Chapter V: Milbank,Tweed, Hadley & McCloy
“Who do you want to be when you grow up?”
During my the year at NYU Law School when I was studying for my Master of Law Degree in Civil Law, (being the law governing in countries that did not follow the common law example of England that was imported into the colonies and became the type of law followed since then in the United States), I interviewed for a job at a variety of law firms, asking for a deferral for a year while I would be studying in Spain on a Fulbright Scholarship. Most of the firms I contacted told me that either they would hire me to go to work then, or to get in touch with them when I returned. A firm in San Francisco was willing to offer me a position, but the salary offered was only $3,200. Milbank, Tweed, Hadley & McCloy of New York City was willing to offer me a job at $7,200 a year and give me the deferral. I said: “Yes.”
So, on my return from Spain on the S.S. United States in July of 1963, (a real cultural shock after having been living the life of a Spaniard with lots of respect and courtesy as a way of life), I had a wife who was seven months pregnant, a Volvo sedan, about $200, and the job at Milbank. My father had arranged for us to stay at a posh apartment overlooking Central Park in NYC for a couple of weeks while we apartment searched and I showed up for work at One Chase Manhattan Plaza in offices at the forty fourth floor (plus several other floors). I initially shared an office where the hanging blinds would pendulum back and forth on windy days in an arc that was about two and a half feet in length. The sway was built into the building’s structure. This made me sea-sick and with a background fear that the building would split apart one day.
I was a diligent worker, billing the top number of hours of my entering class – mostly because I put my head down and did what I was asked, rarely went out for lunch (and then with a sandwich down to Battery Park to watch the boats, the office boys smoking pot, and suit and tie guys eyeing all the secretaries walking by. I didn’t stay late that often, but worked on a variety of things, including legal aspects of the charitable foundation set up by the A&P major stockholders. The foundation's genesis as an offspring of the A&P supermarket fortune, and its consequent stockholding ties with the A&P during the chain's marketplace decline in the 1960s and '70s, proved almost disastrous to the solvency of the foundation. At several points grantmaking was placed on hiatus. In 1969 the foundation attracted attention of the U.S. House Ways and Means Committee during hearings about the tax treatment of foundations with substantial financial links to corporations. Huntington Hartford, John and George Hartford's nephew and never a part of the foundation's governance structure, was highly critical of this lingering financial relationship. A period of A&P stock divestiture ensued and the foundation returned to financial stability by the late 1970s.
I thoroughly enjoyed working with Paul Folwell, an older real estate partner at Milbank. I did get to work on the first condominium that was done in NYC by Marvin Kratter, who converted what was to be a cooperative into this ‘new’ type of real estate. Paul had a basement in his house that was a model railroader’s fantasy. He also had some special cars including a Rolls and a Bentley. My one and only time in and driving a Ferrari was in the red one Paul had – although there was no road to get it out of third gear.
I was also involved with the financing of the aircraft that various airlines had. Milbank represented a variety of lenders, the largest being Chase Manhattan Bank. The lease document was huge, perhaps close to 200 pages long. Our job was to mark up the prototype lease, often the last one done, to reflect whatever the new arrangements were. This took care and presumably an understanding of all the lease terms and conditions. Lots of luck!!
I struggled with trying to understand how all the provisions interrelated and what they actually meant and how they would really relate to the transaction. Much of law involves this type of work. For the initial transaction, a lot – really a lot – of work: research, drafting, checking with clients, revisions, etc. is done. More hours are put in that most often could not be billed to the first few clients. Then, however, the document becomes one that can be utilized as a base and with relatively few changes can be utilized for the next transaction. Then the billing ends up with a relatively huge profit margin relative to the actual time put in. A familiar pattern with many businesses, products, and services.
In any event, I had this idea that I would go over this basic document, really get to understand it, revise and edit it, cut it down to reasonable size, and enable a reasonably informed lay person to be able to comprehend what the darn thing said. It took months on my own time at home and where I had some time at the office. It got done and I proudly took it into the partner I was working with at the time on these documents. I proudly put my work on his desk and when asked: “What is this?” I responded with an explanation of what I had done – expecting to be royally praised.
The next action was unexpected . . . he took my document, didn’t even look at it, and tossed it into the wastebasket. INTO THE WASTE BASKET!! Crushed, I listened while he explained that even if I purported to have done had actually been done, that it could not fly. Why? Because after all the years this document had been used, added to, subtracted from, and passed around, those who were involved with the transaction being done would prefer – no insist! – that they would want to use the document that they had become familiar with, even if it was rather arcane an not fully understandable. After my initial shock and disappointment, I opened myself to understanding this process. I didn’t like it, I still look at most things with the eye to seeing how they can be done better (at least in my estimation). So much for changing the world – an element of what I view as living one’s life In The Grand Manner. Speaking of which, let’s get back to one man who I nominate among the top rung for living his life in that way: John J. McCloy.
In many of the endeavors with which I was involved, and in most of the offices where I worked, I would often look around and ask myself: “Is there someone here who I would aspire to be like when I “grow up?” My answer would either be: “there’s really no one here,” or “gee, Mr. X
[I don’t think there was ever a woman in my sights who I wanted to be like – probably related to the way I was raised and the way that women were regarded and treated in my “time” of growing up, being employed, and interacting. It was only laterin my life that I realized the superiority of the female gender].
John J. McCloy
John J. McCloy (middle) with German President Karl Heinrich Luebke and Chancellor Konrad Adenauer
One of the people who attracted my interest and who I could see myself aspiring to emulate was John J. McCloy, who had one of the corner offices at Milbank, Tweed, Hadley & McCloy. He was rarely in his office and one can understand that given the career he had. McCloy epitomizes for me the way one person can relatively quietly make an enormous contribution and difference in public and private life.
In addition to his lawyering, McCloy, was a diplomat who was the United States High Commissioner in postwar Germany and an adviser to Presidents from Franklin D. Roosevelt to Ronald Reagan. Mr. McCloy was among the most versatile men of his time. His basic profession was the law, which he practiced on Wall Street, but from 1941 to near the end of his life he was almost constantly involved in public affairs. In World War II he served as Assistant Secretary of War. Afterward he was President of the World Bank, and he was Military Governor and High Commissioner for West Germany. There was an interlude as Chairman of the Chase National Bank that became the Chase Manhattan Bank. He was shortly back in Government as an adviser on arms control to President Dwight D. Eisenhower and as a diplomatic negotiator for President John F. Kennedy. He served on the commission led by Chief Justice Earl Warren to investigate Kennedy's assassination and then became a consultant to Lyndon B. Johnson on North Atlantic Treaty Organization matters and to Richard Nixon and Gerald R. Ford.
Between times and often concurrently, he was Board Chairman of the Ford Foundation, Chairman of the powerful Council on Foreign Relations and Board Chairman of a dozen or so other entities, including the Salk Institute and of E. R. Squibb & Sons. As a lawyer, he represented scores of corporate clients, including 23 oil companies dealing with the Organization of Petroleum Exporting Countries. McCloy was chairman of so many boards and had his hands in so many ventures that the political writer Richard Rovere once proposed that he was the informal Chairman of the Establishment,'' a group that ''fixes major goals and constitutes itself a ready pool of manpower for the more exacting labors of leadership.'' Later, I was to hear the same thing said of David Rockefeller,
Short, stocky, with a round, open face, Mr. McCloy exuded physical fitness on his short, stocky frame. Even at the age of 80, he walked with the speed and vigor of one much younger. Although he dressed in conservative attire, his manner and style were informal, even homey.
''I saw my public service in terms of getting things done,'' Mr. McCloy said in an interview when he was 80. ''I never considered myself a politician, but rather a lawyer, so the question I asked myself in the various jobs I had was, 'What should we do to solve the problem at hand?' Then I tried to proceed accordingly.'' I wonder if more politicians, most of whom are also lawyers, had that attitude if we as a nation, and as a planet, might not be much better served and better off?
McCloy was conservative in outlook without being partisan. He worked for four Presidents who were Democrats and three who were Republicans. He had his favorites. Among them was Harry S. Truman, who appointed him High Commissioner for Germany in 1949 where he supervised One billion dollars in aid, a lot of money at that time that clearly had greatly beneficial long-term results.
Among the most interesting of his assignments according to McCloy, was his three-year mission in West Germany. He believed his essential task was to create a civilian government in West Germany after four years of military rule and to rebuild its industry and commerce. He worked on the contractual agreements that superseded the American occupation in 1955 and, equally important, supervised the granting of $1 billion in aid to the economy of what became the Federal Republic.
''I had the powers of a dictator as High Commissioner of Allied Forces in West Germany,'' Mr. McCloy recalled, ''but I think I was a benevolent dictator. I think the rebuilding came off very well, with no significant problems. It wasn't a matter of ordering things done so much as using orderly persuasion with the Germans.''
John Jay McCloy was very much a self-made man. Born in Philadelphia on March 31, 1895, he was the son of John J. McCloy, an auditor for the Penn Mutual Life Insurance Company, and Anna May Snader McCloy. His father died when he was 6, and his mother turned to nursing to support the family. Entering Amherst College in 1912, John supported himself by waiting on tables. After graduating cum laude in 1916, he went on to the Harvard Law School.
Interrupting his education in 1917 to enter the Army, he became a captain of field artillery and served at the front in France in World War I. He returned to Harvard in 1919 and, after getting his law degree in 1921, practiced for five years with the New York firm of Cadwalader, Wickersham & Taft. In 1925, he moved to Cravath, de Gersdoff, Swaine & Wood, another Wall Street firm, where he became a partner in 1929.
Recognized as bright and perservering, he was put in charge of the Black Tom case for Bethlehem Steel, one of the firm's clients. The case involved damages incurred in a 1916 explosion at a Hoboken munitions factory. Mr. McCloy carried the case along for nine years, hunting down clues in Baltimore, Vienna, Warsaw and Dublin and proving that German agents had caused the explosion. The case was settled when the Mixed Claims Commission at The Hague found Germany responsible for the blast. Mr. McCloy's tenacity and legal acumen were highly esteemed in the profession, and these traits brought him to the attention of Secretary of War Henry L. Stimson in 1940 who brought him to Washington as a consultant and, in 1941, persuaded President Roosevelt to appoint him Assistant Secretary of War. In that post he helped to obtain Congressional approval of the Lend-Lease Act. As Mr. Stimson's troubleshooter, he helped coordinate political and military policy, especially in Europe.
McCloy was also a key Government official charged with the program to intern Japanese-Americans in World War II. He defended that wartime policy in 1981 before a Congressional commission chartered to determine whether the 120,000 people uprooted from their homes on the West Coast and relocated in camps in the Midwest and East in 1942 were entitled to compensation. The internment program was ''reasonably undertaken and thoughtfully and humanely conducted,'' he said. But many historians came to disagree, and Congress in 1988 approved compensation for those internees who were still alive. In the later years of the war, McCloy had been one of the few privy to the intention to use the atomic bomb against Japan. He argued that the United States should issue a warning to enable the Japanese to surrender, but he was overruled.
Leaving the War Department in late 1945 for law practice, in two years he was back in public life as President of the World Bank, a specialized agency associated with the United Nations. Without pretending to be a banker (''All bankers do is sign the papers lawyers prepare''), he raised the institution's prestige, and when he left it in 1949 it had a $650 million operating profit.
At the bank, as elsewhere, McCloy was not a publicly sparkling figure, nor a striking speaker, nor a social lion. He was, however, diligent and reliable - and, some said, autocratic. If not an innovator, he was an excellent administrator, tidy and to the point.
After his German experience, John was named chairman of the Chase National Bank, which became the Chase Manhattan Bank in 1955 as a result of a merger. In 1960, he was back in law practice, a partner in what became Milbank, Tweed, Hadley & McCloy. His legal work, however, was the least of his activities for many years, for he served as Board Chairman of the Ford Foundation for six years, to late 1965. In 1961, he was President Kennedy's chief disarmament adviser and negotiator. In this post he dealt with Sovet leaders, a task he said he found slow-going. He came to respect them for their negotiating skill, but the talks on both sides were wary and confined largely to principles. The practical results were generally adjudged as slight, although the atmosphere created in the conversations here and in the Soviet Union reportedly enhanced the detente that later developed between the two superpowers.
In late 1961 and for the next dozen years, he was chairman of the General Advisory Committee on Disarmament of the United States Arms Control and Disarmament Agency. Although his attitude did not always prevail, he remarked in 1975 that he had advocated much lower levels of armament than the Pentagon was willing to accept. As McCloy crossed into his 70's, his activities seemed to increase rather than dwindle. He was vigorously involved with the Squibb Corporation; the United Nations development Corporation; with hospitals, schools and colleges; with affairs of the bar and civic associations. Until late in life, Mr. McCloy was a hiker, mountain climber and tennis player of much endurance. Then fishing, a more quiet sport, occupied much of his spare time.
An optimist most of his life, Mr. McCloy, in his twilight years, looked at the world and the United States with less than total hopefulness. What disturbed him, he said, was a narrowness of leadership, a seeming inability of statesmen to create a vision of world order and to manage nations in peace. He felt, he said, that American policy at home and abroad was makeshift, and he wondered where new leadership would come from. Does this sound like really good analysis and advice for today’s scene in America?
As to his own life, McCloy believed that it had been full. He saw its visible accomplishments as his role as Mr. Stimson's aide in World War II, his World Bank role, his nurturing of West Germany and his spadework on disarmament. His one regret, he said, was the slowness of arms control.
Francis Haas Musselman – Milbank Tweed Hadley & McCloy
Frank Musselman was my mentor -- the partner I most worked with at Milbank, and was a benevolent father figure. We genuinely liked and respected each other and I count him as the first “real” boss I had. He clearly had that “je ne sais qua” that inspired the confidence of the partners at Milbank who elected him as managing partner and he apparently knew both how to manage and at the same time to be a great diplomat in the world of egotistic lawyers and the great evolution and growth of big law firms. All that said, and with that apparent success, he was among the first of the people in the world of my work and involvement who I decided I DID NOT want to be when I grew up. How come?
Perhaps it was Frank’s work habits and ethic. He would stay late in the office perhaps three or four (or more) days/evenings a week. That would involve – often – taking a break for a nice dinner at one of the downtown watering holes with an associate with whom he was working and usually with his secretary. To my eyes, she had a big crush on Frank, who was (to the world and I think actually) a good family man. After many years, she did finally find another guy and married him, leaving the job. Meanwhile, they did have a relationship, perhaps purely platonic, that seemed to serve both of them and the office.
Frank was wedded to his work. The only other lawyers who I have experienced who spend as many – or even more – hours on their work were/are the litigators. They were always getting together to discuss theory and approaches; researching precedents or ways to make new ones; preparing for pre-trial activities or getting ready for trial; analyzing the day in court or interviewing; preparing documents, etc., etc. And they LOVED it!! And they can have it! Perhaps that is why, in my fifty plus years of being a member of the bar (quite a term, n’est pa?) I have NEVER taken a case to court or represented a client in court. I was a witness, once, in a lawsuit brought against Milbank Tweed as one fallout of the Salad Oil Scandal (see below about Tino deAngelis); have advised people considering/going through separation and divorce, and have been a plaintiff in my three divorces (all settled in a “friendly” manner). I also got training and certification as a mediator (in South Carolina) – a practice that makes SO MUCH SENSE when it comes to settling disputes.
Consider this: in a regular lawsuit, the parties each hire their own “white knight” (could be another color if they chose). These knights then go off to some strange jousting ground where they engage in some kind of strange and structured battle. There is a rules enforcer and sometimes decider – perhaps with the help of some motley crew of strangers – who tell the knights who has “won” and what the winner gets. The knights, who have been amply rewarded by those who engaged them, then return with spoils, often having little to do with what the dispute was really about.
In mediation, on the other hand, the mediator works directly with the disputants, attempting to reach a solution that is relevant to the real cause(s) of the angst between/among the parties involved. And, very often, the dispute is not really about what the complaint says it is about, but rather some other unresolved interactions between the parties. Yes, there are instances where a third party is needed to help clarify some fuzzy aspects of a deal or to clarify what are the rules and regulations that govern actions or relationships. The best mediator is the one that the parties don’t even remember having had a role when the dispute is finally settled and each go away feeling they have been heard and that a reasonable and rational solution has been reached.
What was Frank Musselman’s grand manner path?
As a leading member of the New York bar and for many years presiding partner in the law firm of Milbank, Tweed, Hadley & McCloy, Francis Musselman served the legal community with great distinction. In addition, he was a life trustee of Hamilton College and former Chairman of the Board of Trustees of Kirkland College. In receiving an honorary degree from Hamilton, Frank’s citation read:
Integrity is prized in every business or profession; today, alas, headlines cry out its absence. As an attorney-at-law, you have earned the high esteem of your colleagues and clients alike as exemplifying that virtue. We at Hamilton have also come to know and appreciate not only your integrity but also the wise counsel you have provided during decades of devoted service to your alma mater.Fresh out of high school in New York's North Country, you entered the U.S. Navy and served as a gunner's mate in the Pacific during World War II. Thereafter you followed your father to Hamilton. While there, you married, became a father, and fixed your sights on a career in the law. You obtained your professional credentials at Columbia Law School, where your valiant efforts to introduce an honor code similar to Hamilton's proved, unfortunately, unavailing.
Frank joined the firm of Milbank, Tweed, Hadley & McCloy, and in time became its managing partner. His wide recognition as a specialist in bankruptcy law and corporate reorganization, and was often called upon as a trustee or consultant in major bankruptcy cases. He also served on the boards of numerous educational and cultural institutions, and in 1971 joined the board of Kirkland College. As its chairman, he played a key role in a time of transition when tough decisions had to be made.
When I had to tell Frank that I was leaving Milbank (to take a position at Lazard Freres) it was a very difficult moment for me. He was (of course) generous and caring.
What I remember is his ‘advice:’ “Never look back.” Well, this whole book is a look back – what I interpret Frank’s advice to be is: “Don’t regret your decision to move on – learn from what you have experienced, take with you. The future lies ahead – go in peace and with blessings.”
The Salad Oil Scandal; Tino DeAngelis
One of the highlights (or shall I say “lowlights”) of my time at Milbank, Tweed was my becoming involved in what became to be known as “The Salad Oil Scandal.”
This was a forerunner of the Bernie Maydorf (spelling?) and other recent scandals perpetuated by individuals, banks, and major investing firms taking advantage of people’s desire to make a quick and substantial “buck” without having scruples and doing one’s homework. This type of flim-flam has a long history, and history has still not taught us its lesson. The Salad Oil Scam was perpetuated by a character named Tino DeAngelis. Pretty much every brokerage house and major bank in NY was involved and it even ended up with law firms suing law firms. I was the bottom man on the totem pole working under Frank Musselman and our responsibility/client was the Chase Manhattan Bank.
One of the law firms representing the financial firm of Ira Haupt (I believe) sued Milbank, Tweed for some of the actions it did for its client(s). The details are now very fuzzy and I remember being called to testify in court about the firms nefarious deeds. After some initial questions – the judge told the lawyer whose name I have suppressed “to sit down” and then dismissed me. That is the only time I can recall that I appeared in a lawsuit – this time as a witness. I do remember how nervous I was and when the judge, in effect, told the lawyer to sit down, I was ecstatic (and did get big kudos from the team members). Being involved with the litigation team exposed me to the amount of work put in by litigators, the pressures, and cemented my resolve NOT to be one of them.
The Salad Oil Scandal,also referred to as the "Soybean Scandal", was a major corporate scandal in 1963 that ultimately caused over $175 million ($1.3 billion in 2015 dollars) in losses to corporations including American Express, Bank of America and Bank Leumi, as well as many international trading companies. The scandal's ability to push otherwise cautious and conservative lenders into increasingly risky practices can certainly have a comparison to the recent financial crises including the 2007-2008 subprime mortgage financial crisis.
The story was best chronicled by reporter Norman C. Miller in his book: The Great Salad Oil Swindle (Baltimore, MD: Penguin Books, 1965). The main character was a guy named Tino De Angelis who was a New York-based commodities trader who bought and sold vegetable oil futures contracts around the world. In 1962, De Angelis started a huge scam, working through his company, Allied Crude Vegetable Oil of New Jersey. He was attempting to corner the market for soybean oil, mostly used in salad dressing. In the aftermath of the salad oil scandal, investors in 51 banks learned that he had bilked them out of the$175 million in total ($1.3 billion in year 2015 dollars) mentioned above. Miller won a Pulitzer Prize in 1964 for his reporting on the De Angelis story.
The underlying thing that made this scam possible was the ability to get loans based on documents purporting to represent a certain amount of salad oil stored in big tanks in New Jersey. Not so different than banks making loans for the purported inflated value of homes, not only in New Jersey, but pretty much everywhere!
Ships apparently full of salad oil would arrive at the docks, and inspectors would confirm that the ships were indeed full of oil, allowing the company to obtain millions in loans. In reality, the ships were mostly filled with water, with a only a few feet of salad oil on top. Since the oil floated on top of the water, it appeared to inspectors that these ships were loaded with oil. The company even transferred oil between different tanks while entertaining the inspectors at lunch. They then could get a certification that a certain tank contained a specified amount of salad oil and then the oil was transferred to another tank that again was certified.
Once the scandal was exposed, American Express was one of the biggest casualties. Its stock dropped more than 50% as a result of the scandal, which cost the company nearly $58 million. Tino De Angelis was convicted of fraud and conspiracy charges in connection with the scandal and served seven years in prison, gaining his release in 1972. Think of the jail term a young black man would get for ‘liberating’ a TV set or possessing a small amount of a controlled substance.
About 6:30 one evening in November, 1963, managing partner Morton Kamerman of the New York brokerage firm of Ira Haupt & Co. was leaving the office for the day when he noticed a group of subordinates working late - and talking excitedly - in one of the conference rooms. Kamerman dropped in to see what was going on. It had something to do with a complicated deal in commodities, a branch of the brokerage business Kamerman had little interest in and was not too familiar with. A Haupt commodities man was talking on the phone to a Mr. Anthony De Angelis, whom Kamerman had never met, even though De Angelis was the firm's biggest customer. At the other end of the line, De Angelis was shouting that Haupt was putting him out of business and putting itself out of business too. A Haupt partner was on another phone attempting to locate someone who would buy huge quantities of soybean oil in a hurry. Still other Haupt officials were riffling worriedly through the firm's books, adding up figures. Kamerman decided to stay. By the next morning Kamerman had learned a great deal about the commodities business, along with a bitter truth. His own firm was insolvent - obligated for some $18.6 million of debts incurred by De Angelis, who now appeared to be bankrupt.
It was the first shock wave of one of the biggest financial swindles in American history, involving losses of some $175 million by many pillars of the business community. The Great Soy Bean Scandal which struck Wall Street destroyed Haupt and forced another prominent brokerage (J. R. Williston & Beane, Inc.) into a merger. Some 20 major banks, ranging from the Bank of America to the Bank Leumi leIsrael, were stuck with bad loans. A dozen international trading companies were placed in the position of financing a fraud against themselves, and the warehousing subsidiary of the prestigious American Express Co. is hopelessly insolvent with staggering claims of more than $100 million against it.
All of these companies had one thing in common; they loaned money against or otherwise accepted at face value innumerable slips of paper representing the assets of the Allied Crude Vegetable Oil Refining Corp., controlled by Anthony De Angelis. On paper, Allied's assets consisted of enormous quantities of soybean, cottonseed and other oils, which it kept in tanks at Bayonne, N.J., across New York harbor from Manhattan. Allied, on paper, looked to be a solid credit risk in a messy but profitable business -- moving oil from the U.S. farm belt into world markets, where it is used to pack sardines and make things such as salad dressing, margarine, plastics and paint. Inside the gray-green storage tanks at Bayonne, however, things looked considerably different. Here, according to charges brought by a federal grand jury, Allied employees were fattening up the assets by turning out warehouse receipts for oil that wasn't there at all.
For more than five years, Allied created fictitious commodities which could be traded on paper and pledged as security against loans. For more than five years. unwitting financiers wheeled and dealed with ever vaster amounts of nonexistent oil in an outsized version of the old Hong Kong sardine dodge. (During a famine in China, a Hong Kong merchant sold a sardine can filled with mud to another merchant, who sold it at a profit to a third merchant who sold it at a profit to a fourth. When merchant No. 5 discovered the fraud and complained, No. 4 had a comeback: "Why did you open the can?")
In Allied's case, there was interest for the bankers, commissions for brokers and profits for everyone in the blizzard of hypothecated paper, as long as no one thought to take a close look. When the lid did come off, almost by chance, financiers holding receipts for 1.8 bilhon pounds of vegetable oil found only about 100 million pounds of oil, fats, petroleum, sludge and some still-unidentified substances in the tanks. (In fact, the total capacity of all of Allied's tanks was only about one third of the amount of the imaginary oil.) There is evidence that various degrees of carelessness, stupidity or greed among the victims themselves helped bring on the debacle. No one has ever fully assessed the full damage or the full blame, however, since the swindle was incredibly complicated.
Anthony De Angelis was convicted, along with four employees. on charges of conspiracy and transporting forged warehouse receipts across a state line, and faced a potential sentence of 185 years. He got seven.The state line in question was between Bayonne, N.J. and Manhattan and is the same one Jay Gould and Jim Fiske carried watered stock across a century ago. However, Tino could be crowned as the all-time champion of the long line of financial con-men extending from the Erie Gang to Billie Sol Estes.
In some ways, Tino hardly fit the part. He was a fat little man, with a bland moon face and a somewhat squeaky voice, a hard-working, quiet-living, god-fearing son of Italian immigrants. He cramed his 250 pounds into rumpled, ready-made suits, wore no jewelry, and was outwardly almost totally unpretentious. His nominal home was a sixroom apartment in his father-in-law's red-brick house in the Bronx, where Tino and his wife Virginia moved in right after their wedding. 25 years ago. He had anvocation is donating bicycles and sponsoring races for boys' bike clubs. "Bicycle racing developed me physically. I possess exceptional strength in my hands and legs," Tino would say, eagerly grasping your hand in a crunching grip to prove it.
Under this folksy exterior, however, lay a vast self-confidence and fierce ambition. Tino set out single mindedly to make himself the biggest fats and oils operator in the U.S. When he succeeded, he relished the power it gave him to move oil and men, and lusted for even greater coups. It pleased him to distribute largess among his retinue of lieutenants and hangers-on, often in the form of cash. As Tino put it: "With fifty of my boys, at least, I was engaged in seeing that they were settled in a solid way in New Jersey communities."
Tino got his start in business as an apprentice butcher in a Bronx meat market. He was a go-getter, quickly moving on to a foreman's job with a hog-processing firm and setting new records for the dismemberment of swine. Still in his early 20's. Tino opened his own hog-meat firm with $2.000 in savings and a $10,000 loan. He claimed he made a profit of $100,000 in the first year and tripled this within three years. By the late 1940's, Tino had the capital to buy stock control of Adolf Gobel, Inc., a big publicly held meat-packing firm in North Bergen, N.J., and this venture, too, seemed to be a smashing success.
At this point the De Angelis career begins to depart from the Horatio Alger script. In 1952 the Agriculture Department charged that Gohel had sold the Government poor quality meat for the federal school-lunch program. Less than a year later, the Securities and Exchange Commission accused him of understating in a report to stockholders the Gobel company's 1952 losses by $145,000, In July, 1953, Tino took Gobel into bankruptcy court. Tino eventually paid $100,000 in damages to clear up the school-lunch business. It took him five years to get Gobel out of bankruptcy-but in the meantime he had spotted something more promising than hog-butchering. American farmers' production of vegetable oils had begun to run ahead of consumption in the mid'50's. Huge surpluses of oil had begun to pile up, and the Government was eager to develop markets abroad.
Tino borrowed money to set up Allied, building a three-million-dollar refinery at Bayonne and leasing a number of storage tanks there. He would buy raw vegetable oil from the big "crushers" that squeeze soybeans and cottonseed in the South and Midwest, ship it to Bayonne, refine it, and sell it -- usually to exporting companies. His two biggest customers were Continental Grain Co. of New York and Bunge Corp., a firm headquartered in Buenos Aires. Tino's services and storage facilities were so valuable to Continental and Bunge, who together sell about two billion dollars' worth of commodities around the world each year, that they and other exporting firms helped to finance him. While some of these companies apparently charged as much as 15 percent for credit, it was worth it to Tino, who could borrow far more from his customers than he could from banks. He would pledge warehouse receipts for oil as security, ostensibly use the money to buy more oil and pledge that for still more money.
Tino became a big operator in the Government's Food for Peace program, in which the Agriculture Department would sell surplus oil to various needy countries for their currency and pay off the American exporter in dollars. In such deals, Tino was far more than a middleman supplying the exporters. Leaving his modest office in Bayonne, he would make swings through foreign markets, talking to government officials to line up sales for his exporter customers. He became a familiar figure in such places as Karachi, Istanbul and Madrid, and foreign buyers would often visit him at Bayonne.
Nothing about Tino's reputation seemed to bother the businessmen he dealt with, so long as his patronage was profitable. Besides his previous involvements with the law, there was a rumor on Wall Street that he was bankrolled by the Cosa Nostra, based on his minority interest in a Chicago shortening firm which employed known hoodlums. The rumor didn't hurt him in business. In fact a trader for a major vegetable-oil firm was quoted as saying: "we figured Tino might have planted the rumor himself. If he were backed by that kind of money, we would have known he was good for all he owed us."
In any case, Tino's business and his debts expanded apace. The sales of his companies mounted to some $250 million a year, and at one point he was supplying 75 percent of U.S. exports of cottonseed and soybean oil. Customers found that Allied could usually quote prices below its competitors, which seemed to reflect a highly efficient operation - but something more than efficiency was involved. For a significant fact apparently struck him almost at the moment he got into the oil business in a big way in 1958. He realized that he always had more oil stored than he needed to satisfy customers' immediate demands, and it was inconceivable that all customers with calls on oil would ask for delivery at the same time. As long as he could meet daily withdrawals, he might have almost any amount of oil in storage, for all the world knew.
Looking at the epicenter of the De Angelis operations in Bayonne –a bleak and grimy region of docks, rail sidings, warehouses and tank "farms" within sight of Wall Street. Allied leased a group of some 100 tanks at a big Bayonne tank farm, with a capacity of some 500 million pounds of vegetable oil. To meet legal requirements of the business, it then subleased the tanks to a storage company, for a token fee of one dollar a year, and the storage firm assumed responsibility for the tanks' contents. The storage firm took regular inventory and issued the warehouse receipts, affirming the existence of Allied's stored commodities, and acted as a kind of "third party" between Allied and its creditors. The company Tino selected for this chore, Arerican Express Warehousing, Ltd., had a name calculated to still any doubts creditors might have had. Its warehouse receipts looked every bit as unimpeachable as the travelers checks issued by its parent firm, American Express.
Allied paid Amex Warehousing up to $20,000 a week, and by all indications got more than its money's worth in the form of an extraordinarily tolerant attitude by the company supposedly monitoring its inventories. On Tino's recommendation, Amex hired several Allied employees as custodians, including Joseph Lomuscio, a good friend of Tino's, and John Bongardino, brother-in-law of Tino's secretary. The storage firm often left the inventory job to Allied, merely sending a custodian along to jot down the figures. Taking inventory at Bayonne, as it turned out, was something like counting bubbles in a glass of beer. Allied's tanks were interconnected by a maze of underground and overhead pipes, and were connected to other tanks that didn't belong to Allied at all. Soybean oil in three or four tanks could be concentrated in one tank or spread all over the farm, as circumstances required.
Allied plant manager Frank Vivenzio testified that Allied men were instructed to "grab as much oil as we could get" by opening valves and manipulating tape measures to pad the inventory figures (the instructions, he said, came from Leopold Bracconeri, Tino's brother-inlaw and Allied general manager at Bayonne). Since the contents of a tank were computed by measuring the distance from the top of the tank to the top of the oil, large gains could be chalked up by pumping water under a thin layer of oil. On other occasions, said Vivenzio, an Allied man taking inventory would stop the tape measure ten or twenty feet above the surface of the oil and shout out the false figure to the custodian.
The first warehouse receipt for nonexistent oil moved into Wall Street's money markets in October 1958 as collateral for an Allied loan. By 1960, with business booming, Tino felt the need for more storage space, or at least the appearance of more storage space. He persuaded another storage firm called Harbor Tank Storage to operate tanks at Bayonne for Allied and to appoint his friend Lomuscio as custodian. What happened next shouldn't happen to a storage company. Lomuscio began signing warehouse receipts for oils that Harbor Tank didn't have. In'a series of transactions, Allied "leased" 41 tanks to Harbor Tank - only 10 of which it had a right to lease. The rest belonged to petroleum companies operating at Bayonne, or were dismantled or didn't exist. When Allied collapsed, there were $46.5 million in Harbor Tank receipts outstanding and only about one million dollars' worth of commodities.
Tino's own taxable income amounted to $100,000 annually, although it is alleged that he withdrew three million dollars from Allied's "petty cash fund" over the years to meet "expenses." Even these sums were small, of course, compared with the torrent of borrowed funds now pouring through Allied, generated by the growing torrent of warehouse receipts. According to Tino's secretary, Josephine Salto, it got to the point where Tino would carry her typewriter into a private office, hand her a blank Amex Warehousing receipt and dictate a figure to be typed in - a figure apparently unrelated to anything except Allied's need for cash.
Despite all this, Allied's business began to run into trouble. Tino claims it began with the 1960 Justice Department suit over his disputed shipments to Spain, which he says eventually cost him orders for 150,000 tons of soybean oil he had lined up in Madrid. Later, he claims, Agriculture began pressuring exporters to stop giving Allied contracts. Whatever the case, while he had once borrowed heavily to build up volume in the oil business, it appears he was now borrowing even more heavily just to pay off debts already incurred.
By that time Tino had decided to try to recoup with a still wilder pyramiding scheme, this time in commodity "futures." These are contracts to buy, 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 trader and one of the biggest.
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. He worked through a number 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 vegetable oil 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.
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.
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.
A lot of money was lost, Haupt went out of business, banks, businesses, and individuals lost varying amounts of money, lawyers were kept busy for years. What was learned and could/would something like this happen again? I will leave the answers to you, dear reader. And, yes, it did happen on much larger scales. And, to many observers and those who know more than I do, it will. The lure of a large monetary profit based on things other than hard work, real products, creativity and innovation – that lure exists and will continue until . . . ? Lessons learned? Hmmmm. A Grand Manner certificate for Tino DeAngelis? Yes, as I am putting forth a mixed bag of people who I interacted with or was involved with who are perhaps less known in this grand scheme of things, and who did influence/have effect on a wider field – mostly positive, some negative In the Grand Manner.
“Who do you want to be when you grow up?”
During my the year at NYU Law School when I was studying for my Master of Law Degree in Civil Law, (being the law governing in countries that did not follow the common law example of England that was imported into the colonies and became the type of law followed since then in the United States), I interviewed for a job at a variety of law firms, asking for a deferral for a year while I would be studying in Spain on a Fulbright Scholarship. Most of the firms I contacted told me that either they would hire me to go to work then, or to get in touch with them when I returned. A firm in San Francisco was willing to offer me a position, but the salary offered was only $3,200. Milbank, Tweed, Hadley & McCloy of New York City was willing to offer me a job at $7,200 a year and give me the deferral. I said: “Yes.”
So, on my return from Spain on the S.S. United States in July of 1963, (a real cultural shock after having been living the life of a Spaniard with lots of respect and courtesy as a way of life), I had a wife who was seven months pregnant, a Volvo sedan, about $200, and the job at Milbank. My father had arranged for us to stay at a posh apartment overlooking Central Park in NYC for a couple of weeks while we apartment searched and I showed up for work at One Chase Manhattan Plaza in offices at the forty fourth floor (plus several other floors). I initially shared an office where the hanging blinds would pendulum back and forth on windy days in an arc that was about two and a half feet in length. The sway was built into the building’s structure. This made me sea-sick and with a background fear that the building would split apart one day.
I was a diligent worker, billing the top number of hours of my entering class – mostly because I put my head down and did what I was asked, rarely went out for lunch (and then with a sandwich down to Battery Park to watch the boats, the office boys smoking pot, and suit and tie guys eyeing all the secretaries walking by. I didn’t stay late that often, but worked on a variety of things, including legal aspects of the charitable foundation set up by the A&P major stockholders. The foundation's genesis as an offspring of the A&P supermarket fortune, and its consequent stockholding ties with the A&P during the chain's marketplace decline in the 1960s and '70s, proved almost disastrous to the solvency of the foundation. At several points grantmaking was placed on hiatus. In 1969 the foundation attracted attention of the U.S. House Ways and Means Committee during hearings about the tax treatment of foundations with substantial financial links to corporations. Huntington Hartford, John and George Hartford's nephew and never a part of the foundation's governance structure, was highly critical of this lingering financial relationship. A period of A&P stock divestiture ensued and the foundation returned to financial stability by the late 1970s.
I thoroughly enjoyed working with Paul Folwell, an older real estate partner at Milbank. I did get to work on the first condominium that was done in NYC by Marvin Kratter, who converted what was to be a cooperative into this ‘new’ type of real estate. Paul had a basement in his house that was a model railroader’s fantasy. He also had some special cars including a Rolls and a Bentley. My one and only time in and driving a Ferrari was in the red one Paul had – although there was no road to get it out of third gear.
I was also involved with the financing of the aircraft that various airlines had. Milbank represented a variety of lenders, the largest being Chase Manhattan Bank. The lease document was huge, perhaps close to 200 pages long. Our job was to mark up the prototype lease, often the last one done, to reflect whatever the new arrangements were. This took care and presumably an understanding of all the lease terms and conditions. Lots of luck!!
I struggled with trying to understand how all the provisions interrelated and what they actually meant and how they would really relate to the transaction. Much of law involves this type of work. For the initial transaction, a lot – really a lot – of work: research, drafting, checking with clients, revisions, etc. is done. More hours are put in that most often could not be billed to the first few clients. Then, however, the document becomes one that can be utilized as a base and with relatively few changes can be utilized for the next transaction. Then the billing ends up with a relatively huge profit margin relative to the actual time put in. A familiar pattern with many businesses, products, and services.
In any event, I had this idea that I would go over this basic document, really get to understand it, revise and edit it, cut it down to reasonable size, and enable a reasonably informed lay person to be able to comprehend what the darn thing said. It took months on my own time at home and where I had some time at the office. It got done and I proudly took it into the partner I was working with at the time on these documents. I proudly put my work on his desk and when asked: “What is this?” I responded with an explanation of what I had done – expecting to be royally praised.
The next action was unexpected . . . he took my document, didn’t even look at it, and tossed it into the wastebasket. INTO THE WASTE BASKET!! Crushed, I listened while he explained that even if I purported to have done had actually been done, that it could not fly. Why? Because after all the years this document had been used, added to, subtracted from, and passed around, those who were involved with the transaction being done would prefer – no insist! – that they would want to use the document that they had become familiar with, even if it was rather arcane an not fully understandable. After my initial shock and disappointment, I opened myself to understanding this process. I didn’t like it, I still look at most things with the eye to seeing how they can be done better (at least in my estimation). So much for changing the world – an element of what I view as living one’s life In The Grand Manner. Speaking of which, let’s get back to one man who I nominate among the top rung for living his life in that way: John J. McCloy.
In many of the endeavors with which I was involved, and in most of the offices where I worked, I would often look around and ask myself: “Is there someone here who I would aspire to be like when I “grow up?” My answer would either be: “there’s really no one here,” or “gee, Mr. X
[I don’t think there was ever a woman in my sights who I wanted to be like – probably related to the way I was raised and the way that women were regarded and treated in my “time” of growing up, being employed, and interacting. It was only laterin my life that I realized the superiority of the female gender].
John J. McCloy
John J. McCloy (middle) with German President Karl Heinrich Luebke and Chancellor Konrad Adenauer
One of the people who attracted my interest and who I could see myself aspiring to emulate was John J. McCloy, who had one of the corner offices at Milbank, Tweed, Hadley & McCloy. He was rarely in his office and one can understand that given the career he had. McCloy epitomizes for me the way one person can relatively quietly make an enormous contribution and difference in public and private life.
In addition to his lawyering, McCloy, was a diplomat who was the United States High Commissioner in postwar Germany and an adviser to Presidents from Franklin D. Roosevelt to Ronald Reagan. Mr. McCloy was among the most versatile men of his time. His basic profession was the law, which he practiced on Wall Street, but from 1941 to near the end of his life he was almost constantly involved in public affairs. In World War II he served as Assistant Secretary of War. Afterward he was President of the World Bank, and he was Military Governor and High Commissioner for West Germany. There was an interlude as Chairman of the Chase National Bank that became the Chase Manhattan Bank. He was shortly back in Government as an adviser on arms control to President Dwight D. Eisenhower and as a diplomatic negotiator for President John F. Kennedy. He served on the commission led by Chief Justice Earl Warren to investigate Kennedy's assassination and then became a consultant to Lyndon B. Johnson on North Atlantic Treaty Organization matters and to Richard Nixon and Gerald R. Ford.
Between times and often concurrently, he was Board Chairman of the Ford Foundation, Chairman of the powerful Council on Foreign Relations and Board Chairman of a dozen or so other entities, including the Salk Institute and of E. R. Squibb & Sons. As a lawyer, he represented scores of corporate clients, including 23 oil companies dealing with the Organization of Petroleum Exporting Countries. McCloy was chairman of so many boards and had his hands in so many ventures that the political writer Richard Rovere once proposed that he was the informal Chairman of the Establishment,'' a group that ''fixes major goals and constitutes itself a ready pool of manpower for the more exacting labors of leadership.'' Later, I was to hear the same thing said of David Rockefeller,
Short, stocky, with a round, open face, Mr. McCloy exuded physical fitness on his short, stocky frame. Even at the age of 80, he walked with the speed and vigor of one much younger. Although he dressed in conservative attire, his manner and style were informal, even homey.
''I saw my public service in terms of getting things done,'' Mr. McCloy said in an interview when he was 80. ''I never considered myself a politician, but rather a lawyer, so the question I asked myself in the various jobs I had was, 'What should we do to solve the problem at hand?' Then I tried to proceed accordingly.'' I wonder if more politicians, most of whom are also lawyers, had that attitude if we as a nation, and as a planet, might not be much better served and better off?
McCloy was conservative in outlook without being partisan. He worked for four Presidents who were Democrats and three who were Republicans. He had his favorites. Among them was Harry S. Truman, who appointed him High Commissioner for Germany in 1949 where he supervised One billion dollars in aid, a lot of money at that time that clearly had greatly beneficial long-term results.
Among the most interesting of his assignments according to McCloy, was his three-year mission in West Germany. He believed his essential task was to create a civilian government in West Germany after four years of military rule and to rebuild its industry and commerce. He worked on the contractual agreements that superseded the American occupation in 1955 and, equally important, supervised the granting of $1 billion in aid to the economy of what became the Federal Republic.
''I had the powers of a dictator as High Commissioner of Allied Forces in West Germany,'' Mr. McCloy recalled, ''but I think I was a benevolent dictator. I think the rebuilding came off very well, with no significant problems. It wasn't a matter of ordering things done so much as using orderly persuasion with the Germans.''
John Jay McCloy was very much a self-made man. Born in Philadelphia on March 31, 1895, he was the son of John J. McCloy, an auditor for the Penn Mutual Life Insurance Company, and Anna May Snader McCloy. His father died when he was 6, and his mother turned to nursing to support the family. Entering Amherst College in 1912, John supported himself by waiting on tables. After graduating cum laude in 1916, he went on to the Harvard Law School.
Interrupting his education in 1917 to enter the Army, he became a captain of field artillery and served at the front in France in World War I. He returned to Harvard in 1919 and, after getting his law degree in 1921, practiced for five years with the New York firm of Cadwalader, Wickersham & Taft. In 1925, he moved to Cravath, de Gersdoff, Swaine & Wood, another Wall Street firm, where he became a partner in 1929.
Recognized as bright and perservering, he was put in charge of the Black Tom case for Bethlehem Steel, one of the firm's clients. The case involved damages incurred in a 1916 explosion at a Hoboken munitions factory. Mr. McCloy carried the case along for nine years, hunting down clues in Baltimore, Vienna, Warsaw and Dublin and proving that German agents had caused the explosion. The case was settled when the Mixed Claims Commission at The Hague found Germany responsible for the blast. Mr. McCloy's tenacity and legal acumen were highly esteemed in the profession, and these traits brought him to the attention of Secretary of War Henry L. Stimson in 1940 who brought him to Washington as a consultant and, in 1941, persuaded President Roosevelt to appoint him Assistant Secretary of War. In that post he helped to obtain Congressional approval of the Lend-Lease Act. As Mr. Stimson's troubleshooter, he helped coordinate political and military policy, especially in Europe.
McCloy was also a key Government official charged with the program to intern Japanese-Americans in World War II. He defended that wartime policy in 1981 before a Congressional commission chartered to determine whether the 120,000 people uprooted from their homes on the West Coast and relocated in camps in the Midwest and East in 1942 were entitled to compensation. The internment program was ''reasonably undertaken and thoughtfully and humanely conducted,'' he said. But many historians came to disagree, and Congress in 1988 approved compensation for those internees who were still alive. In the later years of the war, McCloy had been one of the few privy to the intention to use the atomic bomb against Japan. He argued that the United States should issue a warning to enable the Japanese to surrender, but he was overruled.
Leaving the War Department in late 1945 for law practice, in two years he was back in public life as President of the World Bank, a specialized agency associated with the United Nations. Without pretending to be a banker (''All bankers do is sign the papers lawyers prepare''), he raised the institution's prestige, and when he left it in 1949 it had a $650 million operating profit.
At the bank, as elsewhere, McCloy was not a publicly sparkling figure, nor a striking speaker, nor a social lion. He was, however, diligent and reliable - and, some said, autocratic. If not an innovator, he was an excellent administrator, tidy and to the point.
After his German experience, John was named chairman of the Chase National Bank, which became the Chase Manhattan Bank in 1955 as a result of a merger. In 1960, he was back in law practice, a partner in what became Milbank, Tweed, Hadley & McCloy. His legal work, however, was the least of his activities for many years, for he served as Board Chairman of the Ford Foundation for six years, to late 1965. In 1961, he was President Kennedy's chief disarmament adviser and negotiator. In this post he dealt with Sovet leaders, a task he said he found slow-going. He came to respect them for their negotiating skill, but the talks on both sides were wary and confined largely to principles. The practical results were generally adjudged as slight, although the atmosphere created in the conversations here and in the Soviet Union reportedly enhanced the detente that later developed between the two superpowers.
In late 1961 and for the next dozen years, he was chairman of the General Advisory Committee on Disarmament of the United States Arms Control and Disarmament Agency. Although his attitude did not always prevail, he remarked in 1975 that he had advocated much lower levels of armament than the Pentagon was willing to accept. As McCloy crossed into his 70's, his activities seemed to increase rather than dwindle. He was vigorously involved with the Squibb Corporation; the United Nations development Corporation; with hospitals, schools and colleges; with affairs of the bar and civic associations. Until late in life, Mr. McCloy was a hiker, mountain climber and tennis player of much endurance. Then fishing, a more quiet sport, occupied much of his spare time.
An optimist most of his life, Mr. McCloy, in his twilight years, looked at the world and the United States with less than total hopefulness. What disturbed him, he said, was a narrowness of leadership, a seeming inability of statesmen to create a vision of world order and to manage nations in peace. He felt, he said, that American policy at home and abroad was makeshift, and he wondered where new leadership would come from. Does this sound like really good analysis and advice for today’s scene in America?
As to his own life, McCloy believed that it had been full. He saw its visible accomplishments as his role as Mr. Stimson's aide in World War II, his World Bank role, his nurturing of West Germany and his spadework on disarmament. His one regret, he said, was the slowness of arms control.
Francis Haas Musselman – Milbank Tweed Hadley & McCloy
Frank Musselman was my mentor -- the partner I most worked with at Milbank, and was a benevolent father figure. We genuinely liked and respected each other and I count him as the first “real” boss I had. He clearly had that “je ne sais qua” that inspired the confidence of the partners at Milbank who elected him as managing partner and he apparently knew both how to manage and at the same time to be a great diplomat in the world of egotistic lawyers and the great evolution and growth of big law firms. All that said, and with that apparent success, he was among the first of the people in the world of my work and involvement who I decided I DID NOT want to be when I grew up. How come?
Perhaps it was Frank’s work habits and ethic. He would stay late in the office perhaps three or four (or more) days/evenings a week. That would involve – often – taking a break for a nice dinner at one of the downtown watering holes with an associate with whom he was working and usually with his secretary. To my eyes, she had a big crush on Frank, who was (to the world and I think actually) a good family man. After many years, she did finally find another guy and married him, leaving the job. Meanwhile, they did have a relationship, perhaps purely platonic, that seemed to serve both of them and the office.
Frank was wedded to his work. The only other lawyers who I have experienced who spend as many – or even more – hours on their work were/are the litigators. They were always getting together to discuss theory and approaches; researching precedents or ways to make new ones; preparing for pre-trial activities or getting ready for trial; analyzing the day in court or interviewing; preparing documents, etc., etc. And they LOVED it!! And they can have it! Perhaps that is why, in my fifty plus years of being a member of the bar (quite a term, n’est pa?) I have NEVER taken a case to court or represented a client in court. I was a witness, once, in a lawsuit brought against Milbank Tweed as one fallout of the Salad Oil Scandal (see below about Tino deAngelis); have advised people considering/going through separation and divorce, and have been a plaintiff in my three divorces (all settled in a “friendly” manner). I also got training and certification as a mediator (in South Carolina) – a practice that makes SO MUCH SENSE when it comes to settling disputes.
Consider this: in a regular lawsuit, the parties each hire their own “white knight” (could be another color if they chose). These knights then go off to some strange jousting ground where they engage in some kind of strange and structured battle. There is a rules enforcer and sometimes decider – perhaps with the help of some motley crew of strangers – who tell the knights who has “won” and what the winner gets. The knights, who have been amply rewarded by those who engaged them, then return with spoils, often having little to do with what the dispute was really about.
In mediation, on the other hand, the mediator works directly with the disputants, attempting to reach a solution that is relevant to the real cause(s) of the angst between/among the parties involved. And, very often, the dispute is not really about what the complaint says it is about, but rather some other unresolved interactions between the parties. Yes, there are instances where a third party is needed to help clarify some fuzzy aspects of a deal or to clarify what are the rules and regulations that govern actions or relationships. The best mediator is the one that the parties don’t even remember having had a role when the dispute is finally settled and each go away feeling they have been heard and that a reasonable and rational solution has been reached.
What was Frank Musselman’s grand manner path?
As a leading member of the New York bar and for many years presiding partner in the law firm of Milbank, Tweed, Hadley & McCloy, Francis Musselman served the legal community with great distinction. In addition, he was a life trustee of Hamilton College and former Chairman of the Board of Trustees of Kirkland College. In receiving an honorary degree from Hamilton, Frank’s citation read:
Integrity is prized in every business or profession; today, alas, headlines cry out its absence. As an attorney-at-law, you have earned the high esteem of your colleagues and clients alike as exemplifying that virtue. We at Hamilton have also come to know and appreciate not only your integrity but also the wise counsel you have provided during decades of devoted service to your alma mater.Fresh out of high school in New York's North Country, you entered the U.S. Navy and served as a gunner's mate in the Pacific during World War II. Thereafter you followed your father to Hamilton. While there, you married, became a father, and fixed your sights on a career in the law. You obtained your professional credentials at Columbia Law School, where your valiant efforts to introduce an honor code similar to Hamilton's proved, unfortunately, unavailing.
Frank joined the firm of Milbank, Tweed, Hadley & McCloy, and in time became its managing partner. His wide recognition as a specialist in bankruptcy law and corporate reorganization, and was often called upon as a trustee or consultant in major bankruptcy cases. He also served on the boards of numerous educational and cultural institutions, and in 1971 joined the board of Kirkland College. As its chairman, he played a key role in a time of transition when tough decisions had to be made.
When I had to tell Frank that I was leaving Milbank (to take a position at Lazard Freres) it was a very difficult moment for me. He was (of course) generous and caring.
What I remember is his ‘advice:’ “Never look back.” Well, this whole book is a look back – what I interpret Frank’s advice to be is: “Don’t regret your decision to move on – learn from what you have experienced, take with you. The future lies ahead – go in peace and with blessings.”
The Salad Oil Scandal; Tino DeAngelis
One of the highlights (or shall I say “lowlights”) of my time at Milbank, Tweed was my becoming involved in what became to be known as “The Salad Oil Scandal.”
This was a forerunner of the Bernie Maydorf (spelling?) and other recent scandals perpetuated by individuals, banks, and major investing firms taking advantage of people’s desire to make a quick and substantial “buck” without having scruples and doing one’s homework. This type of flim-flam has a long history, and history has still not taught us its lesson. The Salad Oil Scam was perpetuated by a character named Tino DeAngelis. Pretty much every brokerage house and major bank in NY was involved and it even ended up with law firms suing law firms. I was the bottom man on the totem pole working under Frank Musselman and our responsibility/client was the Chase Manhattan Bank.
One of the law firms representing the financial firm of Ira Haupt (I believe) sued Milbank, Tweed for some of the actions it did for its client(s). The details are now very fuzzy and I remember being called to testify in court about the firms nefarious deeds. After some initial questions – the judge told the lawyer whose name I have suppressed “to sit down” and then dismissed me. That is the only time I can recall that I appeared in a lawsuit – this time as a witness. I do remember how nervous I was and when the judge, in effect, told the lawyer to sit down, I was ecstatic (and did get big kudos from the team members). Being involved with the litigation team exposed me to the amount of work put in by litigators, the pressures, and cemented my resolve NOT to be one of them.
The Salad Oil Scandal,also referred to as the "Soybean Scandal", was a major corporate scandal in 1963 that ultimately caused over $175 million ($1.3 billion in 2015 dollars) in losses to corporations including American Express, Bank of America and Bank Leumi, as well as many international trading companies. The scandal's ability to push otherwise cautious and conservative lenders into increasingly risky practices can certainly have a comparison to the recent financial crises including the 2007-2008 subprime mortgage financial crisis.
The story was best chronicled by reporter Norman C. Miller in his book: The Great Salad Oil Swindle (Baltimore, MD: Penguin Books, 1965). The main character was a guy named Tino De Angelis who was a New York-based commodities trader who bought and sold vegetable oil futures contracts around the world. In 1962, De Angelis started a huge scam, working through his company, Allied Crude Vegetable Oil of New Jersey. He was attempting to corner the market for soybean oil, mostly used in salad dressing. In the aftermath of the salad oil scandal, investors in 51 banks learned that he had bilked them out of the$175 million in total ($1.3 billion in year 2015 dollars) mentioned above. Miller won a Pulitzer Prize in 1964 for his reporting on the De Angelis story.
The underlying thing that made this scam possible was the ability to get loans based on documents purporting to represent a certain amount of salad oil stored in big tanks in New Jersey. Not so different than banks making loans for the purported inflated value of homes, not only in New Jersey, but pretty much everywhere!
Ships apparently full of salad oil would arrive at the docks, and inspectors would confirm that the ships were indeed full of oil, allowing the company to obtain millions in loans. In reality, the ships were mostly filled with water, with a only a few feet of salad oil on top. Since the oil floated on top of the water, it appeared to inspectors that these ships were loaded with oil. The company even transferred oil between different tanks while entertaining the inspectors at lunch. They then could get a certification that a certain tank contained a specified amount of salad oil and then the oil was transferred to another tank that again was certified.
Once the scandal was exposed, American Express was one of the biggest casualties. Its stock dropped more than 50% as a result of the scandal, which cost the company nearly $58 million. Tino De Angelis was convicted of fraud and conspiracy charges in connection with the scandal and served seven years in prison, gaining his release in 1972. Think of the jail term a young black man would get for ‘liberating’ a TV set or possessing a small amount of a controlled substance.
About 6:30 one evening in November, 1963, managing partner Morton Kamerman of the New York brokerage firm of Ira Haupt & Co. was leaving the office for the day when he noticed a group of subordinates working late - and talking excitedly - in one of the conference rooms. Kamerman dropped in to see what was going on. It had something to do with a complicated deal in commodities, a branch of the brokerage business Kamerman had little interest in and was not too familiar with. A Haupt commodities man was talking on the phone to a Mr. Anthony De Angelis, whom Kamerman had never met, even though De Angelis was the firm's biggest customer. At the other end of the line, De Angelis was shouting that Haupt was putting him out of business and putting itself out of business too. A Haupt partner was on another phone attempting to locate someone who would buy huge quantities of soybean oil in a hurry. Still other Haupt officials were riffling worriedly through the firm's books, adding up figures. Kamerman decided to stay. By the next morning Kamerman had learned a great deal about the commodities business, along with a bitter truth. His own firm was insolvent - obligated for some $18.6 million of debts incurred by De Angelis, who now appeared to be bankrupt.
It was the first shock wave of one of the biggest financial swindles in American history, involving losses of some $175 million by many pillars of the business community. The Great Soy Bean Scandal which struck Wall Street destroyed Haupt and forced another prominent brokerage (J. R. Williston & Beane, Inc.) into a merger. Some 20 major banks, ranging from the Bank of America to the Bank Leumi leIsrael, were stuck with bad loans. A dozen international trading companies were placed in the position of financing a fraud against themselves, and the warehousing subsidiary of the prestigious American Express Co. is hopelessly insolvent with staggering claims of more than $100 million against it.
All of these companies had one thing in common; they loaned money against or otherwise accepted at face value innumerable slips of paper representing the assets of the Allied Crude Vegetable Oil Refining Corp., controlled by Anthony De Angelis. On paper, Allied's assets consisted of enormous quantities of soybean, cottonseed and other oils, which it kept in tanks at Bayonne, N.J., across New York harbor from Manhattan. Allied, on paper, looked to be a solid credit risk in a messy but profitable business -- moving oil from the U.S. farm belt into world markets, where it is used to pack sardines and make things such as salad dressing, margarine, plastics and paint. Inside the gray-green storage tanks at Bayonne, however, things looked considerably different. Here, according to charges brought by a federal grand jury, Allied employees were fattening up the assets by turning out warehouse receipts for oil that wasn't there at all.
For more than five years, Allied created fictitious commodities which could be traded on paper and pledged as security against loans. For more than five years. unwitting financiers wheeled and dealed with ever vaster amounts of nonexistent oil in an outsized version of the old Hong Kong sardine dodge. (During a famine in China, a Hong Kong merchant sold a sardine can filled with mud to another merchant, who sold it at a profit to a third merchant who sold it at a profit to a fourth. When merchant No. 5 discovered the fraud and complained, No. 4 had a comeback: "Why did you open the can?")
In Allied's case, there was interest for the bankers, commissions for brokers and profits for everyone in the blizzard of hypothecated paper, as long as no one thought to take a close look. When the lid did come off, almost by chance, financiers holding receipts for 1.8 bilhon pounds of vegetable oil found only about 100 million pounds of oil, fats, petroleum, sludge and some still-unidentified substances in the tanks. (In fact, the total capacity of all of Allied's tanks was only about one third of the amount of the imaginary oil.) There is evidence that various degrees of carelessness, stupidity or greed among the victims themselves helped bring on the debacle. No one has ever fully assessed the full damage or the full blame, however, since the swindle was incredibly complicated.
Anthony De Angelis was convicted, along with four employees. on charges of conspiracy and transporting forged warehouse receipts across a state line, and faced a potential sentence of 185 years. He got seven.The state line in question was between Bayonne, N.J. and Manhattan and is the same one Jay Gould and Jim Fiske carried watered stock across a century ago. However, Tino could be crowned as the all-time champion of the long line of financial con-men extending from the Erie Gang to Billie Sol Estes.
In some ways, Tino hardly fit the part. He was a fat little man, with a bland moon face and a somewhat squeaky voice, a hard-working, quiet-living, god-fearing son of Italian immigrants. He cramed his 250 pounds into rumpled, ready-made suits, wore no jewelry, and was outwardly almost totally unpretentious. His nominal home was a sixroom apartment in his father-in-law's red-brick house in the Bronx, where Tino and his wife Virginia moved in right after their wedding. 25 years ago. He had anvocation is donating bicycles and sponsoring races for boys' bike clubs. "Bicycle racing developed me physically. I possess exceptional strength in my hands and legs," Tino would say, eagerly grasping your hand in a crunching grip to prove it.
Under this folksy exterior, however, lay a vast self-confidence and fierce ambition. Tino set out single mindedly to make himself the biggest fats and oils operator in the U.S. When he succeeded, he relished the power it gave him to move oil and men, and lusted for even greater coups. It pleased him to distribute largess among his retinue of lieutenants and hangers-on, often in the form of cash. As Tino put it: "With fifty of my boys, at least, I was engaged in seeing that they were settled in a solid way in New Jersey communities."
Tino got his start in business as an apprentice butcher in a Bronx meat market. He was a go-getter, quickly moving on to a foreman's job with a hog-processing firm and setting new records for the dismemberment of swine. Still in his early 20's. Tino opened his own hog-meat firm with $2.000 in savings and a $10,000 loan. He claimed he made a profit of $100,000 in the first year and tripled this within three years. By the late 1940's, Tino had the capital to buy stock control of Adolf Gobel, Inc., a big publicly held meat-packing firm in North Bergen, N.J., and this venture, too, seemed to be a smashing success.
At this point the De Angelis career begins to depart from the Horatio Alger script. In 1952 the Agriculture Department charged that Gohel had sold the Government poor quality meat for the federal school-lunch program. Less than a year later, the Securities and Exchange Commission accused him of understating in a report to stockholders the Gobel company's 1952 losses by $145,000, In July, 1953, Tino took Gobel into bankruptcy court. Tino eventually paid $100,000 in damages to clear up the school-lunch business. It took him five years to get Gobel out of bankruptcy-but in the meantime he had spotted something more promising than hog-butchering. American farmers' production of vegetable oils had begun to run ahead of consumption in the mid'50's. Huge surpluses of oil had begun to pile up, and the Government was eager to develop markets abroad.
Tino borrowed money to set up Allied, building a three-million-dollar refinery at Bayonne and leasing a number of storage tanks there. He would buy raw vegetable oil from the big "crushers" that squeeze soybeans and cottonseed in the South and Midwest, ship it to Bayonne, refine it, and sell it -- usually to exporting companies. His two biggest customers were Continental Grain Co. of New York and Bunge Corp., a firm headquartered in Buenos Aires. Tino's services and storage facilities were so valuable to Continental and Bunge, who together sell about two billion dollars' worth of commodities around the world each year, that they and other exporting firms helped to finance him. While some of these companies apparently charged as much as 15 percent for credit, it was worth it to Tino, who could borrow far more from his customers than he could from banks. He would pledge warehouse receipts for oil as security, ostensibly use the money to buy more oil and pledge that for still more money.
Tino became a big operator in the Government's Food for Peace program, in which the Agriculture Department would sell surplus oil to various needy countries for their currency and pay off the American exporter in dollars. In such deals, Tino was far more than a middleman supplying the exporters. Leaving his modest office in Bayonne, he would make swings through foreign markets, talking to government officials to line up sales for his exporter customers. He became a familiar figure in such places as Karachi, Istanbul and Madrid, and foreign buyers would often visit him at Bayonne.
Nothing about Tino's reputation seemed to bother the businessmen he dealt with, so long as his patronage was profitable. Besides his previous involvements with the law, there was a rumor on Wall Street that he was bankrolled by the Cosa Nostra, based on his minority interest in a Chicago shortening firm which employed known hoodlums. The rumor didn't hurt him in business. In fact a trader for a major vegetable-oil firm was quoted as saying: "we figured Tino might have planted the rumor himself. If he were backed by that kind of money, we would have known he was good for all he owed us."
In any case, Tino's business and his debts expanded apace. The sales of his companies mounted to some $250 million a year, and at one point he was supplying 75 percent of U.S. exports of cottonseed and soybean oil. Customers found that Allied could usually quote prices below its competitors, which seemed to reflect a highly efficient operation - but something more than efficiency was involved. For a significant fact apparently struck him almost at the moment he got into the oil business in a big way in 1958. He realized that he always had more oil stored than he needed to satisfy customers' immediate demands, and it was inconceivable that all customers with calls on oil would ask for delivery at the same time. As long as he could meet daily withdrawals, he might have almost any amount of oil in storage, for all the world knew.
Looking at the epicenter of the De Angelis operations in Bayonne –a bleak and grimy region of docks, rail sidings, warehouses and tank "farms" within sight of Wall Street. Allied leased a group of some 100 tanks at a big Bayonne tank farm, with a capacity of some 500 million pounds of vegetable oil. To meet legal requirements of the business, it then subleased the tanks to a storage company, for a token fee of one dollar a year, and the storage firm assumed responsibility for the tanks' contents. The storage firm took regular inventory and issued the warehouse receipts, affirming the existence of Allied's stored commodities, and acted as a kind of "third party" between Allied and its creditors. The company Tino selected for this chore, Arerican Express Warehousing, Ltd., had a name calculated to still any doubts creditors might have had. Its warehouse receipts looked every bit as unimpeachable as the travelers checks issued by its parent firm, American Express.
Allied paid Amex Warehousing up to $20,000 a week, and by all indications got more than its money's worth in the form of an extraordinarily tolerant attitude by the company supposedly monitoring its inventories. On Tino's recommendation, Amex hired several Allied employees as custodians, including Joseph Lomuscio, a good friend of Tino's, and John Bongardino, brother-in-law of Tino's secretary. The storage firm often left the inventory job to Allied, merely sending a custodian along to jot down the figures. Taking inventory at Bayonne, as it turned out, was something like counting bubbles in a glass of beer. Allied's tanks were interconnected by a maze of underground and overhead pipes, and were connected to other tanks that didn't belong to Allied at all. Soybean oil in three or four tanks could be concentrated in one tank or spread all over the farm, as circumstances required.
Allied plant manager Frank Vivenzio testified that Allied men were instructed to "grab as much oil as we could get" by opening valves and manipulating tape measures to pad the inventory figures (the instructions, he said, came from Leopold Bracconeri, Tino's brother-inlaw and Allied general manager at Bayonne). Since the contents of a tank were computed by measuring the distance from the top of the tank to the top of the oil, large gains could be chalked up by pumping water under a thin layer of oil. On other occasions, said Vivenzio, an Allied man taking inventory would stop the tape measure ten or twenty feet above the surface of the oil and shout out the false figure to the custodian.
The first warehouse receipt for nonexistent oil moved into Wall Street's money markets in October 1958 as collateral for an Allied loan. By 1960, with business booming, Tino felt the need for more storage space, or at least the appearance of more storage space. He persuaded another storage firm called Harbor Tank Storage to operate tanks at Bayonne for Allied and to appoint his friend Lomuscio as custodian. What happened next shouldn't happen to a storage company. Lomuscio began signing warehouse receipts for oils that Harbor Tank didn't have. In'a series of transactions, Allied "leased" 41 tanks to Harbor Tank - only 10 of which it had a right to lease. The rest belonged to petroleum companies operating at Bayonne, or were dismantled or didn't exist. When Allied collapsed, there were $46.5 million in Harbor Tank receipts outstanding and only about one million dollars' worth of commodities.
Tino's own taxable income amounted to $100,000 annually, although it is alleged that he withdrew three million dollars from Allied's "petty cash fund" over the years to meet "expenses." Even these sums were small, of course, compared with the torrent of borrowed funds now pouring through Allied, generated by the growing torrent of warehouse receipts. According to Tino's secretary, Josephine Salto, it got to the point where Tino would carry her typewriter into a private office, hand her a blank Amex Warehousing receipt and dictate a figure to be typed in - a figure apparently unrelated to anything except Allied's need for cash.
Despite all this, Allied's business began to run into trouble. Tino claims it began with the 1960 Justice Department suit over his disputed shipments to Spain, which he says eventually cost him orders for 150,000 tons of soybean oil he had lined up in Madrid. Later, he claims, Agriculture began pressuring exporters to stop giving Allied contracts. Whatever the case, while he had once borrowed heavily to build up volume in the oil business, it appears he was now borrowing even more heavily just to pay off debts already incurred.
By that time Tino had decided to try to recoup with a still wilder pyramiding scheme, this time in commodity "futures." These are contracts to buy, 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 trader and one of the biggest.
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. He worked through a number 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 vegetable oil 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.
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.
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.
A lot of money was lost, Haupt went out of business, banks, businesses, and individuals lost varying amounts of money, lawyers were kept busy for years. What was learned and could/would something like this happen again? I will leave the answers to you, dear reader. And, yes, it did happen on much larger scales. And, to many observers and those who know more than I do, it will. The lure of a large monetary profit based on things other than hard work, real products, creativity and innovation – that lure exists and will continue until . . . ? Lessons learned? Hmmmm. A Grand Manner certificate for Tino DeAngelis? Yes, as I am putting forth a mixed bag of people who I interacted with or was involved with who are perhaps less known in this grand scheme of things, and who did influence/have effect on a wider field – mostly positive, some negative In the Grand Manner.