The Onion Heist

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Key Takeaways:‍

• In 1955, Sam Siegel and Vincent Kosuga manipulated the onion market, causing an 82% price drop and profiting $100 million.
• The 1958 Onion Futures Act banned onion futures trading in response to this manipulation.
• Research on the Act's impact shows mixed results, with ongoing debate over the future of onion futures.

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In the 1950s one of the greatest heists in American history occurred on the Chicago Mercantile Exchange (CME). Before the era of sophisticated computerized systems, futures trading was conducted in the chaotic environment of open outcry pits, where traders would shout orders across the trading floor. This system naturally gave way to corruption and market manipulation. One of the most bizarre, yet impactful, manipulation cases occurred in 1955, on the most popular market on the CME.

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Two ambitious commodity traders, Sam Siegel and Vincent Kosuga, orchestrated a scheme that would forever change the onion market. The pair strategically purchased and stored over 30 million pounds of onions, which represented approximately 98% of all onions in Chicago. With this near-total control of the onion supply, Siegel and Kosuga set their plan in motion. The pair issued an ultimatum to onion farmers: buy back their crops at inflated prices or face a market collapse, as they flood the market with their inventory. 

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Many farmers, fearing the consequences, reluctantly complied. After driving up the price of onions, the two traders acquired a large short position in onion futures, predicting that the price of the commodity would fall. Siegel and Kosuga then unleashed their inventory of onions onto the market, driving prices to historic lows. The price of a bag of onions plummeted so dramatically that the cost of the bags themselves exceeded the value of the onions inside. The two traders caused onions to lose 82% of their value, to less than 50 cents a bag.

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The traders pulled off their heists, destroying the onion market in their wake. Siegel and Kosuga made out with $8.5 million, approximately $100 million in today's dollars. Although the pair was never arrested for their plot, this market manipulation caught the attention of regulators. In response, the Commodity Exchange Authority proposed the "Onion Futures Act," which aimed to ban futures trading on onions, and prevent further manipulation. This act passed congress and was signed into law by Dwight D. Eisenhower in 1958. Although the regulation was unpopular with commodity traders, this decision provided valuable case study into the effect of futures contracts on commodity price volatility.

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Since the "Onion Futures Act" was enacted, its effects have been the subject of ongoing research. Three significant studies yielded mixed results: two found increased volatility, while one found decreased volatility. These results highlight the complexity of this issue. The “Onion Futures Act” stands to this day, serving as a unique example of unchecked futures trading. 

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Note: After the heist Kosuga moved to Orange County New York, where he opened a restaurant called the Jolly Onion Inn, which remained open until 2023.

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