Kosuga and Siegel made millions from this scheme while leaving many farmers in a precarious position of financial loss: many were left with large amounts of high-priced onions that were impossible to sell, and in several cases, these growers had to pay out of pocket to get rid of all that inventory. Needless to say, this led a good number of farmers to be forced to declare bankruptcy.
What had begun as a deal between Kosuga and the growers would supposedly help everyone involved. The farmers would buy the inventory from the merchants, who would then hold on to the inventory until demand surged. This ended up negatively affecting the growers when the merchants decided to make their profits by lowering onion prices instead of increasing them.
They Betrayed Onion Growers to Boost Their Own Profits
Most onion growers gave into the demands of Kosuga and his partner and began buying onions at the price they set to avoid the price decrease in the product that Kosuga had threatened. But as this was going on, the duo began to purchase short positions on a large amount of onion futures, which meant they were expecting the prices of that commodity to decrease.
Because many of their onions had begun to spoil — or perhaps because they intentionally wanted to create an image of onions flooding the market — Kosuga and Siegel began to ship their inventory out of Chicago so that the produce could be serviced and then reshipped back to the city.
The Onion King’s Manipulations Caused Prices to Fall
As the shipments of onions that had originated in Chicago began to be shipped back into that very same city, it created the sentiment that there was an excess of onions in the market. This effectively lowered the price of onions, which played right into the hands of Kosuga and Siegel, who had lavishly purchased positions in the futures market that predicted a fall in the price of onions.
This trend continued into 1956, by which point onion prices had dropped shockingly low: a 25-pound bag that used to cost around $1.37 a year prior was now priced at approximately 5 cents. So large was the amount of onions flooding the Chicago market that it caused onion shortages to plague other areas of the country.
The Federal Government Was on Alert
A maneuver this big from Kosuga and Siegel affected many people negatively and did not go unnoticed. By the late spring of 1956, the Commodity Exchange Authority (the regulatory arm of the government which oversaw commodities trading) caught wind of the plan put into action by Kosuga and his partner and declared the duo was involved in a conspiracy designed to depress the prices to cover their short position.
But this was not the only government body to get involved: the Senate and the House Agriculture Subcommittee also began to hold hearings on the situation, all of which led to the eventual ban on trading futures contracts on onions.
Kosuga Didn’t Think He Was Doing Anything Wrong
When Kosuga and Siegel’s activities began to be known by the wider public and the media, Kosuga’s attitude was unrepentant, and he was quoted as saying, “If it’s against the law to make money…then I’m guilty”. When the House and Senate subcommittee meetings took place, and Kosuga was called to testify, his attitude was the same as he defended himself and his practices.
During these hearings, one of the main arguments made on why onions were particularly at the mercy of being manipulated as commodities was that they are highly perishable. As a result, they are more at risk of being affected by price swings.