THE CON: DeAngelis leased 139 tanks filled with soybean oil – at least according to the warehouse receipts he used to secure million-dollar loans. Investors across the globe got sucked into his scam, unaware that this tanks held water with just a thin later of oil on top.
THE DAMAGE: Sixteen companies and two big brokerage firms went under. Commodities dealers, banks and brokerage firms lost $219 million, or about $1.5 billion today.
THE OUTCOME: Sixteen companies and two big brokerage firms went under. DeAngelis spent seven years in prison.
In the early 1960s, Anthony "Tino" DeAngelis ruled an empire made of vegetable oil. Nicknamed the “Salad Oil King,” he oversaw three-quarters of the nation’s exports of soybean oil out of a warehouse in New Jersey. His reign was unquestioned. No one wondered how his tanks held double the amount of oil as was produced in the U.S. No one doubted the receipts issued by an American Express subsidiary to vouch for the contents of his tanks. And no one – from commodities dealers in Buenos Aires to brokers on Wall Street – knew those tanks were filled almost entirely with water.
The son of Italian immigrants, DeAngelis started his career in the meat business. In his early twenties, he ran a hog-processing operation. A few years later, he bought stock control of a major meat-packing firm that soon folded under charges by the Agriculture Department that it supplied sub-par meat to the federal school-lunch program. The Securities and Exchange Commission also accused the company of failing to report huge losses to its stockholders in 1952.
Undeterred, DeAngelis came up with a plan to take advantage of the nation’s soybean surplus. He set up the Allied Crude Oil Refining Corporation in 1953 and built a huge refinery in Bayonne, New Jersey. His goal: turn the excess soybean into oil and export it. He bid low and got a contract with the Food for Peace program, in which the Agriculture Department sold surplus oil to poor countries.
By 1962, he dominated the industry with contracts to deliver thousands of pounds of cottonseed and soybean oils. To stay on top, DeAngelis needed to borrow. Knowing that banks might hesitate over his less-than-stellar reputation, he put American Express Warehousing to work. A subsidiary of American Express, the company ran some of his 139 tanks in a New Jersey warehouse. It performed a regular inventory and issued receipts on the contents of the tanks.
Though the receipts were used as collateral for enormous loans, American Express Warehousing took a careless approach to doing inventory. Often, DeAngelis’ own employees were permitted to suggest which tanks ought to be checked – or perform the task themselves. After climbing to the top of a five-story tank, an Allied worker simply shouted out a fake number to the inspector below. Even an inspector who checked the tanks himself didn’t realize they were filled with mostly water. He was fooled by the thin layer of oil at the top, or by the metal cylinder filled with oil into which he dipped a measuring stick. When oil samples sent to a laboratory were found to contain water, AmEx auditors accepted the story that a broken steam pipe was to blame.
Receipts for oil that didn’t (and couldn’t possibly) exist poured out of Allied Crude Oil Refining Corporation. DeAngelis would dictate figures to his secretary, who furiously typed them into blank Amex Warehousing receipts. At one time, the receipts totaled three times the amount of oil that Allied tanks were even capable of holding.
In 1963, DeAngelis started using the receipts to dip into the commodities futures market. He snapped up enormous contracts for future deliveries of soybean from other dealers who expected the market to drop. To deflect attention from his bad name, he operated through several prominent brokers. His biggest Wall Street lender and futures broker – Ira Haupt – used his warehouse receipts to borrow $30 million from banks in Britain and the U.S., including the Bank of America and Chase Manhattan. With those loans, DeAngelis secured contracts to buy a staggering 1.2 billion lbs. of soybean oil.
DeAngelis stood poised to make a fortune. In the fall of 1963, the U.S. government was hashing out a deal to sell wheat to Russia – a country that, DeAngelis figured, would also want his vegetable oil. Instead, the Senate yanked the wheat deal off the table and the price of soybean oil plummeted.
Eager to bolster public confidence, the New York Stock Exchange fronted $9.5 million for the panicked customers of Ira Haupt. The brokerage firm, along with another major player on Wall Street, demanded $18 million from DeAngelis. Allied filed for bankruptcy; finally, those tanks in New Jersey were given a proper inspection.
Creditors found themselves holding receipts for 1.8 billion lbs. of vegetable oil – but less than one-third that amount actually existed. Like dominos, the players in the Salad Oil King’s international scheme fell. Sixteen companies went bankrupt and two prominent Wall Street brokerage firms went under. In total, more than 150 damage claims were filed against DeAngelis for losses of $219 million.
He tried to escape blame – pointing a finger at lousy forecasts by the Agriculture Department and the “powerful forces” working against him – but DeAngelis was found guilty. He served seven years at Lewisberg Federal Prison in Pennsylvania.