By Railbird
New York
The Onion Heist
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Key Takeaways:
- In 1955, Sam Siegel and Vincent Kosuga manipulated the Chicago onion market, causing an 82% drop in onion prices while taking home about $100 million in today's dollars.
- In response, Congress enacted the Onion Futures Act of 1958, which banned onion futures trading and remains in effect to this day.
- Scholars have reached conflicting conclusion regarding the Act's effect on onion price volatility.
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The Chicago Market Exchange (CME) of the 1950s was an inherently chaotic place. Before traders had sophisticated computerized systems at their disposal, futures trading took place in open outcry pits, where traders would shout their orders across the floor (fans of Trading Places will conjure this image easily). Such chaos left ample room for corruption and market manipulation in the normal course of business. But in 1955, the chaos reached its peak, as CME became the home to one of the most bizarre—yet most impactful—manipulation cases in financial history.
Two ambitious commodity traders, Sam Siegel and Vincent Kosuga, hatched a scheme around an unexpected vegetable: the humble onion. Step 1: strategically purchase and surreptitiously store over 30 million pounds of onions, comprising about 98% of all the onions of Chicago. With near-total control of the onion supply, Siegel and Kosuga set Step 2 of their plan in motion: issue an ultimatum to onion farmers requiring them to buy back their own crops at a bloated price—or face market collapse when they flood the market with their stockpiled inventory. Fearing the consequences of collapse, many farmers reluctantly complied.
The duo then proceeded to Step 3: acquire a large short position in onion futures. Finally, Step 4: Siegel and Kosuga betrayed the farmers they had bullied into buying back their own onions by unleashing their enormous inventory on the market anyway. The price of onions dropped by a whopping 82%, to the point where the cost of a plastic bag containing onions exceeded that of the onions inside.
The scheme was a raging success: Siegel and Kosuga made out with $8.5million—approximately $100 million in today’s dollars—and were never arrested nor charged for their actions. That being said, they did manage to raise some eye brows in Washington. In the outrage following the market crash, then-Congressman (and future President) Gerald Ford proposed the Onion Futures Act, which banned futures trading on onions in an attempt to prevent further manipulation. Despite backlash from commodity traders—and CME itself—the bill passed, and President Eisenhower signed it into law in 1958. It remains in effect to this day.
Scholars have reached mixed results on Onion Futures Act’s actual economic effect on onion prices. Out of three studies conducted on the topic, two found that the Act increased price volatility. However, the most recent of the three found that the 1960s—the decade immediately following the Act’s passage—exhibited the lowest onion price volatility of any decade on record.
Kosuga embraced his onion-based legacy. After completing his scheme with Siegel, he moved to Orange County, New York, to run a restaurant he named the “Jolly Onion Inn,” which remained open until the fall of 2023.
