Salad Oil Scandal

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The Salad Oil Scandal, also referred to as the "Soybean Scandal", was a major corporate scandal in 1963 that ultimately caused over $150 million (approximately $1.1 billion in 2008 dollars)[1] in losses to corporations including American Express, Bank of America and Bank Leumi, as well as many international trading companies. The scandal's ability to push otherwise cautious and conservative lenders into increasingly risky practices has prompted some comparisons to recent financial crises including the 2007-2008 subprime mortgage financial crisis.[2]

Description[edit]

The scandal involved the company Allied Crude Vegetable Oil in New Jersey, led by Tino De Angelis, which discovered that it could obtain loans based upon the inventory of its salad oil.[3]

Ships apparently full of salad oil would arrive at the docks, and inspectors would confirm that the ships were indeed full of oil, allowing the company to obtain millions in loans. In reality, the ships were mostly filled with water, with only a few feet of salad oil on top. Since the oil floated on top of the water, it appeared to inspectors that these ships were loaded with oil. The company even transferred oil between different tanks while entertaining the inspectors at lunch.[4]

Once the scandal was exposed, American Express was one of the biggest casualties. Its stock dropped more than 50% as a result of the scandal, 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]

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Notes

  1. ^ http://www.minneapolisfed.org/index.cfm
  2. ^ Justice Litle (2007-09-05). "Tactical View: A Little Help From Our Friends". Financial Sense Editorials. 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. ^ "Justice Steps In". Time. 1964-01-03. Retrieved 2007-09-01. 
  4. ^ "Salad Oil Scandal". Investopedia. Retrieved 2007-09-01. 
  5. ^ "The Man Who Fooled Everybody". Time Magazine. 1965-06-04. Retrieved 2007-09-10.