On the brink of collapse

At 2:07 p.m. on Friday, Nov. 22, 1963, the New York Stock Exchange (NYSE) halted trading shortly after news broke that U.S. President John F. Kennedy had been fatally shot. The market had been on a downward slide, losing $11 billion in capitalization in the previous seven minutes. But hours before Kennedy’s assassination, NYSE president G. Keith Funston was doing all he could to prevent a potential market crash as one of the largest futures commodities scandals of the 20th century started to unravel.

“Where were you when you heard about President Kennedy’s assassination?” Those old enough to have lived through the ’60s still ask that question of each other. One of the minor effects of the tragedy was the three-day shutdown of the stock market for the country’s mourning. But few knew that the temporary closing might have averted a Wall Street collapse that had nothing to do with the president’s death and everything to do with a major commodities fraud long in the making — the Salad Oil Scandal.

In November 1963, investigators discovered that the Allied Crude Vegetable Oil Refining Company — purchased by commodities trader and con artist Anthony “Tino” De Angelis — had defrauded 51 companies (including American Express) out of more than $180 million. Fearing financial ruin, the company’s 20,700 customers rushed to sell their vegetable oil holdings before they became worthless.

Taking advantage of capricious markets

Trading in commodities and futures can be highly uncertain. Savvy traders tread cautiously with commodities and derivatives for three reasons: the associated known and unpredictable risks on future value (weather, disease, war, political upheavals, market fluctuations, natural disasters and government restrictions); the presence of con artists promising exorbitant returns and minimal risk; and fraudsters who try to unlawfully obtain funds in connection with a contract for the future delivery of assets, which ultimately are never exchanged.

De Angelis took full advantage of the nebulous commodities and futures markets [see sidebar: “What are futures contracts?”] to try to pull off his oily but creative scheme. What makes it even more intriguing is that it coincided with one of the darkest moments in U.S. history — JFK’s assassination.

To understand how such a scandal could rock the financial world, first we must examine what makes commodities trading so volatile, its vulnerabilities to fraud and why these types of scams are still relevant today.

Agricultural commodities as loan collateral

Over the last few decades, interest in certain types of agricultural products (wheat, corn, grains, soybeans and associated vegetable oils) as collateral has been on the rise in developing countries and regions around the world. Financial institutions have developed credit products that use agricultural commodities as collateral for loans (called “field warehousing”). Those commodities are typically stored or warehoused in a specific location leased by the borrower. A company, which is assigned to monitor the inventory in the segregated area, can then issue negotiable receipts giving the holder (or the lender) the right to take ownership of the commodities and sell them in the event the borrower defaults. (See “Field Warehousing—History and Development,” ACE Global Depository; “Field warehouse financing definition,” Accounting Tools, June 30, 2022; and “Warehouse receipts,” Legal Information Institute, Cornell Law School.)

Vegetable oils: Important commodity and collateral items

Second only to cereals as the most important food group, vegetable oils are a diet staple around the world and an essential source of fats. About 40% of global vegetable oil imports are heavily traded — compared to other food products, such as grains, which account for just 20%, according to the International Food Policy Research Institute (IFPRI). (See “The impact of the Ukraine crisis on the global vegetable oil market,” by Joseph Glauber, David Laborde and Abdullah Mamun, IFPRI blog, May 3, 2022.)

Food security (availability, affordability and nutritional integrity) has become a major challenge due to export restrictions associated with the ongoing conflict in Ukraine and lingering COVID-19 supply-chain issues.

In December 2015, Italian authorities confiscated 7,000 tons of counterfeit olive oil that were being shipped to the U.S. The “agromafia,” as the agricultural criminal enterprise responsible for the fraud is known, adulterated the oil by deodorizing it with chemicals and rebranding it as the more expensive extra virgin olive oil (EVOO). Such food crimes involving Italian wine, cheese and olive oil represented a 16 billion-dollar enterprise in 2016. (See “Agromafia,” by Bill Whitaker, CBSnews.com, Jan. 3, 2016.)

And in November 1963, vegetable oil was at the center of the Salad Oil Scandal perpetrated by a fraudster who would become notorious for nearly wrecking Wall Street.

‘Tino’ De Angelis: The making of a con artist

Anthony “Tino” De Angelis blurred the line between businessman and con artist while working in New York. His first big score occurred in 1946 after President Harry Truman passed the National School Lunch Program (NSLP), and De Angelis’ business associates hinted that the U.S. government wasn’t too particular about what food was provided for the school lunch mandates.

With bank loans and investor capital, De Angelis bought the Adolph Gobel Company, one of several school lunch providers. Like so many other NSLP providers at the time, De Angelis overcharged the government for school lunch meat by $34,000 ($364,000 in 2023 dollars). (See “Alternate Crimes: Conspiracy theories, Assassinations, and Salad Oil Swindles,” by William Garrett Cothran, Sea Lion Press, Nov. 21, 2019.)

In 1953, the Adolph Gobel Company filed for bankruptcy. This wasn’t because the company was caught for overcharging the government but because it shipped more than two million pounds of uninspected meat for the NSLP. As a result, the government downgraded the status of the company from primary supplier to emergency supplier. (See “Alternate Crimes: Conspiracy theories, Assassinations, and Salad Oil Swindles.”)

The setback didn’t faze De Angelis in the slightest. He saw his next opportunity in a new government food program.

And in November 1963, vegetable oil was at the center of the Salad Oil Scandal perpetrated by a fraudster who would become notorious for nearly wrecking Wall Street.

De Angelis’ next scam: Food for Peace Program

The Food for Peace Program (so renamed by President Kennedy but established by President Dwight D. Eisenhower in 1954) earmarked a number of surplus food products for export to Europe at low prices to help the continent’s struggling post-war economies. (See “Food for Peace and Foreign Policy,” The Association of Centers for the Study of Congress.)

De Angelis was ready with leftover funds from the Gobel Company bankruptcy to form the Allied Crude Vegetable Oil Refining Corporation in 1955. He bought a storage tank farm in Bayonne, New Jersey, and began filling the tanks with inferior shortening and vegetable oil purchased at cost on credit from agriculture companies. The government covered the market cost of goods (plus 10% markup) as they made their way to European markets. (See “Alternate Crimes: Conspiracy theories, Assassinations, and Salad Oil Swindles.”)

By 1961, Allied Crude had become a major food exporter to post-war Europe and De Angelis was looking to expand. But his reputation was far from clean, and capital was not easy to come by. The IRS had accused him of evading $1.5 million in taxes, while the U.S. government charged him with issuing false shipping documents. Even so, De Angelis paid the fines and continued business as usual. (See “A Primer on New Techniques Used By The Sophisticated Financial Fraudster With Special Reference To Commodity Market Instruments,” page 14, Box 2, UNCTAD, March 7, 2003.)

American Express and field warehousing

Enter American Express, which in late 1961 launched its field warehousing business. (See earlier description.) This was a fortunate turn of events for De Angelis, who hired American Express Warehousing Limited to carry out the business of monitoring the validity of the oil stored at his Bayonne plant and issue tradable receipts backed by that inventory. Those receipts were arguably more valuable thanks to the name recognition of American Express, and worth the reported $20,000 a week that De Angelis paid the company for this service. At first, De Angelis legitimately acquired enough vegetable oil inventory for American Express to give him written receipts for millions of gallons of it. He’d then sell the American Express receipts at a discount to brokers, granting the new purchaser ownership of the inventory. (See “How The Salad Oil Swindle of 1963 Nearly Crippled the NYSE,” by Bryan Taylor, Business Insider, Nov. 23, 2013; “ Salad Oil Swindle Cost Wall Street $150 Million!” by Norman C. Miller, Saturday Evening Post, April 25, 1964; and “Crime: The Man Who Fooled Everybody,” Time, June 4, 1965.)

The scam fools everyone

American Express and other bankers and brokers didn’t just accept that De Angelis had accumulated so much vegetable oil. In fact, Allied Crude began claiming more soybean oil than it had in inventory, raising American Express’s suspicions. Inspectors were sent to the tank farm to measure the volume of vegetable oil in the storage tanks (100,000 to 800,000 gallons per tank) by inserting a long measuring stick through the top access of the tanks. The readings showed full tanks of vegetable oil. (See “Salad Oil Scandal,” by James Chen, Oct. 11, 2021, Investopedia.com.)

De Angelis filled most of his storage tanks with water, then topped them off with vegetable oil. Of course, because oil is less dense and lighter than water it floats at the top of any container — including salad dressing bottles and the top of gigantic storage tanks. When inspectors inserted and withdrew the measuring sticks, the readings always showed full tanks of oil.

As a backup plan, De Angelis also underhandedly moved his “inventory” among 200 storage tanks with high-speed pumps and connected pipes, depending on which storage tanks creditors wanted to inspect.

No one — not even American Express — was the wiser.

Making the play to corner the global soybean market

In the meantime, De Angelis had been playing the futures market and by 1962 was making large soybean purchases in a play to corner the global market and profit from rising prices in that commodity. Wall Street brokers Ira Haupt and J. R. Williston & Beane helped fund De Angelis’ gamble with loans backed by the warehouse receipts, which they then used to borrow money from large commercial banks such as Chase Manhattan. De Angelis eventually started forging those receipts as he sought to keep the money flowing. (See “Crime: The Man Who Fooled Everybody,” Time, June 4, 1965 and “The Vanishing Salad Oil: A $100 Million Mystery,” The New York Times, Jan. 6, 1964.)

The government gets suspicious

In October 1962 the government began to investigate Allied Crude’s “general sales and financing” procedures, suspecting that the company was engaged in a combination of insider trading and “puffery.” The U.S. Federal Trade Commission (FTC) defines puffery as “exaggerations reasonably to be expected of a seller as to the degree of quality of his product, the truth or falsity of which cannot be precisely determined.” (See “Federal Trade Commission Decision in the Matter of Illinois Continental Machine Corporation Et Al,” FTC, Nov. 15, 1957.) In due course, however, the puffery charge had the government questioning how it was possible for De Angelis and Allied Crude to hold more vegetable oil (1.8 billion pounds) than what was available, according to 1963 U.S. Department of Agriculture numbers, in the entire country (1.5 billion pounds). (See “Fats and Oils Situation,” USDA library, Cornell University, January 1963, FOS-216, page 8.)

The fraud begins to unravel

Like many deceptions, it didn’t take long for someone to pull back the curtain — or, in this case, to alert Bunge Corporation, a major commodities exporter and Allied Crude creditor, that something was amiss with Allied Crude’s storage tanks, and it should take a closer look inside them. Inspectors showed up on Nov. 15, 1963, armed with weighted buckets instead of measuring sticks, and discovered by 10 a.m. that Allied Crude had only $6 million in vegetable oil collateral, not the $150 million that the company claimed. (See the Business Insider article.)

Meanwhile, De Angelis’ bet that a sunflower crop failure in the Soviet Union would bolster demand for soybean oil in the U.S. never came to fruition, and he was now faced with $19 million in margin calls. The game was up. (See “Wall Street: $19 Million in the Hole,” Time, Nov. 29, 1963.) The futures market for vegetable oil collapsed with such rapidity (within an hour of the inspectors’ arrival) that Allied Crude would file for bankruptcy just four days later. De Angelis filed for personal bankruptcy shortly thereafter, leaving American Express responsible for all the bad loans.

De Angelis’ bet that a sunflower crop failure in the Soviet Union would bolster demand for soybean oil in the U.S. never came to fruition...

Massive fraud hits Wall Street

American Express and other banks and creditors would see a market value drop steep enough to escalate to financial chaos in the days ahead. With news of Allied Crude filing for bankruptcy, rumors of financial disaster reverberated through Wall Street. Soybean futures dropped by more than 20%. De Angelis’ massive fraud affected 51 companies that had loaned him millions on the promise of higher vegetable oil futures. But now they held worthless warehouse receipts. (See the Business Insider article.)

On Nov. 20, 1963, the NYSE suspended the trading privileges of two of the brokerage houses De Angelis used, Williston & Beane and Ira Haupt & Co., because they’d violated the net capital rule (a firm’s liabilities can’t exceed 20 times its net capital). Customers of both brokerage houses became concerned about getting access to their account funds.

On the morning of Friday, Nov. 22, the NYSE decided to assemble a bailout of Williston & Beane, which was allowed to open at noon that same day. However, the Ira Haupt & Co. remedy was a monumental problem because the brokerage house owed $450 million in securities and many banks more than $37 million that it couldn’t pay. (See “The Vanishing Salad Oil: A $100 Million Mystery,” The New York Times, Jan. 6, 1964.)

Later that day, at 1:41 p.m., word reached the floor of the NYSE that President Kennedy had been shot. Within seven minutes, the Dow lost 19 points and $11 billion in capitalization before NYSE officials halted the panic-induced selling at 2:07 p.m. The market reopened on Tuesday, Nov. 26, gaining 4.5% from the previous day’s close. (See the Business Insider article.)

Where things get interesting

Unbeknownst to nearly everyone as the nation mourned the assassination of a president, halting NYSE trading until Tuesday morning provided some breathing room. Representatives from the NYSE, FTC, banks and several investment firms were then able to work day and night over the long weekend to stabilize markets and tackle the turmoil that De Angelis had created.

By imposing a $12 million assessment on NYSE members to make whole Ira Haupt & Co.’s customers, the exchange avoided intervention by the Securities and Exchange Commission (SEC), thereby maintaining its authority and trust with small investors. (See “The Fiftieth Anniversary of JFK and the Great Salad Oil Swindle,” by Bryan Taylor, Global Financial Data, Nov. 19, 2013.)

This move marked only the second time the NYSE had covered a member firm’s failure, but it was the largest bailout ever authorized in the 171-year history of the Big Board. (See “The Vanishing Salad Oil: A $100 Million Mystery.”)

The fallout for De Angelis

Along with Allied Crude’s bankruptcy filing and the personal bankruptcy filing of De Angelis, the con artist was hit with contempt charges for stashing $500,000 in a Swiss bank account. De Angelis also failed to justify the large cash withdrawals he made from Allied Crude’s bank accounts.

Despite the severity and extent of the massive deception, De Angelis received only a seven-year sentence for his fraudulent activities. Released in 1972, De Angelis got involved with a Ponzi scheme three years later involving livestock dealers that unraveled soon thereafter but not before his victims lost $7 million. (See “Tino De Angelis,” alchetron.com.) That con sent De Angelis back to jail in 1980 for three years. And in 1993, he was sentenced to 21 months at the age of 77 for other fraudulent activities. He died in 2009 at the age of 93. (See “How Salad Oil Almost Crashed the U.S. Economy,” by Madmedic, Medium.com, April 6, 2020.)

What-if scenarios abound

Throughout history, strange coincidences have often been fodder for conspiracy theorists and alternate-history buffs. The assassination of President Kennedy has been the subject of many books, blogs, documentaries and movies raising the question of conspiracies and what-if scenarios involving organized crime, the CIA and even Vice President Lyndon Johnson.

However, few people ask: What if President Kennedy had decided not to travel to Dallas on Nov. 22? How would Wall Street have responded to the vegetable oil scandal?

It’s likely that the story of the day would’ve been the Wall Street crash, and undoubtedly more widespread financial panic as news of it rippled across the country and many financial institutions. The SEC would probably have assumed control of the NYSE, implementing more rules, controls and new leadership — further eroding the confidence of both individual and institutional investors. The government could’ve been forced to cover Federal Deposit Insurance Corporation losses and those of affected banks of $430 million in 1963 dollars. The other option would’ve been to allow all institutions to fail to the tune of $1.7 billion ($9.8 billion in 2023). (See “Alternate Crimes: Conspiracy theories, Assassinations, and Salad Oil Swindles.”)

Not everyone was on the short end of the stick, however. Billionaire investor Warren Buffett threw American Express a lifeline during this time. He took a 5% position by investing $20 million that generated a tenfold return over 10 years. (See “Greed and Fear: How the Great Salad Oil Swindle Led to One of Warren Buffett’s Greatest Investments,” by Stephen Foerster, Medium.com, Sept. 12, 2022.)

Historically, con artists, charlatans and grifters have capitalized on turbulent social, political, and economic situations and on the lives of people during fractured, exposed and emotionally unprotected life situations. Also, good old-fashioned greed and the allure of a well-spun yarn cause many to cast aside economic due diligence and rationality, allowing them to become willing participants in their own financial demise.

Donn LeVie Jr., CFE, a staff writer for Fraud Magazine, has presented at ACFE Annual Global Fraud Conferences from 2012 to 2022. He’s led people and projects for Fortune 100 companies, the federal government and academia over a 35-year career. An award-winning author and former leadership influence coach, strategist and speaker, LeVie still writes books and creates online courses in leadership influence and career advancement strategies for anti-fraud professionals. Contact him at donnleviejr@gmail.com.

What are futures contracts?

A futures contract, or future, is an agreement between buyers and sellers to make delivery (i.e., sell) or to take delivery of (i.e., buy) a given quantity and quality of commodities at specified prices and on specified future dates.

Often, the underlying asset to a futures contract is a commodity, and generally, futures contracts are bought and sold on commodities exchanges, which are similar to stock exchanges in that they function as central marketplaces and provide facilities to buy and sell commodities.

A commodity is anything that can be turned to commercial advantage. Goods commonly sold on the commodities market include such items as soybeans, wheat, corn, pork bellies, rice, gold and silver. In the commodities market, the basic instrument of exchange is the futures contract.

Futures contracts are a valuable tool that certain businesses (e.g., ranchers who are dependent on corn for feeding their cattle) rely on to reduce their exposure to price fluctuations of commodities. Prices of commodities are highly volatile because they’re affected by factors including, but not limited to, weather, industry, economy, employment, technology, and political and global events. Investors, who have no intention of taking delivery of the actual physical commodities, trade in commodity futures contracts with the goal of profiting from price fluctuations in the underlying commodity.

Futures contracts are standardized and contain terms with specifications, such as contract size, delivery months, commodity grades, locations of delivery and so on. Price and quantity are the only things negotiated by the counterparties to a trade. In the U.S., agricultural, industrial and financial futures are traded on organized exchanges known as contract markets.

Futures contracts are either physically delivered or cash settled. When futures contracts are physically delivered, the holder must either produce the underlying commodity or take delivery from the exchange. The possibility of delivery keeps futures contracts in line with their underlying cash markets. If a contract rises too high in price relative to the cash market, traders might sell futures with the intent of making delivery. This forces the futures price down and is the reason futures markets reflect the price of their underlying cash market.

Source: ACFE Fraud Examiners Manual, Section 2: Law/Securities Fraud/What Constitutes a Security?