Hillary's Adventures In Cattle Futures Land

PLAYING THE COMMODITIES MARKETS was the hip thing to do around Arkansas in the late 1970s. All you needed was a few thousand dollars, a smart broker and strong nerves. Jim Blair, an attorney with a reputation for financial savvy, was speculating in the Chicago futures markets and doing well. "That man was magic at that time," an old friend says. "He knew how to do that stuff, and he gave lots of advice." Hillary Rodham was one of Diane Blair's best friends: in 1979, she had been the only attendant at their wedding. In the fall of 1978, when her husband was running for governor for the first time, Hillary took Jim Blair's advice and rolled the dice.

She was, by all appearances, being gutsy. Dabbling in commodities futures can make you very rich one day and wipe you out the next. The Clintons, whose combined salaries totaled only about $50,000 in 1978, were accepting large risks. Futures trading requires investors to bet whether the price of some commodity, such as live cattle, is going up or down. Those who bet right, in buying and selling "futures contracts," can make big money. Those who bet wrong can lose far more than they invested. "There were days of exaltation and days of terror," Diane Blair recalls. "Jim was tense. It was always apparent whether it was a good day or a bad day."

The trick for Blair, like any investor, was finding the right broker-somebody with a nose for where the markets were going and a willingness to cut you in. "We used to wonder how in the world there were so many of these [brokers]," the old friend says. "There was a slaphappy mood. They would either do anything until they got caught, or it was pretty easy to step over the line." Jim Blair had one of the sharpest brokers anywhere-Robert L. (Red) Bone, who managed the Springdale, Ark., office for a broker age firm called Refco Inc.

Hillary bought in. On Oct. 11, 1978, she opened a trading account at Refco with a $1,000 check. Records released by the White House last week show she was an instant winner, racking up a $5,300 gain in her account within days. The White House says she may actually have started this transaction several days before her check was cashed. Mrs. Clinton made a second killing 10 days later, for $7,850, and still another-$7,277-seven days after that. Over the next nine months, trading mainly in cattle, Mrs. Clinton parlayed her initial investment into a profit of nearly $100,000. That rate of return would dazzle any amateur investor and many professionals as well. The mystery is how she did it: even the White House now concedes Hillary Clinton was no expert. "This is like buying ice skates one day and entering the Olympics a day later," 'says Mark Powers, editor of the journal of Futures Markets. "She took some extraordinary risks."

Or did she? Hillary had help-good advice from Jim Blair and, probably, even better advice from Red Bone. Bone, now in his 60s and no longer a broker, has been unreachable to most reporters. But he has told The New York Times that he doesn't remember dealing with Hillary at all.

Bone and Refco, as it happens. were under investigation by the Chicago Mercantile Exchange for systematic violations of Merc rules during the entire period Mrs. Clinton was their client. The investigation culminated in December 1979 in a three-year suspension for Bone himself and a $250,000 fine for Refco-an amount that at the time was the largest penalty ever imposed by the exchange. The violations officially involved sloppy recordkeeping and lax account management. But NEWSWEEK has obtained documents showing that Refco acknowledged there had been "allegations of certain position-limit violations" as well. Secret documents from the Merc's disciplinary files show that Merc officials were concerned that Refco frequently took dominant positions in the cattle-futures market. In one instance, on Oct. 4. 1978, Merc investigators suspected that Refco controlled 60 percent of the long interest in the October Live Cattle Contract. Brokers call this a "squeeze." It is just a step or two away from cornering the market. An attorney for Refco said the company "never consented to the manipulation charges."

White House staff secretary John Podesta says Mrs. Clinton "was unaware of any allegations of market manipulation" and "unaware that Bone had ever been disciplined" until after she had closed her account. Podesta also says she "put up her own money, invested it in her own accounts and assumed the full risk of loss." No one has produced evidence to the contrary. But knowledgeable professionals say the records raise questions about the way Refco managed her account.

One involves margin requirements, which stipulate the amount of money in investor should deposit with the broker to make a trade. The Merc found that Refco and Bone routinely allowed clients to trade without putting up enough money to cover the trades, and Hillary Clinton seems to have been one of those who benefited from Refco's lax management. That much is clear from the $5,300 profit that White House briefers suggested she made in the first several days. Chicago Merc experts say that profit would almost certainly have required a much larger margin investment than the paltry $1.000 in her account. The White House says Mrs. Clinton would have made good any shortfall.

Another question involves what is known as "allocating" trades. The broker, buying futures, hits the jackpot on some contracts and loses on others within the same day. At the close, he "allocates" winning contracts to some clients and losing contracts to others. Only the broker knows how the allocation was made, so he is able to reward some clients at the expense of others. Reporters last week demanded to know if Bone had allocated winners to Mrs. Clinton. The White House said she "had no knowledge of any allocation trades."

She nevertheless made big money in a roller-coaster market and got out with her profits either a very shrewd investor, or a woman with very good friends.

From what you have seen or heard about Hillary Clinton's profitable trading in commodities in the late 1970s, do you think she...

Was lucky and wise in her investments?  37%
Took advantage of improper or unethical deals?  32%
Haven't followed/don't know  31%

THE NEWSWEEK POLL, MARCH 31-APRIL 1, 1994

Hillary Clinton's $1,000 investment grew by $5,300 the first week--and through nine months of trading in commodity futures, she made nearly $100,000.

Initial Investment Oct. 1978   $1,000
First week's profit            $5,300
Profit Oct. to Dec. 1978      $26,541
Profits Jan. to July 1979     $72,996
9 months' total profit        $99,537

SOURCE: THE WHITE HOUSE