Six months before the silver market crashed in March, 1980, federal regulators suspected it was being manipulated, but they did nothing about it, according to transcripts of closed meetings of the Commodity Futures Trading Commission.

The transcripts show the CFTC first was warned in September, 1979, that the billionaire Hunt family of Texas and the royal family of Saudi Arabia were involved in a possible effort to inflate silver prices.

"I'm very, very skeptical of the statement that something going on in these markets is going to affect the world price of silver," then-CFTC chairman James Stone replied on Sept. 7, 1979, after staff members first raised the threat.

Silver was selling for $11.80 an ounce and hit $50 before the market fell apart the following March in a crash that Stone later said "threatened the foundations" of the U.S. financial industry.

The transcripts are part of a yet-to-be released congressional study that concludes "the CFTC could have alleviated the situation, but did not." The study was made by the House Government Operations subcommittee on commerce, consumer and monetary affairs chaired by Rep. Benjamin Rosenthal (D-N.Y.). While suggesting that some new federal regulation of commodity markets is needed, the study blames the crash on the failure of federal regulators to regulate. "The powers which the CFTC does have...were never used," the study says.

The staff report was approved Wednesday by the subcommittee but will not be made public until it is voted on early next month by the full House committee. A copy was obtained by The Washington Post.

The report also says the CFTC ignored a warning about a multimillion-dollar conflict of interest by the chairman of the Chicago Board of Trade, one of two major silver futures markets.

Ralph Peters, then chairman of the CBOT, and a partner in his firm held 24,000 silver future contracts, CFTC staff members told the commission in November, 1979. A few weeks later, the directors of the Board of Trade voted to change the rules of silver trading, a move with a potentially significant impact on Peters' investment. The CFTC made no effort to keep Peters out of the decision-making process and apparently has never determined whether he profited from the rules change.

The congressional report calls on the CFTC to audit records of exchange officers and reconstruct their silver trading to see how much money they made.

The Securities and Exchange Commission has already raised questions about conflicts of interest by officers of the commodity markets, and for a year and a half it has been conducting a silver investigation that could lead to civil or criminal charges. SEC documents have identified the Hunts and some banks and brokerage houses as targets of that probe.

After 18 months the CFTC has yet to bring any charges against anyone in the silver incident, but new Chairman Philip Johnson has promised that the agency will complete its investigation by next month. He said yesterday he had not seen the congressional study.

Though the focus of the study is the handling of the silver crisis by government agencies, the report blames the Hunts and other silver speculators for driving up the price of the metal.

Carefully avoiding the issue of whether such actions might be illegal, the report says the Hunts and a group of foreign investors began buying contracts for future delivery of silver on U.S. markets, taking delivery of the silver when the contracts matured and pulling the silver off the market, creating a shortage that drove up the price.

Silver prices then fell, the study says, because changes in the rules of the market forced investors to sell, pushing down the prices. "Particular rule changes implemented by the exchanges...may have benefited exchange members," the report concludes, again avoiding judgments about the legality of such actions.

Stone disputed the charge that action by his agency in the fall of 1979 could have averted the silver crisis. "By that time, the appropriate action was exchange action," Stone said, because the agency has only limited power to deal with market manipulations. "Even if we got the right answer, that it is the Hunts or the government of Saudi Arabia, what do we do?" the chief commodity regulator asked.