The Great Soybean Fraud of 1963: Tanks Full of Water, Not Oil
Imagine you are a bank. Someone comes to you and says, “I have millions of pounds of soybean oil stored in tanks in New Jersey. Give me a loan.” You send an inspector. The inspector dips a measuring rod into the tank. Oil floats on top. Looks fine. You approve the loan. What you do not know is that 95% of the tank is filled with water and there is just a thin layer of oil floating on the surface.
That is exactly what happened in Chapter 8 of “From Tulips to Bitcoins” by Torsten Dennin. And the man behind it was Anthony “Tino” De Angelis.
A Kid From the Bronx
De Angelis was the son of Italian immigrants, born and raised in the Bronx. In 1955 he founded a company called Allied Crude Vegetable Oil. The business model was simple. Buy US government-subsidized soybeans, process them into oil, sell the oil abroad. Totally legitimate on paper.
He built a refinery in Bayonne, New Jersey, and leased 139 oil storage tanks. Some of these tanks were as tall as five-story buildings. American Express Warehousing handled the storage and inspection. They got paid to certify how much oil was in those tanks.
By 1962, Allied controlled about 75% of all soybean and cottonseed oil exports from the United States. That is a wild number. Three quarters of the entire country’s output going through one company run by one guy from the Bronx.
The Problem With Growing Too Fast
To finance this growth, De Angelis needed massive loans. And to get those loans, he needed collateral. The collateral was supposed to be the oil sitting in those 139 tanks.
But here is the thing. Allied never actually had enough oil to back the loans it was taking.
Employees came up with creative ways to fool inspectors. They pumped oil from one tank to another right before an inspection. They filled tanks almost entirely with water and put a thin layer of oil on top. Oil is less dense than water, so it floats. An inspector sticking a rod into the top of the tank would hit oil every time and write down that everything looked good.
The credit De Angelis extracted was roughly three times the actual storage capacity of his entire facility. And American Express, his biggest inspection customer, did not look too closely. When your client is paying you good money, you tend to not ask uncomfortable questions.
The Futures Gamble
If De Angelis had just used the fraudulent loans to run his business, the scheme might have lasted longer. But he got greedy. Or maybe he was always greedy and the oil business was just the vehicle.
He took the borrowed money and started speculating on soybean oil futures at the Chicago Board of Trade. Futures only required a 5% margin deposit, so his leverage was enormous. He accumulated positions worth 120 million dollars, which represented about 1.2 billion pounds of soybean oil.
At that scale, a 1-cent move in soybean oil prices meant a 12-million-dollar swing in his account. Up or down.
For a while, it worked. Soybean oil prices climbed from 9.20 to 10.30 cents per pound over six weeks. De Angelis was making a fortune on paper.
November 15, 1963
Then the market turned.
On November 15, 1963, soybean oil prices collapsed. Within four hours, the price dropped from above 10 cents all the way down to 7.60 cents. That kind of move at De Angelis’s position size was catastrophic.
The Chicago Board of Trade issued margin calls. De Angelis’s broker, a firm called Ira Haupt and Co., could not cover the calls. Ira Haupt went bankrupt. Allied Crude Vegetable Oil went bankrupt right behind it.
Investigators opened the tanks in Bayonne. What they found was almost comical if it were not so expensive. The tanks that were supposed to contain 1.8 billion pounds of soybean oil actually held about 100 million pounds. The missing oil was worth roughly 130 million dollars. In 1963 money, that was an astronomical sum.
The Damage
The list of victims reads like a directory of American finance. American Express saw its stock price drop by more than 50%. Bank of America got hit. Chase Manhattan got hit. Continental Illinois got hit. Bunge Corporation, one of the largest agricultural trading firms in the world, got hit.
De Angelis was eventually sentenced to 10 years in prison for fraud.
But here is the strangest part of this whole story. The soybean oil scandal broke on November 15, 1963. President Kennedy was assassinated on November 22. Seven days later. The biggest commodity fraud in American history was completely overshadowed by an even bigger event. Most people have never heard of the Great Salad Oil Scandal because the entire country was consumed by grief over Kennedy.
What I Think About This One
Reading Dennin’s retelling, a few things jump out.
First, the fraud was remarkably low-tech. Water in tanks. Oil on top. That is it. No complex financial engineering, no offshore shell companies, no algorithmic manipulation. Just water and gravity and inspectors who did not want to look too hard.
Second, the pattern of using borrowed money to speculate on futures shows up over and over in financial history. You borrow against an asset, use the cash to bet on price moves, and as long as prices go your way, you look like a genius. The moment prices turn, everything unravels at once. The leverage that made you rich is the same leverage that wipes you out.
Third, American Express learned a hard lesson about being both the inspector and the business partner. When you are paid by the person you are supposed to be auditing, the incentives are broken from the start. This same conflict of interest showed up again with credit rating agencies before the 2008 financial crisis. Some lessons take decades to learn, and sometimes they are never learned at all.
De Angelis got 10 years. The banks got stuck with losses. American Express eventually recovered. And most of the world forgot it happened because a president died a week later.
Previous: Chapter 7: Onassis Oil
Next: Chapter 9: Russian Wheat
This is part of my From Tulips to Bitcoins book retelling series.