Wall Street Crime And Punishment: The Salad Oil Scandal Of 1963

Does crime pay?

Wall Street Crime and Punishment is a weekly series by Benzinga's Phil Hall chronicling the bankers, brokers and financial ne’er-do-wells whose ambition and greed takes them in the wrong direction.

One of the most outrageous financial scandals of the 20th century did not involve stocks, bonds or real estate — it involved salad oil.

At first, this might seem like a whimsical notion, as one could easily drown a bowl of chopped lettuce with salad oil, but how could this unlikely liquid create criminal mayhem?

Well, it did, on a massive scale. And when the wreckage created by this chaos subsided, an unexpected denouement quietly took place involving a hitherto unknown investor from Omaha.

Fun With Food: The central figure in this strange story was Anthony De Angelis, who was born in the Bronx, New York, on November 3, 1915, to Italian immigrant parents. De Angelis, who was known to his friends as “Tino,” dropped out of school at the age of 16 and borrowed $500 from his father — a considerable amount in the midst of the Great Depression — to invest in a neighborhood candy store. Unfortunately, the store quickly failed, but De Angelis was able to secure work as a butcher in a meat cutting plant.

De Angelis was a hard worker who displayed uncommon managerial skills. By the time he reached 20, he was appointed as foreman of the facility and was tasked with managing a 200-person workforce.

"I had an exceptional ability in knowing how to process hogs," he recalled in a January 1964 interview with the Saturday Evening Post. "Some of my methods, like cutting hogs while moving, cut the cost of processing hogs enormously."

In 1938, the 23-year-old De Angelis turned entrepreneur and opened his own meat butchering company, which he financed with a $10,000 loan and $2,000 from his personal savings.

De Angelis’ knack for business brought him immediate success, and he claimed to have generated $100,000 after one year and $300,000 in his third year.

In the aftermath of World War II, De Angelis recognized there would be an extraordinary demand for American food exports in war-torn Europe, and in 1947 he was contracted by the government of Yugoslavia for $1 million in lard. But when the Yugoslavs received the lard, they complained about its quality and sued him to regain their funds. The parties settled out of court for $100,000.

Alas, the Yugoslavian incident established the modus operandi De Angelis’ corporate career.

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Playing Uncle Sam: In 1949, De Angelis managed to gain control of the publicly-traded Adolph Gobel Co. meatpacking firm in New Jersey. He made himself president and became involved in the federal National School Lunch Program, with a government contract for 18.9 million pounds of smoked meat to be distributed in school cafeterias around the country.

But in 1952, the U.S. government was in the same predicament as its Yugoslav counterparts: De Angelis sold it substandard products that could not be used. Adding insult to injury, he overcharged the government by $337,376.

Once again, De Angelis faced litigation and quickly settled out of court, this time paying out a $1 million fine. Adolph Gobel Co. declared bankruptcy in 1953 and the company’s board of directors voted to fire De Angelis.

Within two years, De Angelis staged a comeback via another federal endeavor. In this case, the Food for Peace program, which was designed to sell surplus items to U.S. allies in Europe at low prices. Rather than return to the meatpacking world, De Angelis founded the Allied Crude Vegetable Oil Refining Co. in 1955.

At first, it seemed that De Angelis learned from his bad habits. His company traded in vegetable oil products, cottonseed and soybeans, and his revenue stream flowed wide and deep. De Angelis formed affiliated companies to handle his growing business operations, and by the end of the 1950s it was estimated he was responsible for three-quarters of all edible oil shipped to Europe.

“We did very well for the first three or four years.” De Angelis recalled. “The reason that we did very well was because we had the largest companies in the United States who were glad to do business with us.”

Soybean Sovereign: But not everyone was happy with De Angelis. When Adolph Gobel came out of bankruptcy in 1958, some of its creditors demanded De Angelis return as president, which created a wealth of inner turmoil for that troubled operation.

The federal government also had its hands full with him. The Internal Revenue Service determined he failed to pay $1.5 million in income tax, while the Department of Agriculture sought to ban him from the Food for Peace program due to a return to his loosey-goosey bookkeeping and delivering inferior products, this time involving vegetable oil exports to Spain. In both cases, he quickly agreed to settlements.

By 1962, De Angelis had a brainstorm: he believed he had the ability to corner the soybean oil market. To achieve this goal, De Angelis would use his commodities inventory as collateral to gain loans that could be used for heavy investments in soybean oil futures, thus driving up the price of this commodity while enriching himself.

The first company De Angelis hooked into supporting this scheme was American Express Company AXP, which had a field warehousing division that originated loans to businesses using inventories for collateral. In order to satisfy American Express’ due diligence inspectors, De Angelis created phony warehouse receipts that artificially beefed up his financial viability.

When the inspectors asked to confirm that his tanks were full of soybean oil, De Angelis filled the tanks mostly with water and then added a thin topping of oil to float on top of the water. The inspectors would only give a cursory check of the top of the tank, thus ensuring his scam would succeed.

De Angelis repeated these tricks and eventually received loans from 51 companies including Bank of America Corp BAC and Procter & Gamble Co. PG. The fact that none of these 51 companies realized that De Angelis’ reported inventories surpassed the national inventory levels quoted by the Department of Agriculture was a piece of great luck for De Angelis.

In September 1963, it seemed like De Angelis’ plans would hit the ultimate jackpot. The Soviet Union experienced a massive failure of its sunflower crop, and commodity traders were predicting the nation would turn to the U.S. to purchase soybean and cottonseed oil to compensate for the loss of its sunflower oil output.

The rumors of a massive Soviet purchase fueled commodity activity, with soybean oil rising from 9.2 cents a pound in the first week of October to 10.3 cents by mid-November, while cottonseed oil jumped from 13.25 cents to 13.86 cents in the same period. It seemed like everything fell into place for De Angelis — and then everything fell apart.

A Swift Downfall: It turned out the rumors of a massive Soviet vegetable oil purchase had no basis in reality, and when Moscow officially refuted the rumors the commodity prices on soybean and cottonseed oil collapsed. De Angelis had commitments to purchase oil from his providers, but the loss of a Soviet mega-customer put him on track to financial ruin.

Unknown to De Angelis, federal investigators had received tips that something odd was taking place. As the Soviet dream client disappeared, the feds moved in and affirmed the fraudulent nature of De Angelis’ record-keeping and inventory — and even the oil-and-water trick in his tanks was exposed.

Allied Crude Vegetable Oil Refining Co. filed for bankruptcy on November 19, 1963, and two of the brokerage houses De Angelis used to build his crooked empire — Ira Haupt & Co. and Williston & Beane — were suspended from NYSE trading. But that created a new headache, as the clients of the brokerages feared they would be wiped out if those firms failed.

By Nov. 22, 1963, the NYSE had arranged for Williston & Beane to be bailed out of the mess created by De Angelis, and the firm was able to reopen for business that day at 12 p.m.

Roughly one hour and 40 minutes later, news hit the NYSE trading floor that President John F. Kennedy was assassinated during a motorcade trip through Dallas. The news of the assassination sparked massive stock sales and NYSE executives halted trading at 2:07 p.m. to prevent a full-blown collapse. The NYSE would not reopen until Nov. 26, at which point a bailout of Ira Haupt & Co. was arranged.

De Angelis’ creditors were not as fortunate and had no recourse to regain their money. De Angelis claimed bankruptcy, but investigators found he transferred $500,000 to a Swiss bank account. He was indicted on multiple fraud charges, and in a 1965 trial, De Angelis was found guilty and sentenced to 20 years in prison.

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An Unlikely Post-Script: While De Angelis fell from grace, another man stepped into the national spotlight as a result of what transpired. Warren Buffett was a relatively little-known investor in Omaha when he watched the De Angelis story unfold, and he saw American Express’ stock price collapse by 40% as a result of De Angelis’ loan default.

Buffett theorized American Express would eventually regain its footing, so he began buying shares when the stock was trading at bargain-basement prices. As a result, he acquired a 5% stake in the company for $20 million. Within a decade, his investment swelled by ten times in value.

As for De Angelis, he was released in 1972 after serving seven years, and upon regaining his liberty he swore he was a new man.

“I came here weighing 250, and I leave at 170,” he told reporters. “Spiritually, physically, and morally this prison saved my life.”

Actually, it didn’t.

In 1980, he was back in prison for a seven-year sentence after being found guilty of masterminding a scheme that cheated farmers and their suppliers out of $13 million. In 1993, he scored another seven-year prison sentence for using forged bank letters to buy $1 million in pork from a Canadian company.

He died at the age of 93 on Sept. 26, 2009, never offering any remorse or explanation for his bizarre actions.

(Photo by Qiu Zhi / Pixabay.)