BULL STREET - The art of the Con

Anthony De Angelis and His Magic Water Tanks

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 Express’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 bungling it.

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 stock’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 Angelis’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.

 

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