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Sunday, July 11, 2010

MAKING BOOK; 02

I believe the term scam evolved from the French “escamote”, which is a magician’s ball. While the “mark” watched the magician shift the hidden ball his “escamoteur” (accomplice) would “escamoter” (steal away) with the mark’s purse. By 1893 Isabel Burton could write, “You have been robbing the public for the last quarter century, and only the other day you bought a bottle of ordinaire and escamote'd it into sixteen kinds of vins fin., a scam if ever I heard one.” (The Life of Captain Sir Richard F. Burton)
When the Dutch settled New Amsterdam, the chief gunner (or “Konstapel”) assigned to defend the harbor was granted land where the narrow Kill (or tidal channel) van Kull, runs past Staten Island (left of above frame), separating the bay of New York (foreground) from the bay of Newark (background). This land grant, called Constable Hook, was specifically the land jutting out from Bayonne, New Jersey, 10 miles south of Manhattan. In the late 1950’s (as it is today) Constable Hook was the unattractive home of industrial tank farms, including the 139 gray-green storage tanks, some of which are five stories tall, where Anthony De Angelis e-scam-tuer-ed with his investor’s purse.
The vegetable and fish oil in the tanks owned and leased by Allied Crude Vegetable Oil Refining Corporation was destined for shipment to factories worldwide to be converted into margarine, vitamin extracts, paints, soaps and toiletries, pharmaceuticals and, of course, salad oil. In order to measure the volume held in each tank American Express Warehouse instructed its inspectors to lower a ruled measure to the bottom of each tank. When the tape measure was withdrawn, the inspector would note the film of oil on the tape. American Express would then vouch for the amount of oil held by Allied at Constable Hook. The only problem was that all of the men working at Constable Hook for American Express were also working for Anthony De Angelis.
As already mentioned Thomas Clarkin was paid $500 a month by American Express as a custodian and to keep the inventory records, but Anthony paid Tommy $1,200 a month as a “messenger”. And, as Anthony later admitted, “He told me he needed a house for his wife and kiddies so I said, `Tommy I'll give you the money for your house.” And he did.  Joe Lumuscio, another of Anthony’s ‘buddies’, was paid $6,000 a year as a custodian by AmEx, but pocketed $53,000 a year from Anthony's Allied. And overseeing the entire scam was the General Manager of the Constable Hook facility, Leopold Bracconeri, who was Anthony’s brother-in-law.
Like all scams, this one was based on a simple slight of hand. When the inspectors verified the inventory Allied’s custodians were the ones who actually climbed atop each tank, lowered a tape measure, and read off the level of the oil film. The inspectors would rarely if ever climb the tank or even check the tape. So Anthony’s boys could call out any number they wanted, and that number would become the “official and verified” inventory.
Gradually Anthony’s boys would fill the tanks with salt water, leaving a few inches of oil floating on the surface. Then, when “inspecting” each tank, they would note the film of oil at the top of the tape, and this proved more than enough to lull any overly conscientious inspector. The captains of industry who ran American Express never visited Constable Hook, and certainly never climbed atop the tanks upon which so much of their fortunes and reputations were now based.
According to author Norman C. Miller, Anthony had come to the amazing realization, that “…he always had more oil stored than he needed to satisfy customers' immediate demands…(and) As long as he could meet daily withdrawals, he might have almost any amount of oil in storage, for all the world knew.”
Then, using the magic of the credit line AmEx had granted him, Anthony could convert any excess product he claimed he had at Constable Hook into cash, and then using the magic of “Commodity Futures” he could multiply that cash by a factor of 95.
Wikipedia defines a futures contract as an agreement “… to buy or sell a specified commodity of standardized quality at a certain date in the future.” But in practice Futures are bought and sold as if they were stock, usually by speculators who have no intention of ever taking delivery on the commodity. The Greek philosopher Thales had invented the idea in the 4th century B.C. when one summer he reserved olive oil presses for the fall harvest with a down payment. If the harvest was good, the presses would be in demand and Thales could charge far more for their use than his deposit. If the harvest was bad, Thales was out only his deposit. It was a brilliant innovation, sharing the risk of producers with investors. But the system was rife with possibilities for fraud, which is why it languished for 2,000 years outside the mainstream of capitalism.
The heady field of Commodity Futures Traders usually worked on a 15% margin, which meant that for a million and a half in collateral (vegetable oil) Anthony could buy the contract for oil worth $10 million. But since Anthony was so well connected in the industry he was able to negotiate for a 5% margin from Wall Street brokerage houses Ira Haupt and Williston and Beane. That meant that with AMEX receipts claiming $1.5 million in inventory at Constable Hook, Anthony could commit to the purchase of $142.5 million worth of Futures. And that was the temptation for Anthony’s boys to claim increasing quantities of oil the tanks did not contain.
With buying power like that Anthony was quickly driving up the price of soybean, cottonseed and corn oils,  thus profiting more from his fraudulent inventories. In reality, Allied was shipping up to 100 million pounds of vegetable and fish oil out of Constable Hook each week, $250 million worth in a year, 75% of the total U.S. exports of vegetable oils. But that was no longer enough for Anthony. Showing paper profits on his Futures trades, Anthony began to dream of cornering the entire market on vegetable oils. His secretary, Josephine Salto, begin to carry her typewriter with her. At anytime, day or night, Anthony might ask her to type up a blank AMEX Warehouse inventory receipt claiming a new figure; “a figure apparently unrelated to anything except Allied’s need for cash” (Miller).
By 1960 Allied’s operations, both legal and fraud, were beginning to show the strain. Anthony claimed to have spent $2 million to win a contract from the Spanish government. But the deal fell through after the U.S. Department of Agriculture charged Allied with back-dating a previous 11959 Spanish contract. Other Spanish customers were now claiming the oil they had bought was arriving spoiled, perhaps because it had been mixed with sea water. The USDA fined Anthony $1.5 million, and the little con man complained, “While I was brilliantly moving and selling all over the world, I had a very powerful force working against me.”
It was true. And the powerful force working against Anthony turned out to be...Anthony.
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