Salad Oil scandal

The salad oil scandal, also referred to as the soybean scandal, was a major corporate scandal in 1963 that caused over $180 million ($1.5 billion today) in losses to corporations including American Express, Bank of America and Bank Leumi, as well as many international trading companies.[1] The scandal's ability to push otherwise cautious and conservative lenders into increasingly risky practices has prompted some comparisons to later financial crises including the 2007–2008 subprime mortgage crisis.[2]

Fraud

The scandal involved the company Allied Crude Vegetable Oil in New Jersey, led by Anthony "Tino" De Angelis, a former commodities broker. De Angelis had been in trouble previously for providing the federal school lunch program with poorly prepared meat. He obtained a contract with Food for Peace, a federal program which sold excess food stocks to poor countries.[1]

De Angelis discovered that he could obtain loans based upon the company's supposed inventory of salad oil.[3] Ships apparently full of salad oil would arrive at the docks, and inspectors would confirm that the ships were full of oil, allowing Allied Crude Vegetable Oil to obtain millions in loans. In reality, the ships were mostly filled with water, with only a few feet of salad oil on top; as the oil floated on the water, it appeared to inspectors that the ships were loaded with oil. The company transferred oil between different tanks while entertaining the inspectors at lunch.[4] In all, Allied claimed to have 1.8 billion pounds of soybean oil, when it actually only had 110 million pounds. The claimed inventory was the basis for the company raising $180 million from investors.[1]

Impact

The scandal was exposed when the Russian soybean market did not open up, and soybean prices fell drastically as a result, causing the investors to attempt to cash in. American Express stock dropped more than 50% as a result, which cost the company nearly $58 million. De Angelis was convicted of fraud and conspiracy charges in connection with the scandal and served seven years in prison, gaining his release in 1972.[5]

See also

References

Notes

  1. Malone, Noreen (2012-04-01). "Salad Oil Swindle!". New York. Retrieved 2020-02-07.
  2. Justice Litle (2007-09-05). "Tactical View: A Little Help From Our Friends". Financial Sense Editorials. Archived from the original on 5 September 2007. Retrieved 2007-11-26. Given CFC's size and general reputation (tarnished subprime activities aside), the company's woes bear at least passing resemblance to the 'salad oil scandal' that hit American Express in the 1960s.
  3. Staff (January 3, 1964). "Justice Steps In". Time. Retrieved 2007-09-01.
  4. "Salad Oil Scandal". Investopedia. Retrieved 2007-09-01.
  5. Staff (June 4, 1965). "The Man Who Fooled Everybody". Time. Retrieved 2007-09-10.


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