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Salad Oil Swindle Cost Wall Street $150 Million!
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Futures trading had one advantage over the ordinary cash oil business for Tino. Exchange rules permitted a member of the trade, such as himself, to buy contracts by putting up as little as five percent of the market value, far less than the cash requirements imposed on outsiders speculating in commodities.
All through last year, Tino bought oil futures, putting up little cash (and often none at all). He worked through a numher of brokers to disguise his heavy purchases, and at one point was suspended briefly by the Chicago Board of Trade for trading with himself, through various dummy companies. Tino had reason to avoid attracting attention. He was committing himself to accept vast quantities of oil in the future-which was illogical trading behavior for a trader who was already presumably loaded with oil supplies.
In fact, Tino was abusing his trader's privileges to embark on what can only be explained as a rank speculation-a reckless gamble to monopolize the vegetableoil supplies in the hope that some sudden upturn in the demand for oil would turn his hair-raising position into gold.
Despite his efforts at secrecy, his buying spree became common knowledge. Neither exchange officials nor the Commodity Exchange Authority, the government agency which regulates commodity trading, exhibited too much concern. "We're delighted," executive director C. Robert Berg of the New York Produce Exchange told a group of worried traders. "It's good business." CEA administrator Alex Caldwell claims he was worried about the De Angelis position but didn't have the authority to interfere. (Exchange officials say Caldwell never even informally notified them of his worries.)
Then in September, there came news of a big failure in the Soviet Union's sunflower crop, and many commodity traders believed the Russians would soon be in the market for huge quantities of cottonseed and soybean oil to make up their loss of sunflower-seed oil. Russia already was trying to buy American wheat-and there seemed a good chance that it would buy vegetable oil as well. Here was Tino's chance - it seemed. If he could get a stranglehold on oil futures, the Communists would have to come to him. All he needed was a broker willing to run the risk of increasing his already enormous futures position.
The firm of Ira Haupt, one of his four brokers at the time, had accepted the Allied account in May on the recommendation of a big New York bank. Haupt did have some misgivings; it limited Allied borrowings to $2.5 million, secured by warehouse receipts and evidence of contracts to export oil. Fred
Barton, senior employee in the commodities department, maintained a clamp on Tino's buying through the firm at the level o1' 2,500 futures contracts.
Then, on September 27, Barton entered the hospital for a six-week stay: about the same time, Tino began switching Allied's futures contracts from his other brokers to Haupt. The clamps, for some reason, came off. Within the next six weeks, Tino increased his position with Haupt from 2,500 to 15,000 contracts with a paper value of $95 million. It was fairly easy for Tino to accomplish this, since Haupt now seemed willing to loan him all he needed to "pay" the five percent margins, as long as he could put up warehouse receipts as collateral. And by this time, according to the indictment, Miss Salto's typewriter was turning out receipts and export contracts with remarkable dispatch.
To finance Tino's trading, Haupt in turn used the receipts as security for hank loans and poured this money into Allied's oil buying. Prices rose fast, due as much to Tino's heavy buying as to the Russian rumors. Soybean oil went from 9.2 cents a pound to 10.3 cents between the first of October and mid-November, and cottonseed oil from 13.25 cents to 13.86 cents, both sizeable increases. By early November, Tino was obligated to accept delivery of 1.2 billion pounds of vegetable oil, or almost as much as the United States exports in a year.
Then, as Russia showed no sign of wanting to buy oil and some key U.S.
senators opposed the wheat deal, the market began wavering. On November 15, the Senate suspended negotiations on the wheat deal. Panic swept the vegetable oil market, and prices fell: in two days, soybean oil dropped to 7.6 cents and cottonseed oil to 12.32 cents. As the value of his futures contracts dropped, Tino was automatically required to put up more cash to guarantee his ability to meet his commitments-and each onecent drop in oil prices reduced the value of Allied's contracts by some $12 million.
Haupt called on Tino for $5.1 million. Tino failed to meet this "margin call." On Nov. 18 Haupt demanded an additional nine million dollars, and Tino again failed to produce. The exchanges were pressing Haupt for the money, and someone in the firm, without the knowledge of managing partner Morton Kamerman, began a frantic juggling act. A number of 24-hour "day loans" which brokers routinely get from banks to stabilize stock trading were used - or misused - to pay commodity debts. To pay these off, stock deposited with Haupt by its customers was pledged for $13.5 million in longer-term loans, in violation of New York Stock Exchange rules. On November 19, Haupt got more day loans and recovered its customers' stock - but it also paid out $11 million for Alhed margin calls, which the banks never got back. Just who at Haupt was responsible for this the firm has dechned to say.
While Haupt tried to sell Tino's contracts, it sent a messenger to pick up an Allied receipt for $5.4 million the next day. It was a forged receipt, the U.S. attorney alleged later, but it came too late in any case. The firm's partners had failed to sell any oil despite a night of telephone calls offering it to traders, soap companies and margarine makers at a discount: by morning it was clear that Haupt's net assets were below the minimum required by the New York Stock Exchange. Even as Kamerman was reporting this to the exchange, he got the shocking news of Allied's bankruptcy.
The juggling could not keep up with plunging oil prices. On the night that Haupt officials finally faced their predicament, they decided to try to sell Tino's futures contracts to pay loans falling due next day and recoup as much as they could. Tino was wild when they told him. "Don't try to sell oil tonight-it will be a sign of weakness," he screamed. He promised them a warehouse receipt next day to cover part of his debt-failing to inform them that his lawyers were already preparing a bankruptcy petition for Allied that would leave Haupt holding a large, empty bag.
By that time Tino had decided to try to recoup with a still vilder pyramiding scheme, this time in commodity "futures." These are contracts to bu, or sell a given amount of commodities at a specified future date but at the price which now prevails on the exchanges. The man who buys one future contract on soybean oil commits himself to accept 60,000 pounds of oil on the delivery date, at today's prices. He is thus betting that the price
of oil will rise, and that he will be able to sell the oil at a profit. A man who sells a futures contract commits himself to deliver oil, and makes his profit only if the price drops in the meantime. Speculators buy and sell futures furiously on paper and seldom lay eyes on the warehoused goods involved. But grain dealers, soap companies and other firms also trade in futures as a part of their regular business, to hedge against price drops-or price increases-in the commodities they deal with. Tino De Angelis was such a traderand one of the biggest.
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Is there voting after death?
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New Jersey Fact: "New Jersey is a small state on the eastern seaboard halfway between Honest John Lindsay and the Liberty Bell. It is best known for its turnpike, Atlantic City, Imamu Baraka, Newark Airport and the Morro Castle disaster. Most of its leaders are in jail for stealing money...." Over thirty years ago, this was how a New York Times writer described New Jersey. The only things that have changed are that now Bloomberg has Lindsay's old job and Amiri Baraka figured out somewhere along the line that it's not too swift for an atheist to use a religious title. | |
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The 2001 Race for Governor of New Jersey |
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