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FACING DOWN THE RULERS OF WALL STREET A HUNDRED YEARS AGO. THEY ARE BACK.

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Sunday, July 18, 2010

MAKING BOOK: 03

I think it was no coincidence that Herman Melville’s last novel, “The Confidence-Man: His Masquerade”, was published on April Fools Day, 1857. And in that strange and odd little book is one of the most troubling and depressing lines ever written by an American; “…in new countries, where the wolves are killed off, the foxes increase.” It is an idea which can give you nightmares if you think about it too much.
Anthony De Angelis had little physical resemblance to either a wolf or a fox. Truly dangerous humans have that unpleasant ability to not look dangerous, nor to think themselves as such. Norman C. Miller noted that “Under (Anthony’s) folksy exterior…lie the vast self-confidence and the fierce ambition of a Caesar.” And one time analyst for CNBC Ron Insana described Anthony in his book “The Message of the Markets”, “As his bank account grew fatter, (Anthony) grew too - to a remarkable 240 pounds that hung heavily on his 5'5" frame.” All his life Anthony had a ravenous appetite. And at last, he was getting his fill.
For five years Anthony deceived the inspectors from American Express Warehousing with a simple slight of hand to produce fraudulent inventories for his Constable Hook tank farm. He had then used the phony receipts as collateral for advances from the brokerage houses of Ira Haupt and Williston and Beane for purchases of vegetable and fish oil Futures. That drove the value of his invatories up, which drove the price of the Futures up again. But somehow Anthony was always behind the curve. He even began to claim product in some 30 tanks on Constable Hook which he did not own, some of which actually held fuel oil and some of which did not even exist.
When the inspectors asked to see the new tanks, Anthony’s boys drove them around Constable Hook until they were confused enough to verify tanks they had already inspected. It was the old shell game played out on an industrial scale. Allied eventually claimed to have more salad oil stored at Constable Hook than existed in the entire United States; but Anthony was still running to catch up.
In early November of 1963 Anthony found himself facing a $120 million bill for an actual delivery of 1.2 billion pounds of real soy bean oil, which he had no place to store. Not that it mattered, because he didn’t have the cash to pay for the delivery, and could not raise it. And when Anthony explained this problem to the employees of Ira Haupt they immediately did two things.
First they got on the phone and began desperately trying to find someone to buy 1.2 billion pounds of oil. They failed. And secondly they took a hard look at Allied’s accounts, and what they saw did not make them happy. Their firm was on the hook for $18.6 million in Futures contracts that Anthony De Angelis could not meet. Anthony was bankrupt. And if he was out of business so was Haupt, and so was Williston and Beane, and maybe so was American Express.
At last the brokerage houses sent their own inspectors out to Constable Hook. They had AMEX receipts for $45.6 million of vegetable oil which were supposedly stored there. They climbed atop the tanks themselves, dropped their own tape measures into the tanks themselves, and read the tape themselves. What they found was about $1 million of oil.
On November 19, 1963 Anthony De Angelis filed for bankruptcy, but when he was unable to come up with a $20,000 bond for court costs, the judge denied Allied Crude Vegetable Oil Refining Corporation even the protection of Chapter 11. And there was no bail out for Anthony. He was not an insider, and speaking corporately, he was not too big to fail. The entire company and all assets were quickly sold at public auction for $3.5 million. Authorities put the total Anthony still owed at $175 million.
Some 51 companies had made loans to Anthony or one of his companies, for oil which did not exist. Sixteen companies were forced into bankruptcy. J.R. Williston barely survived. Ira Haupt did not. American Express survived only because of their profitable credit card business, and because an Oklahoma stock fund manager bought 5% of the company for just $20 million. It was a bargain price, even in 1963. But the influx of that $20 million saved American Express. And the profits from this deal made Warren Buffet his first million dollars, and established his reputation as a smart investor.
The entire stock market was saved from a disaster caused by Anthony's scam because the assassination of President John Kennedy gave the NYSE an excuse to close early that Friday afternoon, November 22, 1963. All over Wall Street the captains of industry breathed a sigh of relief and then tried to figure out how to avoid a similar disaster next time they fell for a confidence man. And they would fall. Because that is human nature, and you can't argue with mother nature.
On June 4, 1965 a judge gave Anthony a choice; tell the F.B.I. what became of all the money or serve ten years in prison for four counts of fraud and conspiracy. Anthony revealed a $500,000 Swiss bank account, but he also took the Fifth Amendment 58 times. He was sentenced to ten years in Federal Prison at Lewisburg, Pa.
In 1975 Congress finally created the Securities Investor Protection Corporation, another one of those government/private corporations Wall Street is convinced are misbegotten. It gave investors in the stock market the same protections available for banking customers for their savings or checking accounts. No investor lost another dime in a Wall Street brokerage house failure...until the geniuses of finance decided again that they were too smart to fall for a confidence man, and tore down the regulatory walls in the 1990’s.
In July of 1972 Anthony De Angelis was released from Lewisburg. He had lost 170 pounds while in jail and credited prison with saving his life because of it. But the Anthony who came out of jail was still looking to wheel and deal. It was his nature.
Almost immediately Anthony got involved in a scam involving the Ozark County Cattle Company of St. Joseph, Missouri. Anthony complained that he preferred jail. “There you had peace. It was tranquil. You come outside and try to make a living and all the big guys try to shoot you down.” Anthony was arrested and sent back to jail.
He was not heard from again until 1992 when the following story ran on the Associated Press wire: “Rochester, New York. Anthony De Angelis, the infamous commodities swindler of the 1960s, was sentenced to 21 months in prison…Federal judge Michael Telesca also fined the 78 year old Mr. De Angelis and sentenced him to three years probation, during which he is banned from the food processing industry….(and) must make restitution to Maple Leaf Foods (after he had used a forged check to purchase $1.1 million worth of meat from them)…Based on his criminal history the judge said Mr. De Angelis uses his wit, charm and business ability to manipulate situations that suit him best. Although he has been a great teacher while incarcerated…he has been a very poor pupil in learning to change his ways…”.
Said Anthony, after the collapse of his Salad Oil empire in 1963, “It's not beyond the realm of possibility for me to make up these losses. If given the opportunity, I could make a million or five million dollars a year, simple as anything."
“He had neither trunk, valise, carpet-bag, nor parcel. No porter followed him. He was unaccompanied by friends. From the shrugged shoulders, titters, whispers, wonderings of the crowd, it was plain that he was, in the extremest sense of the word, a stranger.”
“The Confidence-Man: His Masquerade” Herman Melville. 1857
Ah, Herman, you got that wrong. A good confidence man is often popular. At one extreme he is a succesful captain of Wall Street. And they are always popular, an example to be emulated, whose every word is cherised and recorded for posterity. Only at the other extreme are they friendless. Capitalism is a manic expression of humanity and fraud is at its core; always has been and always will be.
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