Wall Street History

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Wall Street History

12/19/2003

Tino's Big Scam

A few weeks ago I did a piece on the stock market’s reaction to
the assassination of President John F. Kennedy on November 22,
1963. In the column I noted an account from the New York
Times on that day which mentioned that the market had been
reacting adversely to “an imbroglio over soybean oil” before the
event that rocked the nation.

Well, I said I didn’t recall what this referred to but thanks to
reader George L., he set me on the right path. You see, George
mentioned that the soybean oil scandal was really about Tino De
Angelis and the Great Salad Oil Swindle of 1963. I had recalled
Tino’s name, but frankly was embarrassed I had forgotten this
important piece of Wall Street History, especially since I once
worked for a firm in the 1980s that profited from the aftermath.

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Tino De Angelis grew up in the Bronx, the son of Italian
immigrants. He worked in a meat and fish market as a youth
and while still a teenager was soon managing some 200
employees. A few years later, De Angelis recognized there were
loopholes in various government programs, including subsidies
for providing meat for school lunches, as well as a lucrative
opportunity in exporting vegetable shortening to Eastern Europe,
which was still struggling in the wake of World War II.

De Angelis’s business boomed as he latched onto the subsidies
while shipping massive amounts of substandard shortening
across the Atlantic, along with taking advantage of the lunch
program to provide spoiled meat products to the schools. And as
Ron Insana describes in his book “The Message of the Markets:”

“As his bank account grew fatter, Tino grew too – to a
remarkable 240 pounds that hung heavily on his 5’5” frame.”

De Angelis then became more and more of a player in the
commodities markets, both in what was then a brisk trade in
vegetable oil and vegetable oil futures, as well as cotton and
soybeans. Hey, I can corner this stuff, he thought one day, and
despite his already fabulous wealth, Tino did what so many
others before him have, he got greedy. Of course he also turned
out to be a crook and one of the biggest con artists in market
history.

Starting in 1962, De Angelis began to weave a complex web,
buying vast amounts of vegetable oil in both the spot and futures
markets while supposedly storing the product in a tank farm he
had acquired in Bayonne, New Jersey. [Right across the Hudson
River from Wall Street, if you’re not familiar with the area.]

Actually, he wasn’t really taking delivery of the stuff, he only
pretended to. Instead he filled the tanks with water, except for
the little testing valves at the top of each one, so that when
inspectors came around they then assumed that the whole tank
was loaded with the oil they found in these tubes. De Angelis
could then take the certifications that he owned all this veggie oil
to get loans, the proceeds of which he used to buy up all the
futures contracts on the product.

The loans, or warehouse receipts, were mostly acquired from a
subsidiary of American Express called American Express Field
Warehousing Company. Amex, in turn, sold the warehouse
receipts, thus ‘guaranteeing’ that the oil was really in the tankers.

There are somewhat differing explanations in the accounts I read,
but essentially Tino was trying to corner the futures market so
that he could sell out at the top and cover his loans without
anyone knowing he never actually had the stuff in the first place.
But as so often happens in these situations, futures traders began
to sniff out a possible scam before Tino was planning on getting
out and Amex inspectors returned to Bayonne, only this time
they realized the containers were void of any vegetable oil.

Well, you can imagine how the futures price then collapsed and
on Tuesday, November 19, 1963, De Angelis’s Allied Crude
Vegetable Oil Refining Corp. filed for bankruptcy, at which
point investors learned $100s of millions were unaccounted for
in the scheme. De Angelis ended up in jail, only to reemerge as
a figure in a Midwest cattle scam years later, as George L. told
me, which is similar to Charles Ponzi who duped investors again
after the original scandal in which his name became
synonymous. [Or any number of other con artists in the history
of the world.]

But the story doesn’t end here. Oh no, not by a long shot. For
you see, De Angelis owed countless $millions to various banks,
brokerage firms, and the aforementioned Amex subsidiary. Two
brokerage firms in particular, Williston and Beane and Ira Haupt
and Co., handled his speculations in the futures market and both
were now in deep trouble. On Wednesday, November 20, the
New York Stock Exchange suspended the two from operating on
the big board until their true financial status could be ascertained.

Ira Haupt, for example, had 22,000 customers with $450 million
in securities. As John Steele Gordon points out in his book “The
Great Game,” many of the issues were held in ‘street name,’
“meaning that while owned by the customers, they were
registered in the name of the firm to facilitate trading or to act as
collateral for margin accounts.” In bankruptcy, securities held in
customers’ names in those days were quickly returned to their
owners, but those held in street name could be tied up for
months.

The other firm, Williston and Beane, had 9,000 customers and
their assets were also suddenly unavailable. When word got out
of the troubles at these two shops, those at other brokerages got
more than a bit antsy and in some respects an old-fashioned bank
run ensued, though the depth of it is somewhat overstated, by my
reading of the situation.

More importantly, the NYSE had a big problem on its hands. It
was under no obligation to bail out the customers but it needed to
protect the franchise and if the big board failed to take action the
SEC would surely step in, thus eroding the NYSE’s power. [A
rather familiar theme these days, I think you’d agree.]

On Friday, November 22, Merrill Lynch offered to take over
Williston and Beane (which it would later do), while capital from
other sources allowed the firm to reopen at noon that day. But
Ira Haupt was in more serious trouble and a meeting was called
at the exchange to figure out the next step. Then shortly after
1:30 PM Eastern Time the news hit that President Kennedy had
been shot. At 2:07 PM the NYSE shut down, with the Dow
Jones off 21 points to 711.49.

Over the weekend, as the nation mourned, the exchange was in
discussions over the fate of Ira Haupt and the result was
liquidation, with exchange members assessed $12 million to
make the clients of the brokerage whole while the banks that
were owed money deferred receipt of same. A crisis had been
averted and when the market reopened on Tuesday, November
26, stocks staged their largest one-day rally in history in point
terms on the Dow, up 32, not just because there had been an
orderly transition of power in Washington, but also because the
NYSE for the first time had assumed responsibility for a member
firm’s failure.

[For its part, American Express also came through, making good
on its obligations with its warehouse subsidiary and the vegetable
oil receipts.]

The story of De Angelis and the subsequent problems with
Williston and Ira Haupt were really just the tip of the iceberg for
the decade of the 60s. Wall Street was drowning in paper as
back office operations couldn’t keep up with the increase in
trading volume. [This was long before automation of most of the
key functions.] Over 150 brokerage firms ended up failing
during this time, whereas in the previous 25 years only one
NYSE member outfit had been forced to close its doors due to
insolvency. [Charles R. Geisst / “Wall Street: A History”] John
Steele Gordon estimates that in 1968, some $4.1 billion in
securities could not be accounted for at all due to inefficiency
and simple carelessness.

This led to a less than stellar equity market in the late 60s, a
situation not helped by waves of customers failing to meet
margin calls. Accounts themselves were not insured in those
days and even though the NYSE had adopted a special reserve to
meet emergencies, as a result of the De Angelis-led collapse, the
reserve itself was soon overwhelmed.

To remedy the situation, in 1971 the Securities Investor
Protection Corporation (SIPC) was created to insure against
fraud or mishandling of securities.

And now you know ..the rest of the story.

Except for one thing. The accounts I read would have you
believe that the stock market was collapsing in the days leading
up to JFK’s assassination because the Street was so overwhelmed
with the De Angelis scam. But I can assure you that in looking
at the actual closing prices, as I also listed in the earlier piece,
this was not the case. The Dow Jones moved all of about 2% in
the days leading up to Tino’s bankruptcy and even that Friday, as
rumors were whipping around about the stability of Ira Haupt
and Company, the market was actually up a bit until the news
from Dallas hit the wires.

Sources:

“Wall Street: A History” Charles R. Geisst
“The Great Game” John Steele Gordon
“The Message of the Markets” Ron Insana

Merry Christmas and Happy Chanukah, friends. We’ll return on
January 2, 2004, with what might be a fairly brief piece. It’s the
holidays, you understand.

Brian Trumbore

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