The Great Salad Oil Swindle of 1963, also called the "Salad Oil Scandal" or "Tino De Angelis Scandal," was a notorious financial fraud in American history. This scandal caused a loss of about $150 million and exposed major flaws in the regulatory and financial systems back then. Here’s a detailed account of what happened:
💡Table of Content
➥ Summary
➥ Background
During the 1950s and early 1960s, the American economy was thriving, and trading commodities was very profitable. Anthony "Tino" De Angelis, a greedy and ambitious businessman, saw a chance to take advantage of this prosperity. He ran a company named Allied Crude Vegetable Oil Refining Corporation, which appeared to be involved in trading and storing vegetable oil.
➥ The Scheme
De Angelis found a flaw in how commodities were financed. Banks would give loans based on the amount of vegetable oil stored, using warehouse receipts as proof of the oil's quantity. These receipts were supposed to confirm how much oil was in storage.
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However, De Angelis took advantage of this system by lying about the amount of oil he had. He pumped seawater into the bottom of the storage tanks and only put a small layer of real vegetable oil on top. Inspectors would check the top layer, think the tanks were full of oil, and give receipts based on these fake inspections.
➥ The Fraud Unfolds
De Angelis used fake warehouse receipts to get big loans from banks and other lenders. He also tried to make money by trading soybean oil futures, hoping the prices would go up. But when soybean oil prices fell in 1962, he was in trouble.
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To try to fix his losses, De Angelis kept issuing fake warehouse receipts to get more loans. This scam continued until 1963, when it was discovered. An auditor from American Express, one of the big lenders, found out that the amount of vegetable oil reported was different from the actual amount.
➥ Collapse and Consequences
The revelation of the fraud triggered a significant financial crisis. Major financial institutions such as Bank of America and Continental Illinois National Bank and Trust Company, along with several brokerage firms, incurred substantial losses. The overall loss was approximately $150 million, which was an enormous sum at that time.
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The scandal resulted in the bankruptcy of Allied Crude Vegetable Oil Refining Corporation. De Angelis was apprehended and found guilty of fraud. He received a ten-year prison sentence but was released after serving seven years.
➥ Regulatory Impact
The Great Salad Oil Swindle revealed significant problems with how commodities trading and financial practices were monitored. The incident underscored the importance of enforcing stricter rules and conducting more thorough audits to avoid similar frauds.
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Following the scandal, there were significant improvements in openness and responsibility in financial transactions. The Securities and Exchange Commission (SEC) and other oversight bodies intensified their monitoring of commodity trading and warehouse receipt procedures. Additionally, banks and financial institutions became more diligent in evaluating loans backed by commodity assets.
➥ Summary
The Salad Oil Swindle of 1963 highlights the necessity of strong regulatory supervision and shows how people can take advantage of system vulnerabilities. This scandal resulted in tighter regulations and increased awareness of the risks of commodity trading and financial fraud. It continues to be a noteworthy event in American financial history, underscoring the need for careful oversight and ethical conduct in business.
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