$19 Million in the Hole

Tony DeAngelis, a onetime butcher, made himself a wealthy man by steering his New Jersey-based Allied Crude Vegetable Oil Refining Corp. in and out of quick trades in the risky commodities futures market. Then DeAngelis thought he saw another chance for a fast fortune in soybean and cotton-seed-oil futures. If the Soviet bloc wheat crop failed, he reasoned, other farm products, including vegetable oils, must have suffered as well; and as soon as the Red nations had signed their wheat purchase contracts in the U.S., they would be back bidding on oils and other U.S. produce. DeAngelis bought $150 million worth of vegetable-oil futures on Allied's credit with just a small down payment and waited for the payoff.

It never came. Instead, as the Soviet wheat deals ran into difficulties, the futures market in vegetable-oil dropped. DeAngelis' firm was faced with $19 million in margin calls--demands that he pony up enough cash to make up the drop in price of the commodities. Unable to pay, DeAngelis last week took refuge in bankruptcy, leaving his hapless brokers stuck with his immense debt. His action shattered the well-established brokerage firms of Ira Haupt & Co. and J. R. Williston & Beane, triggered a Securities and Exchange Commission investigation and raised once more some serious questions about how Wall Street's professionals conduct their business.

DeAngelis was into Ira Haupt for at least $18 million, and Williston & Beane for $1,610,000. When the oil prices fell sharply and DeAngelis could not meet his margin calls, neither firm had the ready cash to pay off his debts. The New York Stock Exchange--and later the American Exchange--ruled that since neither firm could meet the capital requirement to do business on the exchange, both would be barred from all trading. After two days of scurrying about, Williston & Beane raised the money it needed and won reinstatement. At Ira Haupt, the situation was much more desperate. Its debts were double the firm's net worth, and no one was ready to risk a loan of such proportions. Few on Wall Street held out much hope for its ability to survive.

What puzzled Wall Street observers was how two reputable firms could have let Tony DeAngelis, who had declared bankruptcy once before when trouble struck one of his commodity ventures, get so deeply in debt to them. Another puzzle was the mysterious disappearance from New Jersey storage tanks of $15 million worth of soybean oil that Bunge Corp., an Argentine-controlled oil exporter, had taken as collateral for a loan to DeAngelis. There were indications that the scandal might spread beyond its present scope. At week's end a third brokerage house, D. R. Comenzo & Co., was suspended from the New York Produce Exchange; it had lent Allied $5,000,000, using as collateral warehouse receipts whose validity was now in question. From now on, other brokerage houses are sure to be stricter with their commodity clients.

Instead of the 70% margin requirement in the stock exchanges, speculators in commodities can buy on an average margin of 10%, and if engaged in the business (like DeAngelis), on nothing at all. There are bound to be cries for stricter federal rules on commodity margins, and some other clients may find themselves in trouble. In any case, public confidence in the way that Wall Street and its brokerage houses run their affairs has suffered an unsettling jolt.

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