It may be hard to believe but in 1963 one man, claiming to have 1.8 billion pounds of Salad Oil, managed to swindle 51 companies out of almost $2 billion combined, caused American Express to lose almost 50% of its stock value and almost single-handedly caused a catastrophic stock crash.
The mastermind behind the scheme was Anthony “Tino” De Angelis. He was born in 1915 in the Bronx, New York and according to a 1963 New York Times article he dropped out of school at the age of 17 due to economic reasons. He went to work at a meat cutters plant and he evidently took to that line of work. By the age of 20 he was the foreman of the plan supervision upwards of 200 people.
He took over the Adolph Gobel Company and realized that through the National School Lunch Act the government would pretty much buy any meat so long as it hit a price point. Tino did what any self respecting scammer would do and immediately sold the government substandard product at an inflated price, overcharging the government by $337,376 for a product they couldn’t even use. He was caught and the company was fined $1,087,989 and prohibited from bidding on government contracts again in the future. Sadly the Adolph Gobel Company couldn’t survive such a blow and went bankrupt but Tino managed to land on his feet.
In 1955 he formed the Allied Crude Vegetable Oil Refining Company in order to take part in the Food For Peace Program. The program was designed to sell surplus food products to Europe at a discount to help them continue to recover from World War Two. Naturally Tino fell right back to his old tricks and sold a tremendous amount of substandard shortening and other vegetable oil overseas.
In 1962 Tino decided to take his scheming to the next level. His plan was to corner the whole soybean oil market. He planned to use his current supply of oil as a collateral for a loan. He would then take the loan money and buy soybean oil futures, essentially pre-buying soybean oil at a certain price. The idea is when his future matured he would be able to buy it at one price, turn around and sell it a higher price, pay off his loan, and pocket the profit. On paper this is a perfectly legitimate, though risky, business transaction, but of course Tino couldn’t leave it at that.
Going back to step 1 of his plan, he planned to use the current supply of soybean oil as collateral for these loans. To do that Tino worked with a newly created “Field Warehousing” division of American Express. American Express would come by and validate how much oil Tino was holding and write him a warehouse receipt. That warehouse receipt basically said that American Express validated that Tino had as much vegetable oil as he claimed to. Tino could then take the receipt to a bank or broker and offer it as collateral for cash.
At first everything was on the up and up, but over time as Tino noticed how lax the “inspection” was he started to reduce the actual oil he had on hand. Eventually Allied Crude’s tanks were mostly filled with water with a small layer of oil on top. He also built a complex system of pipes that let him shift the oil from one tank to another as needed. So when the Inspector showed up, they would dip the tanks, it would pull up oil and they would certify Tino had as much oil as he claimed.
So what did these inspections look like? They were scheduled weekly, usually on Fridays and Saturdays and were never surprise inspections. The inspector would get the figures from Allied Crude and then the inspector would accompany an Allied Crude employee to the top of the tanks and an Allied Crude employee would lower a weighted tape measure into the tank and call off the level of feet of oil in the tank. The Inspector would occasionally take samples but admitted when questioned during Tino’s trial that he had no real way of knowing what was in the tank. After the tape measurement the inspector would convert the feet of oil into pounds and then he would certify that Allied Crude had that much vegetable oil on hand. However, as an early warning, if the inspector or American Express were paying any attention they would have quickly found out that they guaranteed that Tino was holding more oil than the Department of Agriculture reported existed in the whole of the United States!
Tino shopped those warehouse receipts around and use them to borrow money from companies such as Bank Of America and Procter & Gamble, as well as other brokerage houses and banks, by the time his scheme collapsed he managed to get money from 51 different companies.
Eventually the gig was up, different inspectors demanded to see his books and he was failing to deliver oil that was being purchased from him. It turned out Tino was holding only 4% of the oil he claimed to have. Once this hit the market futures immediately crashed, falling from $9.87 to $7.75 from Friday to Tuesday, Tino was totally wiped out.
On November 19, 1963 Allied Crude declared bankruptcy, and all those companies that loaned him money were left holding worthless warehouse receipts for imaginary vegetable oil. Some of these companies were better situated to handle the loss, but the two main brokerage houses Tino worked with: J.R. Williston & Beane, and Ira Haupt & Co. were immediately suspended from trading. Thousands of people who had probably never even heard of Anthony De Angelis were about to lose all the money they had invested in those firms. If quick action wasn’t taken those firms would go bankrupt and the fallout would undoubtedly crash the stock market.
That Friday on November 11, the New York Stock Exchange was able to organize a bailout of J.R. Williston & Beane. Ira Haupt was a much bigger issue, since it owed 313 million dollars that it had no way of paying back. But before the market could collapse from Ira Haupt much bigger news changed the course of history: that afternoon President Kennedy was assassinated. The market shutdown until the following Tuesday giving the New York Stock Exchange time to deal with Ira Haupt. They managed to raise $100 million to make Ira Haupt’s customers whole, this was the first time in the history of the Stock Exchange that they took responsibility for a firm’s failure. Unfortunately for them, the creditors were left high and dry and were out millions of dollars.
At this point our tale briefly shifts to genius investor Warren Buffett. Due to their large exposure American Express’s stock collapsed falling from $65 in October of 1963 to $37 in January of 1964. Buffett did some research and believed the fundamentals of American Express were strong and he invested $20 million into the company, earning back 10x his investment over the next ten years.
And what happened to Toni? In January of 1965 he was sentenced to 20 years in federal prison but was released out on parole in 1972. Leaving prison he said “Coming here actually saved my life. I came in here weighing 250 and left weighing 170. Spiritually, physically, and morally this prison has saved my life.”
It wasn’t long before he was back to defrauding people. This time it was a ponzi scheme with Midwest cattle which as usual fell apart but not before costing those involved millions of dollars and getting Toni sent back to jail in 1980. He was released again in 1983 and then sent back to jail for more fraud at the age of 77 in 1993 for 21 months. In 2009 he passed away at the age of 93.
Note: All figures except stock prices are adjusted for inflation
