Boiling in Oil

Wall Street uncomfortably watched the steady spread of one of the worst scandals in its history--the kind that so far disturbs the professionals more than the outsiders. The facts were bad enough: a $90 million brokerage house liquidated, companies defrauded and a long string of creditors and victims left to sort out maneuverings that may cost them well over $100 million (TIME, Nov. 29 et seq.). But one question most fascinated the Street: What had happened to millions of pounds of vegetable oil that either never existed or were somehow spirited away from a huge tank farm in New Jersey? All that remains behind are warehouse receipts that have little, if any, value.

The man who presumably knew the answer--Anthony DeAngelis, 48, the president of the bankrupt Allied Crude Vegetable Oil Refining Corp.--clammed up. Allied set off the whole mess through its headlong speculation in vegetable-oil futures, and its failure to meet margin requirements brought down Wall Street's venerable Ira Haupt Co. Last week pudgy "Tino" DeAngelis, a onetime foreman in a New York hog-processing company, walked into a New Jersey courtroom crowded with 50 law yers who hoped for some answers. To the exasperation of all, DeAngelis took the Fifth Amendment 58 times in re sponse to questions.

Shock Waves. Tino DeAngelis is an unforthcoming fellow who lives in a modest home in The Bronx, but his name has sent shock waves traveling across the U.S. and even overseas. The London stock market fell last week on news that some London banks had put money into Ira Haupt, and others into British companies that contracted for large amounts of oil from Allied. In Manhattan the brokerage house of J. R. Williston & Beane, which lost heavily in its dealings with Allied, had to be merged into the stronger Walston & Co. And in Chicago, authorities refused an operating license to Oak Crest Refining Corp., a venture in which DeAngelis is one-third owner, on grounds that one of the officers was associated with oth er enterprises that were infiltrated by gangsters.

One hapless victim of the mess is giant American Express Co., whose subsidiary operates the tank farm in which Allied Crude supposedly stored millions of pounds of oil. One of Allied's creditors holds receipts for 161 million Ibs. of oil supposedly in Amexco's 138 tanks --but as of last week Amexco had only been able to find 7,000,000 Ibs. American Express stock plummeted from $60 to $41 a share because stockholders feared that the company's unusual organizational setup might make it liable for the complete loss; Amexco is an unincorporated joint-stock venture rather than a corporation. The warehouse operation, however, was a subsidiary company, and a subsidiary's losses are not necessarily carried back to the parent.

Hopinq for Fraud. In its efforts to restore investor confidence in the Street's brokerage houses, the New York Stock Exchange had set up a $12 million fund to pay off Haupt's customers and liquidate the firm. The cost to the Exchange now seems likely to come to only $9,000,000. Many members of the Exchange grumble at the money they are to be assessed to pay off Haupt's customers, and hope that in some way Haupt will eventually be found guilty of fraud; insurance companies would then have to pay off on bonds, producing enough money to cover customers' losses at no cost to anyone on the Street.

The scandal has deeply shaken many investors. Brokers got calls all last week from customers wanting to know if their securities were safe. Other investors wanted to buy insurance policies on their securities. How can the investor protect himself? If he opens a margin account to buy stock with only a down payment, he has no protection. The broker can put his stock up as collateral to borrow the rest of the price of the stock from a bank; if the broker goes bankrupt, the margin buyer loses out. Many investors do not realize that even if they pay for their stock in full, they can still lose.

Brokers often hold such stock in the brokerage firm's name, and if the customer signs a "hypothecation agreement"--as he is frequently asked to--the broker has the right to borrow from banks on his stock. Anyone can refuse to sign the agreement and insist that the stock be registered in his own name, but some Wall Street legal experts insist that the safest path for the customer is to 1) pay for the securities and take them home, or 2) if he wants to buy on margin, borrow from a bank instead of a brokerage house.

Newcomers. If the stockholders were learning a few lessons about Wall Street, so were the partners in the 36-year-old firm of Ira Haupt, who, as things are now, stand to lose everything they have. For the most part young (in their 30s) and relatively inexperienced, they allowed themselves to be taken in by Allied in their aggressive push to win new business. A third of them have been with the firm only a few months, and some of them have put into it as much as half a million dollars. But no matter how recently they joined, they were just as liable as all the rest when the mysterious empire built by Tony DeAngelis began to collapse.

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