The WSJ recently reported of a Texas rancher who raised $170mm from lenders and investors to buy and sell cattle. When all was said and done, the rancher was found to be a fraud – his 80k-head operation actually had fewer than 10k animals.
The discovery came during the rancher’s first collateral inspection.
The first collateral inspection. In four years. After the lender had built a $50mm exposure.
Collateral fraud isn’t surprising. What is surprising is how often lenders get surprised by it.
In Manias, Panics, and Crashes, Charles Kindleberger tells the story of Tino De Angelis, a 20th century commodities trader. In the 1960s, De Angelis borrowed heavily against tanks purportedly filled with salad oil. As Kindleberger notes, “Tino knew that … salad oil was less dense than water…
“[so] he floated a six-inch layer of salad oil on top of twenty feet of water [to maximize his loan proceeds].”
Nothing new.
So why do we keep getting surprised?
I’ve long argued a strong credit program conforms to the Biggie Smalls Diligence Model. Where weak credit programs only scratch the surface (“what’s your name, what’s your sign”), a strong credit program – like Biggie – goes deeper. A strong credit program asks “what your interests are.”
A strong credit program asks, “Who you be with?”
Until lenders approach collateral the way the Notorious B.I.G. approached dating in the club, history will repeat itself.
Whether the collateral is salad oil or cattle. The (right) question remains the same.
Who you be with?
Tea Leaves #2: THE BIGGIE SMALLS DILIGENCE MODEL
Originally published June 24, 2026
