Thesalad oil scandal, also referred to as thesoybean scandal, was an American majorcorporate scandal in 1963 that caused over $180 million ($1.85 billion today) in losses to corporations includingAmerican Express,Bank of America andBank 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 the2007–2008 subprime mortgage crisis.[2]
The scandal involved the Allied Crude Vegetable Oil company inNew Jersey in the United States, owned byAnthony "Tino" De Angelis, a former commodities broker. De Angelis had been in trouble with the law previously for supplying schools with beef from uncertified sources under theNational School Lunch Act.
De Angelis was awarded a contract withFood for Peace, a federal program which sold excess food stocks to poor countries.[1] He discovered that he could obtain loans based upon Allied's fraudulently inflated inventory ofsalad oil.[3] Ships supposedly full of salad oil for Allied would dock, and inspectors would certify the cargo, allowing Allied to post the oil ascollateral and obtain millions of dollars in bank loans. In reality, the ships tanks contained only water, with a few feet of salad oil floating on top to trick inspectors. When inspectors audited Allied's facilities, the company would transfer the same oil stock from tank to tank to fool the inspectors while entertaining them during lunch.[4] In all, Allied posted 1.8 billion pounds (820,000 t) ofsoybean oil as collateral to fraudulently obtain $180 million in loans, when the actual stock was a mere 110 million pounds (50,000 t).[1]
American Express Warehousing, Ltd., a minor subsidiary of American Express, was defrauded into issuingwarehouse receipts for salad oil that did not exist.[5]
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 offraud andconspiracy charges in connection with the scandal and served seven years in prison, gaining his release in 1972.[6]
Notes
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.Copy at The Market Oracle.
