no more than ten million ounces of silver. In Dallas, Bunker howled. “I am not a speculator, I am not a market squeezer,” he told a reporter. “I am just an investor and holder in silver.”
Bunker reacted to the Comex news by increasing his silver purchases yet again, ordering a stunning thirty-two million more ounces at a cost of more than $500 million. Prices leaped in response, crossing $40 per ounce, then, on January 17, striking a heretofore unthinkable high: $50. At this level the Hunts’ holdings were valued at $4.5 billion. Nearly $3.5 billion of that was profit, a sum larger than all the profits all the original Big Four Texas oilmen had made in their entire lives, H. L. Hunt included. One CFTC commissioner privately estimated that the Hunts and their Saudi allies now controlled 77 percent of all silver in private hands. Soon, another breathed, “they’ll have all the silver in the world.”
By January 21 the Comex board was in a panic. Dozens of new buyers were flocking into the market; many, it turned out, were Arab friends of Naji Nahas. Facing what had once been unimaginable—handing over control of an entire world commodities market to an unstoppable cartel—the Comex announced unprecedented new restrictions on silver traders. No more silver purchases would be allowed—none—only sales, and sales only to groups the exchange specifically approved. The next day, in Chicago, the CBOT followed suit. In Dallas, Bunker pounded his desk. This was blatantly unfair, he fumed. The powers that be were changing the rules just because he was winning their game.
He was right, but there wasn’t a thing he could do about it. Once the Comex’s draconian new limits were announced, Bunker and Herbert were all but trapped. They couldn’t buy more silver. And if they sold, they risked triggering a panic. The very next day, January 22, silver plummeted to thirty-four dollars per ounce. The price stabilized in the upper thirties for several weeks before sliding again, sagging as low as thirty dollars per ounce in late February. By now the Hunts’ silver play was front-page news in the world’s business press. Bunker put on a brave face, giving a series of interviews in which he urged caution and predicted silver’s imminent rebound. His appearances climaxed with an unlikely interview he gave Barbara Walters. How much silver, Walters asked, did he really own?
“I don’t really keep track,” Bunker said. “I don’t count my money. It’s bad luck, and bad taste, I guess.”ah
Off-camera, Bunker wasn’t nearly so sanguine. In fact, he was desperately trying to prop up silver’s price. His best hope was a deal he struck with a group of Kuwaiti and Bahraini sheikhs who had bought silver in his wake, cashed out at fifty dollars, and were ready to return to the market, presumably buying in overseas markets. The idea fell apart, though, as silver’s slide began to hasten. In early March it sagged below thirty dollars, then tumbled all the way to twenty-one dollars by March 14. In fifty-five short days, Bunker and Herbert had sustained a paper loss of more than two billion dollars. It was at that point that something amazing occurred to the Hunts. They were running out of money.
III.
Carrying costs on all that silver would have already bankrupted lesser men. It cost three million dollars a year just to store it all. But the real cost was the cost of money. No one played the commodities market with cash. Most purchases, and almost all the Hunts’, were made “on margin,” that is, with money borrowed from the banks and brokerage houses that handled the trades. Bunker and Herbert had used their earliest silver purchases to collateralize loans to pay for their buying campaign with the Saudis. As the price of silver rose through the fall, so did the value of their collateral, allowing the Hunts to take more and more loans to buy more and more silver contracts. As long as the price rose, their mountain of debt remained an afterthought. But once the price began to fall, so did the value of that collateral. The further silver fell, the more Bunker and Herbert had to fish into their own pockets for cash to pay the carrying costs on all those loans, a process known as margin calls. By mid-March, margin calls at just one of their brokers, Bache, reached almost ten million dollars per day.
But it wasn’t just the silver. With the prices of both silver and oil skyrocketing, Bunker and Herbert had both gone on shopping expeditions of epic proportions. They had bought millions of shares of stock in companies such as Global Marine, Penn Central, and the First National Bank of Chicago; after Bunker’s chat with Barbara Walters, rumors swept the stock market that the brothers were poised to buy Texaco. Bunker bought racehorses like other men buy cigarettes; by 1979 he owned more than seven hundred thoroughbreds, the largest stable in the world. Bunker alone spent more than fifty million dollars collecting ancient Greek and Roman coins; Herbert bought almost as much, concentrating on Byzantine issues. They bought artwork and more ranches and more real estate.
But then, all through January and February into mid-March 1980, hundreds of millions of dollars slid through Bunker’s fingers like so many grains of sand. Every week the banks and brokers demanded more collateral; Bunker produced it by arranging still more loans, including two hundred million dollars from Swiss Bank Corp., in early March. Yet even as silver’s price dropped, he needed more and more cash to sustain silver contracts he had arranged months earlier. Bunker might have pulled it all off—Merrill Lynch and other financial institutions were still offering credit—if only he had the time. But on March 14, 1980, the Hunts’ time ran out. Once again, the rules were changing. That day the chairman of the Federal Reserve Board, Paul Volcker, in a move to stem an inflation rate that was rising to historic heights, ordered U.S. banks to begin curtailing their loans by instituting special “credit-restraint programs,” noting with emphasis: �
�Special restraint should be applied to financing of speculative holdings of commodities or precious metals.” Whether Volcker’s demand was directed at the Hunts or not did not matter. The effect was the same. American banks and brokerage houses wouldn’t lend the Hunts another cent.
This was the worst possible news: without new money to lubricate its pistons, the entire Hunt silver machine would begin melting away. Bunker didn’t panic—at least not at first. Within hours he was on a plane to Europe; he had always been able to secure loans on the Continent, especially in Switzerland. But everywhere he went that week—to Paris, Zurich, Frankfurt, Bern, and Geneva—he heard the same dismaying message. Volcker had spoken; even though they didn’t have to, European banks would follow his advice. Their vaults were closed. Even Swiss Bank Corp. turned Bunker down. And that was all it took.
On Monday, March 17, three days after Volcker’s pronouncement, the Hunts’ cash began to run out. For the first time, they were unable to meet Bache’s margin call. Bache’s chairman, Harry Jacobs, held off demanding the money another two days, but that Wednesday, March 19, Bunker began giving Bache bullion to satisfy the debt. By that Friday Bunker’s situation was growing desperate. If word of their plight got out, silver would crash. He needed a miracle, or a few hundred million dollars, if he was to satisfy a new round of margin calls the following Monday, including a massive payment due the big silver producer, Englehard Industries. Which is how Bunker and Naji Nahas found themselves on a private jet descending across the Red Sea toward the Saudi city of Jeddah that Saturday. Prince Abdullah was his last hope.
