THE WALL STREET JOURNAL THURSDAY, APRE "5,000 bushels of soybeans in my front yard?" Answers to questions prospective commodity traders seem to ask most ContiCommodity G Neacsu / came on 10 February 1972 leave my family over there and I come alone over here Interviewer How did you get out G. Neacsu. The government sent Interviewer: In what country? G. Neacsu: Jask political asylum in the American Embassy in Bera Interviewer: So you were actually working for the gov emment in Romania at the time? G. Neacsu. In Romania, everybody work for the Interviewer Why did you invest in commodities? G Neacsu consider, in my opinion, that gold nobody ruined Eversheds ruined in gambling the horse race and the dog race, but nobody loses in the gold How much money did you originally invest? G. Neacsu: 36.900 Interviewer And when was that? G Neacsu. This was in 6 June 1979 Do you know how G Neacsu: About $196.000. Interviewer That's spectacular Have you taken any G. Neacsu: Yes, I wohl a couple of Time First time. First Interviewer: And the rest? You keep G. Neacsu: also have contracts in copper Profits made and cupper) Interviewer That's terrific Are G Neacsu Yes G. Neacsu. No We live in the same building but different apartments Interviewer. They must be very proud now too G Neacsu. Sure with First Commodity" But the people over here have t mrough People in Europe have more fidence in metals like gold and valver) You know something. I can tell you about gold and c copper because on Iron Cur lain, there modity na stocks everything is under government rule tion, nobody can do business in commodi thes or stok or some. thing like thur Gheorghe Neacsu escaped from his native country of Romania in 1972 and sought political asylum in the United States. Although educated as an engineer, he could speak little English and was forced to take menial jobs. Then in June, 1979, he invested with First Commodity Corporation and the results were astonishing... Can I ask you... have you told other people you know about First Commodity Corporation? G. Neacsu Yes 1 rid But the people have not Interviewer They don I take your advice? G Neacsu u because they say oh I lose I lose 273 possible to lose All the Time there is risk between win or lost f you lost, you lost Do you have any other plans for your money besides investing with First Commodity? G Neacsu s Fira of all I invested some money in Florida Interviewer In what? G Neacsu In house I have private property hand 10.000 square feet in Palm Court Interviewer Is there a house on the land G Neacsu Nes, is not vet, but in 22 February, me and my wife will go over there to talk with company for building a house How old are you? G Neacsu 45 Interviewer When I do this ad that I want you and your family to be in, is it possible to get you and your wife and your daughter and son-inlaw and g grandchildren all together at the same time G Neacsu: What day Interviewer: Either Wednesday or Thursday this week G Neacsu. It's possible after S o'clock Interviewer I can have a car come and pick you all up and take you to the photographer's studio. G Neacsu: OK On the advice of Mr. Neacsu's broker, $50,000 has been set aside in a trust to insure his family's well being First Commodity Corporation of Boston 19 Congress Street, Boston, MA 02109 First Commodity has been making commodity market recom mendations to people like Gheorghe Neacsu since 1973. In 7 years, we've grown from 3 people in one office in Boston to more than 300 people in offices nationwide We believe that since the introduction of our unique LTF Program (June 1978), our record of client profitability is unequalled by any other commodity brokerage firm in the industry During the past 3 months, more than 2000 new investors have joined our LTF Program We are now investing more than $80,000,000 on our clients behalf. To find out more about Commodity investments and First Com modity, write or call Toll Free 800-225-6798 Hon. WILLIAM PROXMIRE, COUGHLIN & MARUTZKY, Chicago, Ill., May 26, 1980. Chairman, Committee on Banking, Housing and Urban Affairs, DEAR SENATOR PROXMIRE: There is a problem confronting the United States that needs your attention and review. As I understand you are a member of the Senate's Committee on Banking, Housing and Urban Affairs which will be reviewing the Silver Futures and Commodity Markets on May 29th and 30th. I would like to call to your attention certain items so that you might make an informative judgment on the testimony presented to the committee. You have read about the fiasco in the silver futures market that occurred in October through March of this year. The price rose dramatically to $50 and then fell to $10 per ounce. The percipitous decline was due to several forces exerting pressures on the economy and the commodity markets. I believe that explanations offered by the representatives of the CFTC, Federal Reserve Board, Comex, and CBOT at the previous Congressional Hearings on these matters have not fully disclosed the continuing danger to the American economy. I feel that there have been several items that have not been disclosed that should be made public in order the legislative remedy may correct these abuses from reoccurring. In the Fall and Winter of 1979, the economy of the U.S. was experiencing a tremendous pressure from the impact of inflation. The response by several millions of Americans was one of frustration due to their inability to react to this economic phenomena. Some of these people sought to protect their capital by transferring it from savings accounts to investments in precious metals to avoid further inflationary erosion. This seemed to be a prudent action since precious metals offered a better parity with inflation than did savings accounts. There has been prior testimony presented to various Congressional Committees by Federal Reserve Chairman Volcker concerning the intervention of the Federal Reserve System on behalf of the Hunt family of Texas. Mr. Volcker has testified that he assisted the Hunt's in rearranging the bank debts they incurred in obtaining unusually large holdings of silver. It would also appear that the Federal Reserve System also interceded on behalf of several brokerage houses so that they too might be able to rearrange their debt obligations with the banks because they were close to default. I can assure you tha the Federal Reserve System did not intercede on behalf of any small investors to assist them in meeting their margin calls or rearranging their debts through remortgaging of their homes. In fact, at the time that the small investors in the metal's markets were being pressured to put up additional capital, the Federal Reserve issued a policy of credit restraint. This official policy apparently was selectively applied. At one time in early January it was reported in the newspapers that a daily margin call of $53 million was being made against a brokerage house by its banks. This brokerage house was holding short positions in silver futures. With this type of financial intensity being carried against only one of the holders of the short side of the silver market, one can imagine the total focus and interest of banking institutions in the silver futures market. Several investors now feel that it was the short position holders in the market that caused the sharp and sudden fall. I question the participation and role of the Federal Reserve Board and many banks might have played in the collapse of the silver prices. It can be stated with a certaintude of fairness that the collapse in silver prices would have occurred independently reacting only to changing economic conditions. But none of the conditions that caused the market price to advance such as Afghanistan, Iran, or high interest rates were different or expected to be changing when the price collapse began for silver. The two commodity exchanges adopted emergency rules for liquidation orders on January 21st and January 22nd. What these exchanges failed to provide as information at that time were the facts that percipitated the emergency. A declaration of emergency created a market psychological reaction adverse to silver prices. In fact, the CBOT allowed liquidation only during February and refused delivery of the commodity. This is a change of the rules during the game obviously unfair to one side of the players. I ask you to investigate who it was that held these short positions in the market and who had the sale benefit of the emergency rule changes. Could it have been a conflict of interest and self-dealing interests, intensified by banking demands for additional collateralization of loans, that caused the exchanges to enact the rules' changes? I do not know the answer nor does the small investing public. I must say that there now exists a suspicion of wrongdoing by several banks for the benefit of their large customers. We call upon you to investigate and inform the American public as to the goings-on. The dangers and problems that occurred in the silver commodity markets were not isolated but may have in fact affected other commodities. The futures market are of vital importance to the producers of cultivated commodities so that they can market their products in an orderly fashion. The place in the American economic system for the Hedger is important if not absolute. The dangers of the silver crisis may well have affected the attitudes of Hedgers in other commodities. I am sure that the absence of regulation, the inaction of the CFTC, and the selected response of the Federal Reserve Board, have all lead to a degree of destruction of confidence in the free market system. As a taxpayer whose tax payments support the parity price system to the farmers of the U.S., I am opposed to any tax increases that will accumulate only to the benefit of market manipulaters. If there are people who can control the commodity market place, and, thereby cause higher parity prices which lead to increased taxation, I must protest. Senator, I am asking that you and your committee review this situation. I believe that there has been manipulation of the market place and the manipulation included the tacit approval of the Federal Reserve System. Further, the large banking institutions in this country may have selectively discriminated credit and caused financial ruination to many sectors of the American economy. I am asking that you take some action that would prevent this senario from reoccurring. I ask that you restore confidence to the market place for all investors and give them assurances that they will receive equal treatment. I ask that you do something to make the CFTC take a more definite and positive role in regulating what they have been assigned to regulate. I thank you for your consideration. Very truly yours, WM. F. MARUTZKY. Hon. WILLIAM PROXMIRE, FEDERAL DEPOSIT INSURANCE CORPORATION, Chairman, Committee on Banking, Housing, and Urban Affairs, DEAR MR. CHAIRMAN: This replies to your letter of April 17, 1980 seeking information on loans, including amounts outstanding during March 1980, made by state nonmember banks to Nelson Bunker Hunt, his family or associates, for the purchase of silver and silver futures. You also asked for the identification of state nonmember banks with loans outstanding to brokerage houses known to have extended credit to the Hunts for the purchase of silver and silver futures, and the amount of those loans made during March 1980. As insurers of the nation's banks, we have been kept informed of the factfinding and analyses inititated by the Federal Reserve, in cooperation with the Office of the Comptroller of the Currency, regarding the role of bank credit in the silver futures market. The review does not indicate that any state nonmember bank participated in bank loans to the Hunts, Hunt-related interests, or to broker and commodity dealers for investment in silver or silver futures. My hope that this information is of assistance to you. QUINTON THOMPSON, Director. Mr. HOWARD MENELL, GEORGE E. BRANKEY, ATTORNEY AT LAW, Boston, Mass., May 27, 1980. Assistant Counsel, Committee on Banking, Housing, and Urban Affairs, DEAR ATTORNEY MENELL: You will recall talking to Mr. Brian T. Walsh and Attorney Christopher Hinchey last week during the House Committee hearings relative to the silver futures market, September 1979-April 1980. I am enclosing a copy of his statement. You will be interested to note that the questions presented in the statement were submitted by the Chairman to the presidents of CBOT and COMEX to respond to in writing. The Futures Markets impinge critically upon the risk "infrastructure" of the international banking community. As has been publicized extensively, the risk to the banking community which evolved from the Hunts' margin calls upon silver contracts is regarded by several experts as being nearly catastrophic. It is imperative to the security of our banking institutions that your committee have disclosed to it, among other matters, the following: Terms of letters of credit and other financial instruments which members of exchanges, and particularly Boards of Governors, have to finance the holding of speculative positions against margin calls. Banks' policies as to "small" and "non-member" (of exchanges) speculators' seeking credit to finance the holding of speculative positions against margin_calls. Whether lines of credit extended to members generally and of Boards of Governors particularly of the exchanges included the provision, expressly or impliedly, that as a condition of the line of credit, the member would vote for rule changes to influence price shifts, e.g., permitting liquidation only order, that would alleviate the imposition of margin calls upon the member. We appreciate your courtesies and look forward to very productive hearings. PREPARED STATEMENT OF BRIAN T. WALSH Mr. Chairman and Members of the Committee, I am pleased to have this opportunity to appear before you today. I would like to thank the Committee for inviting me to testify regarding recent events in the silver market, most particularly the repercussions to the investor holding contracts following the actions of the exchanges on or before January 21, 1980. I am Brian T. Walsh, 135 Loring Avenue, Salem, Massachusetts. I am an orchardist specializing in jojoba and macadamia nuts. I hold a degree in economics from Boston College and did five years of graduate work at the University of Stockholm and worked in the area of International commodity economics. I, like many other investors, sought to prevent erosion of my savings by investing in precious metals, believing it to be a good hedge against the inflationary climate of our country. On January 21 and 22, 1980, decisions by the Board of Directors of the exchanges relating to silver effectively closed the precious metals market and caused the prices of silver and gold to plumet. I became concerned with what I considered to be a change of the rules in the middle of the game without notice and, perhaps, even improperly according to the laws which govern these markets. I was sure others like me also lost money in silver and gold as a direct result of this action. I began to inquire by telephone, letters, and one advertisement in the Wall Street Journal and ultimately was contacted by approximately 800 investors, who like me invested their money in silver and gold. Some invested in full or nearly full equity purchases of the metals. About two thirds were involved in futures contracts. Collectively, this group-the majority of whom are relatively small investors-has lost we estimate, in excess of 150 million dollars. This is in direct contrast to the impression given by the exchange officials and Chairman Stone of the C.F.T.C. that small investors have not lost any money. Chairman Stone was quoted in the Wall Street Journal March 31, 1980 as saying, "the commission's primary job is to protect small customers and not to bail out the large traders". I want to assure the members of this committee that none of the small customers that I represent received one iota of protection from the C.F.T.C. or anyone else. I have talked to farmers, small businessmen, and elderly homeowners who were virtually wiped out with no hope of recovery. We believe that there is, at the very least, a serious question of impropriety in the actions of the exchanges. Many of the Directors of Comex according to the Wall Street Journal were representatives or employees of major precious metal dealers or floor brokers who had acquired short positions as the price went up. Up until now Comex has refused to reveal whether these Directors participated in the discussions and vote that led to the closure of the market except for liquidation of existing positions. Obviously this decision was not market-price neutral. Anyone could have predicted the results. Prices fell drastically the next day from their historical heights and have never recovered. We are concerned that these shorts felt financial pressures as they were paying large margins while silver and gold prices were rising, and, borrowing this money at |