A New Jersey Vegetable-Oil Trader Hid Water Under Oil and Almost Sank American Express

Anthony "Tino" De Angelis was a former butcher from New Jersey who, in the early 1960s, ran one of the largest soybean and cottonseed oil trading firms in the United States, Allied Crude Vegetable Oil. His scheme was unembarrassed about its physical mechanics. The storage tanks at Allied's Bayonne yard were full of seawater. A few feet of vegetable oil floated on top of each, just enough that an inspector dropping a dipstick from the top hatch would pull up an oily reading. Some tanks were rigged with internal compartments that could be moved between locations to re-pass the same oil during multiple inspections. De Angelis used the resulting warehouse receipts as collateral for loans to fund speculative positions in cottonseed and soybean oil futures.

At his peak, in the autumn of 1963, De Angelis controlled roughly 90 percent of all open cottonseed oil futures contracts on the New York Produce Exchange. Allied's stated holdings — 1.8 billion pounds of oil — were nearly twice the entire U.S. inventory; actual holdings were around 110 million pounds. When the discrepancy was discovered in November 1963, prices collapsed, margin calls hit, and the brokerage Ira Haupt & Co. immediately failed.

The collateral damage was American Express, whose warehousing subsidiary had issued the fake receipts and faced about $130,000 in actual assets against $210 million in claims. The company's stock fell more than a third. A young Warren Buffett spent much of 1964 quietly buying it, on the bet that the credit-card business was sound and the warehousing fiasco was temporary. He was right.