The richest men in Texas will try to muzzle Washington's toughest watchdogs tomorrow in a Dallas courtroom.
The hometown favorites are the billionaire Texas Hunt Clan. Capable of hiring the best lawyers money can buy, the Hunts are expected at least to come out with a standoff in the showdown with the Securities and Exchange Commission.
The Hunts are asking U.S. District Court Judge Robert Porter to issue a preliminary injunction limiting a year-long SEC investigation of the Hunts' dealing in Silver.
The Hunts are hoping to exploit a series of screw-ups by the SEC's elite enforcement division that already have crippled the government investigation of the Hunt's silver-buying spree in 1979 and 1980.
Attacking technicalities in the government's case, attorneys for the Hunts have forced embarrassed SEC investigators to admit in court they "misinterpreted" federal laws protecting the Hunts' privacy and "acted improperly" in probing the Hunts' silver investments.
With the aid of Hill & Knowlton, the biggest public relations firm in the United States, the Hunts are portraying the SEC admissions as proof that the billionaire Texans are victims of over-zealous government regulators. t
The courtroom confrontation has been hyped into a Washington-Dallas battle as big as the Redskins-Cowboys rivalry -- Big Money vs. Big Government.
The transgressions of the government have been so egregious, the Hunts' attorneys contend, that the federal courts ought to protect the family from further violations of the federal Right to Financial Privacy Act.
Keeping their personal finances secret is a cherished ideal for the Hunts as their leading lawyer Ivan Irwin indicated when he opened a hearing in the case by quoting not the law by Ayn Rand's "The Fountainhead" -- "Civilization is the progress toward a society of privacy."
The Financial Privacy Act is a sort of fiscal First Amendment, designed to shield personal money matters from prying bureaucrats. The Hunt case is the first test of whether the SEC can root out business wrongdoing without trampling the rights of the accused.
But the real question in the case is how the SEC's vaunted enforcement division could fumble so frequently against so formidable an opponent. And whether anyone will ever be able to discover the truth about what happened in the silver market if the SEC enforcement division cannot.
SEC enforcement lawyers are the United States Marines Corp of federal regulators; Semper fiduciary responsibility, might be their motto.
It's the SEC enforcement division that captures most of the big-time corporate criminals, often intimidating their foes into settling complaints without a fight.
But not the Hunts.
Not the Hunts who hired Washington lawyers Hogan & Hartson and Perito, Duerk, Carlson and Pinco to help their regular Dallas attorneys Shank, Erwin, Conant, Williamson & Grevelle fight the SEC.
Not the Hunts who during the rise and fall of the silver market on several occasions made and lost more money in a single day than the $81.5 million Congress appropriates to run the entire SEC for a whole year.
Not the Hunts who made mummies of the Commodity Futures Trading Commission when the CFTC accused them of trying to corner the soybean market back in 1976.
The CFTC still is tied up in court with that case, unable to punish the Hunt family for allegedly violating the federal limits on how much of any commodity a group of speculators can control.
Hunt attorneys have stalled the soybean case despite evidence that several Hunt family members each bought millions of bushels of beans and that the family collectively controlled several times the legal million-bushel limit.
All the commodity regulators were able to do was disclose the Hunts' holdings and prevent them from profiting from the gambit.
Nor have any been able to get to the bottom of the silver situation -- despite the fact that the CFTC, not the SEC, has primary jurisdiction over the silver market and a specific congressional mandate to discover why silver pieces exploded from less than $10 an ounce to $50 and then collapsed.
Although CFTC Chairman James Stone said at the time "the financial fabric of the nation was threatened" by the bursting of the silver bubble, the agency has yet to discover why it popped.
A draft of a CFTC report to Congress that originally was due several months ago finally is floating around, but does not point any fingers.
The CFTC study discloses in elaborate detail how the Hunts and others purchased the world's largest horde of silver, enough to supply silverware, photographic film and every other silver need for the entire United States for six months.
The more the Hunts bought, the higher the price went -- until the Commodity Exchange Inc. in New York changed the rules of the silver market, making it virtually impossible for the Hunts or anybody else to keep buying.
Was it the Hunts' buying that blew up the silver bubble until it burst, wiping out sales of silverware, jacking up the price of film and making silver the favorite target of burglars.
Or, as the Hunts claim, was it changing the rules of the silver market in the middle of the game that almost destroyed several brokerage houses and threatened a worldwide financial panic?
The CFTC report to Congress carefully draws no conclusions about whether the Hunts violated the law, because that question is the subject of a confidential investigation by the CFTC's enforcement division.
The CFTC enforcement investigation is limited to whether the Hunts violated the rules of the silver futures market, because that agency does not have the authority to investigate suggestions that the Hunts masterminded a worldwide conspiracy to control the silver market.
Instead it is the SEC that painstakingly has been piecing together a grand theory of what went wrong and what ought to be done about it.
SEC sleuths are too circumspect to say what their theory is. But as in the board game "Clue," the questions asked can reveal as much as the answers given.
The questions the SEC is asking are about the Hunts' dealings with several of the nation's biggest brokerage houses and two dozen banks in the United States and abroad.
Documents that became public through the Hunts' efforts to limit the investigation make clear the SEC is focusing on the issue raised by CFTC Chairman Stone -- how the Hunts' activities affected the financial fabric of the nation.
The SEC wants to know whether the Hunts' heavy borrowing to finance their silver speculation threatened the banks and brokers, and whether those firms properly disclosed to their stockholders and the public the risks they were taking by playing the Hunts' game.
As SEC attorney Michael Wolensky told Judge Porter, "There was also serious jeopardy here of the publicly held financial institutions, and there was a question whether or not their reports were accurate because of the jeopardy they faced with respect to these loans," to the Hunts.
It was in asking those questions that the SEC's lawyers made their mistakes and ran afoul of the Right to Financial Privacy Act, giving the Hunts an opening to try to thwart the investigation.
Basically RFPA says government investigators cannot get customers' records from a bank without notifying the customers of what they are looking for, by sending the customer a copy of the subpoena given the bank.
Hunt attorneys repeatedly demonstrated that the SEC failed to do that.
In some cases the SEC gave the Hunts copies of subpoenas with paragraphs deleted. The SEC says that deletions were necessary to protect the privacy of others; the Hunts say the omissions violated the law.
"What it boiled down to," testified William Herbert Hunt, "we had been furnished a doctored subpoena which was difficult from the one furnished to the bank. In other words, we had a phony and they had the real one."
In other cases the SEC wrote banks "update letters" asking for further information but failed to send copies of the letters to the Hunts. The SEC neglected to give the Hunts copies of attachments to subpoenas that specified what the agency wanted. And the SEC asked for records of several different HUNT corporations, partnerships and family members without notifying each of them individually.
The Hunt attorneys also contend the SEC lawyers Gail Vance and Kenneth Lay, who issued some of the subpoenas and update letters, were not authorized properly to issue those demands for documents.
During two weeks of court proceedings in Dallas, SEC attorneys were forced to acknowledge many of their missteps. The issue to be argued tomorrow in Dallas is what should be done about them.
The Hunts want Judge Porter to issue a preliminary injunction forbidding the SEC from ever again violating their rights; if the judge issues the injunction and the SEC does it again, the agency and its staff members could be held in contempt of court and punished.
SEC attorneys are expected to contend the mistakes were not deliberate and therefore there is no need for an injunction; ironically the SEC itself rarely accepts that defense from corporations accused of violating SEC regulations.
Because of the complexity of the case, the judge may not rule immediately on the arguments to be made Monday. If Judge Porter grants the preliminary injunction, the next step would be for the Hunts to seek to have the injunction made permanent. The legal maneuvering on that could take weeks or months, and either side then could appeal.
Judge Porter already has ordered the SEC to puts it entire Hunt silver investigation on hold while the financial privacy issues are being decided. If the Hunts win Monday's round in federal court, their attorneys almost certainly will demand the SEC probe be delayed further.
Then the SEC silver investigation could be stalled as long as the CFTC's soybean case.