Bryan Burrough (61 page)

But what was truly jaw-dropping about the Hunts’ purchases—what stultified investigators when the truth eventually came out—was that Bunker and Herbert, unlike almost every other investor on Earth,
actually took the silver.
It came in ingots, and it cost around $175 million, in cash. Years later, one of Bunker’s top men told a congressional committee how the operation worked, a story both Bunker and Herbert denied. According to this story, the Hunts selected a dozen cowboys from Bunker’s Circle T ranch east of Dallas, handed them rifles, and divided the men among three chartered 707s. The three planes, flying at night, landed in Chicago and New York, where the cowboys stood, rifles at the ready, as lines of armored cars drove up with forty million ounces of silver ingots from the New York and Chicago exchanges. Once loaded, the planes took off, crossed the Atlantic, and landed the next morning in Zurich, where the silver was loaded into still more armored cars. With the Circle T cowboys riding shotgun, the cars ferried the silver to six separate Swiss banks.
^ag

There was another tale about these flights, one so improbable that most investigators later dismissed it altogether. According to this story, Lamar Hunt went along on one of the planes. The silver ingots were distributed evenly around the hold, leaving a large open space in the middle, which the plane’s owner decided to fill with, of all things, a cage containing a circus elephant. Over the mid-Atlantic, so the story goes, the plane began to lurch out of control, at which point it was discovered the elephant had looped its trunk around the wires that controlled the aircraft’s flaps. Lamar and an aide, it was said, saved the day by opening the elephant’s cage and tossing in a rubber tire, diverting the elephant to a new toy and saving everyone’s lives.

As was his habit, Bunker moved into the silver market with stealth and secrecy, but warehousing 9 percent of the world’s silver supply couldn’t stay secret for long. In the spring of 1974 the rumors finally began to fly. One question spun through the world’s silver exchanges: Who the hell was Nelson Bunker Hunt? And what was he doing with all that silver? No one knew, and everyone needed to. If that much silver were sold, prices could crash. For the moment, traders believed the Hunts would buy more. Silver’s price rose to six dollars per ounce.

It was then, in April 1974, that Bunker made his dramatic debut on the floor of the New York commodities exchange, known as the Comex. All around the vast room, busy traders stopped and stared—as a paunchy man in a blue suit and thick glasses waddled through the aisles, craning his head, studying this strange new world of commodities. Before Bunker left, a financial reporter from
Barron’s
cornered him and asked his intentions. “Just about anything you buy, rather than paper, is better,” Bunker said. “You’re bound to come out ahead in the long pull. If you don’t like gold, use silver. Or diamonds. Or copper. But something. Any damn fool can run a printing press.” Few
Barron’s
readers had the first clue what Bunker was talking about, and he didn’t linger to explain. In fact, it was the last anyone in the silver market would see Bunker for a long time.

In the months to come, the hubbub over the Hunt silver purchases fell away. As it did, silver’s price sagged, falling a dollar, then two, before finally settling below four dollars per ounce. In Dallas, Bunker was perplexed. How could they get the price to go back up? He began making quiet trips to Europe and the Middle East, taking leading silver dealers out to lunch and mumbling questions. One of the market’s most important suppliers was a sly Abu Dhabi bullion dealer named Haji Ashraf. Driving up silver’s price was simple, Ashraf told Bunker over lunch in London. All you needed was for wealthy Arabs to begin buying.

Bunker thought it an idea worth pursuing. Which was how he found himself in March 1975 aboard a commercial airliner descending across the mountains of Iran toward the capital city of Tehran. He had come to see the shah of Iran with a simple proposal: the shah should begin buying silver. If he and Bunker bought in tandem, they could drive silver’s price through the roof. The meeting had been arranged by a prince Bunker had met during his prep-school days. When the prince met Bunker at the airport, however, he had bad news: the shah was away. Bunker ended up meeting with the finance minister, a man named Hushang Ansari. Ansari hadn’t the faintest idea who Bunker Hunt was. He smiled during Bunker’s presentation, shook his hand, waved good-bye, and forgot all about it.

Irked, Bunker left Iran for Paris, where he spent several days inspecting his horses. At a stable, he spied an Arabian sheikh. It gave him an idea: Why not call the Saudis? He phoned a family friend with connections in the kingdom, who promised to arrange a meeting with King Faisal himself. He advised waiting two or three weeks, however, since word of Bunker’s Iranian visit was making the rounds. They wouldn’t want the Saudi king to feel he was Bunker’s second choice. The meeting, however, never came off. Faisal was assassinated several days later.

Batting 0-for-2 with Middle Eastern royalty, Bunker returned to the drawing board. He needed more people buying silver; that much was clear. He couldn’t simply do it himself. It was expensive, and that very year commodities markets, after years of unregulated growth, had finally gotten a federal regulator, the Commodity Futures Trading Commission, the CFTC. There were now limits on how much a single entity could buy and sell. Searching for a pliable partner, Bunker and Herbert turned to their newest company, Great Western Sugar, acquired in late 1974. At their direction, one of Great Western’s subsidiaries began buying commodities and metals across the board, sugar, copper, gold, and especially silver—lots and lots of silver. In June 1976 alone, Great Western purchased twenty-one million silver contracts. But to Bunker’s dismay, silver’s price simply wouldn’t stay up. It rose to $5.20 that August, but by the end of 1976 it had fallen back to barely $4.

It was then the fledgling CFTC stirred, lobbing a series of questions Bunker’s way about how much silver he actually controlled. Bunker explained, lamely, that it wasn’t an investment. He was only buying silver to use in a complex barter arrangement with the government of the Philippines; in essence, he claimed they had tried to trade silver for sugar, but the deal never came off. In the process of answering these inquiries, Bunker’s attorneys raised a more worrisome concern. Great Western was still a public company. Its shareholders, or even the Securities and Exchange Commission, might not look too kindly at one of its subsidiaries trafficking in massive amounts of silver. Bunker and Herbert simply announced an offer to buy back Great Western’s publicly traded shares. Now they could do as they pleased.

Their next move, brought off in the spring of 1977, was to have Great Western launch a rare hostile tender offer for a company named Sunshine Mining, which controlled the nation’s largest silver mine, outside Kellogg, Idaho. The Hunts quickly bought up 28 percent of Sunshine’s stock for twenty million dollars, at which point its management surrendered, handing over permission for the brothers to acquire the rest of the company’s stock. The Sunshine deal not only gave the Hunts control over another thirty million ounces of silver, they now qualified as commercial users of silver, exempting them from most trading limits.

At this point, the Hunts’ commodities strategy took a detour. While the Hunts remained fixated on silver, they had continued dabbling in other tangible investments, and in January 1977 Bunker decided to get serious about one of them, soybeans. His angle was the weather; Bunker’s decision was heavily influenced by a New Mexico climatologist named Iben Browning, who predicted that climate changes in South America would soon lead to a worldwide soybean shortage. Using this and other predictors, the Hunt brothers began buying unprecedented amounts of soybean futures contracts. Federal regulations set the legal limit on one individual’s soybean-contract holdings at three million bushels. By that spring, Bunker and Herbert controlled six million bushels between them, plus an astonishing eighteen million bushels in the names of their children, giving them control over one-third of the total U.S. soybean supply. Their buying drove up prices, to ten dollars a bushel from six dollars, giving them a paper profit of nearly one hundred million dollars.

It was a flagrant flouting of the law, and in April 1977 the CFTC told the Hunts to reduce their holdings to three million bushels—or else. The Hunts sold off a mere two million, leaving them with twenty-two million. At that point the CFTC went public, suing the Hunts and showing the press what they had done. Bunker was outraged. This was government harassment, he told reporters, pure and simple. Plenty of commodities buyers worked together to get around legal limits, he said, yet the government only pursued the Hunts. “I think the reason, frankly, they jumped on us is that we’re sort of a favorite whipping boy,” Bunker said. “We’re conservatives, and the world is largely socialist and liberal. As long as they want to jump on somebody, they want a name and they want somebody that’s on the other side.”

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.

“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.