The Hunt brothers of Dallas have used some of a $1 billion emergency loan to buy back into the silver market and have acquired 9 million more ounces in recent days, it was disclosed yesterday.
The disclosure came at a Senate hearing at which William Proxmire (D-Wis.) also charged that rules of the New York silver exchange were changed last fall and early this year in ways that benefited some directors of the exchange.
Proxmire said board members of New York's Commodity Exchange Inc. had more than $1 billion at stake at one point and had "a huge personal interest" in seeing that silver prices went down.
The price of the metal plunged from $50 an ounce to a little more that $10 after the exchange changed several of its rules to discourage speculation.
The biggest losers when silver prices collapsed were the Hunts, who complained to a House committee on Thursday that they were victims of "a classic case of market manipulation" by the exchange.
The Hunts were forced to sell off much of their silver to pay their debts, but their banker told Proxmire's Senate Banking Committee yesterday that the brothers are again buying the metal.
Part of the much-criticized $1 billion loan arranged from a group of large banks was used to pay off "forward contracts" the Hunts signed some time ago to buy 9 million ounces of silver, said Elvis Mason, chairman of First National Bank in Dallas, the Hunt's family banker.
Mason testified that most of the silver was purchased from the Swiss Bank Corp. He did not say how much the Hunts paid for their latest batch of silver or when the purchase was completed.
Mason's bank and Morgan Guaranty Trust Co. of New York are leaders of a group of a dozen banks that have loaned the Hunts about $1 billion to pay off their silver debts.
The additional 9 million ounces of silver was purchased despite repeated assurances from Federal Reserve Board Chairman Paul A. Volcker that the loan would not be used for further silver speculation.
The banks contend the latest purchase is not new speculation, because the contracts were signed some time ago.
However, the Hunts have settled some other silver obligations by paying penalties rather than buying more metal.
Critics say it was the hunts who put the silver market on its roller-coaster ride several months ago, by manipulating and trying to corner the metal.
The billion-dollar bailout loan to the Hunts was repeatedly criticized yesterday by Sen. Donald Stewart (D-Ala.), who said it drained off money that otherwise could have been loaned to hard-pressed homebuilders, farmers or other businesses.
Stewart also accused another of the Hunts' banks, First National Bank of Chicago, of violating the Federal Reserve Board's ban on speculative lending by making a $75 million loan last fall.
Richard Thomas, president of the bank, confirmed that most of the money was loaned after Volcker had admonished banks against making loans for speculative purposes.
Thomas claimed that because of a "misunderstanding" the bank did not know the loan was being used for silver speculation.
The money went to Bache, Halsey, Stuart Metals Inc., which in turn loaned it to the Hunts.
Bache issued a statement late yesterday admitting "there may have been a misunderstanding," but blaming it on the bank. "Bache gave the banks all the information requested," the company said.
While Proxmire's hearing produced repeated criticism of the Hunts, their bankers and their brokers, it also supported the Hunts in their criticism of the silver exchanges.
Proxmire said he had been able to obtain information about the silver investments of nine of the 23 members of the board of New York's Commodity Exchange Inc.
The Comex board members, Proxmire said, had promised to deliver millions of ounces in the future at fixed prices, and stood to make huge profits if the price of the metal fell. They could then buy silver at the new low price, sell it for the promised high price and pocket the difference.
As of Oct. 15, the nine Comex board members held 13,500 contracts to sell 67 million ounces of silver then worth $1.2 billion. By mid-January, just before prices fell, the nine had only 7,700 contracts, but the price of silver had gone up so much they were worth $1.9 billion.
Comex President Lee Berendt told Proxmire the board members had insulated themselves from potential conflicts by turning the silver market rules over to a special committee headed by former Federal Reserve Board member Andrew Brimmer.
But Brimmer's committee was disolved in mid-January, and the final change in Comex's rules was made by the board of directors just before prices fell.
Berendt said the board took over the decision-making because "the issues had been become too important to be left in the hands of a few people."
The silver market president agreed to provide Proxmire with detailed reports on the board members' holdings, which he said would show there were no ethical conflicts.