- The art of the Con
This story is a little different than the ones that
have preceded it. Primarily we have discussed companies that have not exactly
been what they appeared to be on the surface. Either by duping their accounting
firms or having them in complicity with them, the public has often gotten bilked.
On the other hand, they made some semblance of being in a business. DeAngelis,
made literally none but because he had totally invented a company and that company
had some salad oil supposedly buried deep in storage tanks in Bayonne New Jersey.
Anthony De Angelis had been around for a while. He was
an elderly guy who over time has been credited with stealing a $1 billion dollars
from folks at a time when that was real money, back in the early sixties. De
Angelis knew a little about salad oil because he cut his teeth on the stuff
as a commodity trader and one of the bits of obscure information that he was
aware of was the fact that when you place water and salad oil together, the
later will float to the top. De Angelis, never much of an angel, thought to
exploit this anomaly and rented some of American Expressâ€™s storage tanks in
New Jersey. In them, he placed about 1% salad oil and about 99% water. As
we have previously explained, the salad oil popped to the top and unless someone
put on a diving suit they really would think that the tank was full was full
of this valuable product.
American Express was acting as both the lessor of
the tanks and the guarantor of the salad oil as well. Once American Express
was satisfied that the salad oil was in place, it would issue a warehouse receipt
guaranteeing that the salad oil that was purchased by a third party was held
by American Express and its existence was further guaranteed by an irrevocable
bond. In this case there was no one to blame beyond whoever did the due-diligence
for the credit card company. There was no accounting firm to blame. American
Express had only one job to do and they jeopardized their entire company by
One of the most interesting sidelights of the affair,
was the fact that the losses run up on the disappearing salad oil were actually
more than the net worth of American Express itself. The stock tanked and people
were not sure whether the company would be able to stay in business or not.
Then, even worse news hit. It turned out that American Express when it was
formed began existence as a bank. Its charter was a bank charter and strangely
even though banking was only a small part of its then existing business, the
charter remained the same. Banking laws had been changed after many banks had
disappeared during the crash and one of those changes made shareholders in banks
liable for two-times the stockâ€™s par value.
As we recall, American Express had a par value of
$100 per share, which was substantially more than the stock was selling at.
Shareholders panicked when they learned that they could be liable for substantially
more than, not only what they paid for the stock but up to four-times what it
was then priced at. Another classic American company, Kemper Insurance was
also involved in the matter but less directly. Once again, their highly paid
attorneys are probably the only reason that Kemper is still around.
Luckily, American Express survived by tanking the
subsidiary and having a team of very creative lawyers invent some new law, but
until the matter was negotiated out, it was touch and go for one of Americas
premier, blue chip companies. On the other hand, at least two major brokerage
firms bit the dust, one of them, J.R. Willliston Beane who had as its name partner,
the one and only Beane that originally adorned the masthead at Merrill Lynch.
Thinking he could do better with his own firm than he could at Merrill he moved,
literally his first move was his last and he forever rued the day that he ever
heard the name, Tino DiAngelis, as he was known. The swindle was called by the
Wall Street Journal, one of the “all-time financial crimes.”
The swindle was not created in vacuum. De Angelis
was using the American Express warehouse receipts to purchase soybean-futures.
Soybeans were an integral part of salad oil and by running up the price on the
beans Tino thought that he could make a large enough profit on the futures
to cover any deliveries that he may chose to make on the salad oil. When the
fraud was discovered, De Angelisâ€™s position in soybeans was liquidated also
causing the old-line commodity firm of Ira Haupt to collapse into an irrecoverable
heap. The damage that had been done by De Angelis for its time was probably
greater than any single incident in history preceding it.