A:

Before Bre-X, there was Allied Crude Vegetable Oil Refining Corporation. In 1962, Anthony "Tino" De Angelis set about to corner the soybean oil market through a combination of futures and fraud. De Angelis's company was heavily involved in the shipping of foodstuffs between the U.S. and Europe following WWII. During the following decades, Allied focused on the soybean oil used to make salad dressings. Along with a checkered past in the meat business, De Angelis gained notoriety for shipping substandard or uninspected vegetable oil to government contractors and then overcharging them.

As a result of his shipping operations, De Angelis learned that consumer credit giant American Express was entering the field warehousing business. This appealed to De Angelis because American Express, following inspections, would vouch for the goods of clients that stored inventory shipments in its warehouses. Clients then could use American Express's warehouse receipts to take out loans, putting up the authenticated value of their inventories as collateral. De Angelis became one of American Express's first big clients.

Moving from dubious business practices to outright product fraud, De Angelis began filling his oil tanks with water and then adding thin layers of oil to the tops of each tank in an attempt to deceive inspectors. Liter upon liter of watered down inventory piled up in warehouses while De Angelis took out millions in loans from banks. He used much of the money to buy up soybean oil futures so that he could completely corner the market. Problems started to crop up, however, when the soybean oil being stored at American Express warehouses vastly exceeded soybean producers' output. Somebody blew the whistle and American Express inspectors swooped in to discover the tanks of oil-sprinkled water that De Angelis had been storing. In total, the tanks in De Angelis's inventory represented more than $175 million worth of faked soybean oil.

On November 19, 1963, Allied Crude Vegetable Oil Refining Corporation filed for bankruptcy. De Angelis filed for personal bankruptcy as well, leaving American Express to foot the bill on the bad loans. In addition to American Express, the scandal weakened other Wall Street firms, which contributed to the financial chaos that followed the Kennedy assassination a few days later. With massive losses, American Express shares dropped sharply and Warren Buffett, value investor extraordinaire, scooped up a 5% interest in the ensuing fire sale. De Angelis was sentenced to seven years in prison. However, the ultimate losses from the salad oil scandal were difficult to separate from the general bloodletting on Wall Street in 1963.

For more on this topic, read The Ghouls And Monsters On Wall Street and Pages From The Bad CEO Playbook.

This question was answered by Andrew Beattie.

RELATED FAQS
  1. What debt to equity ratio is common for a oil and gas company?

    Read about the rising trend of debt financing in the oil and gas industry since the financial crisis as expressed through ... Read Answer >>
  2. Why are coupon payments considered an annuity?

    Learn about the average debt to equity (D/E) ratio for firms in the electronics sector and what the median D/E ratio is and ... Read Answer >>
  3. What debt/equity ratio should I look for when investing in industrial companies?

    Find out more about the industrial goods sector, what the debt/equity ratio measures and what ratio is typical for industrial ... Read Answer >>
  4. What debt/equity ratio is common for companies in the telecommunications sector?

    Learn the average debt-to-equity ratio for the telecommunications sector and how including operating leases can substantially ... Read Answer >>
  5. What debt/equity ratio is average in the automotive sector?

    Find out more about the importance of analyzing the debt-to-equity ratio and the average debt-to-equity ratio of companies ... Read Answer >>
  6. What is the average debt/equity ratio of real estate companies?

    Learn what the average debt-to-equity ratio is for real estate companies and why the real estate sector has one of the highest ... Read Answer >>
Related Articles
  1. Investing

    U.S. Oil Prices Poised to Slide Below $40

    On Monday, U.S. crude oil futures expiring in January tumbled by about 3% to $40.67.
  2. Investing

    La Nina Underpinning Soybean Rally (SOYB)

    Soybean futures have completed a basing pattern that could yield a powerful uptrend in coming months.
  3. Investing

    AXP: How American Express' Stock Price Fell 11% in 6 Months

    American Express's stock price has taken investors on an up-and-down ride in the first half of 2016, but the overall trend is up since a February 2016 low.
  4. Investing

    American Express Trades Ex-Dividend Wednesday

    American Express will send its dividend payment on Feb. 10 to shareholders of record as of Jan. 6.
  5. Financial Advisor

    American Express: Headwinds and Tailwinds

    Any investors considering a position in American Express need to know these important facts.
  6. Investing

    Deere Eyes Tech-Based Agricultural Products (DE)

    Investments in "precision farming" technology could help Deere & Co. grow its business.
  7. Personal Finance

    Warren Buffett: Be Fearful When Others are Greedy

    It is prudent for the investor to understand when the party has gone on long enough and the clock is about to strike midnight. Be fearful when others are greedy.
  8. Financial Advisor

    Is Now the Right Time to Buy Oil Stocks?

    Learn about the oil industry and how crude oil effects the prices of oil stock. Understand if now is a good time to purchase oil stock.
  9. Investing

    OPEC Predicts Oil at $70 Per Barrel in 2020

    According to Organization of Petroleum Exporting Countries’ (OPEC) annual World oil Outlook report released today, oil prices will rise to $70 per barrel by 2020 and to $95 per barrel by 2045.
RELATED TERMS
  1. Debt/Equity Ratio

    Debt/Equity Ratio is debt ratio used to measure a company's financial ...
  2. De Jure Corporation

    A business that has fulfilled its requirements for formation ...
  3. Warehouse Financing

    A form of inventory financing in which loans are made to manufacturers ...
  4. Intercommodity Spread

    Going long on one futures market in a given delivery month and ...
  5. Bre-X Minerals Ltd.

    One of the biggest mining scams and frauds perpetrated by any ...
  6. Dalian Commodities Exchange

    A commodities exchange located in Dalian, China. The Dalian Commodities ...
Hot Definitions
  1. Profitability Index

    An index that attempts to identify the relationship between the costs and benefits of a proposed project through the use ...
  2. Restricted Stock Unit

    Compensation offered by an employer to an employee in the form of company stock. The employee does not receive the stock ...
  3. Operating Ratio

    A ratio that shows the efficiency of a company's management by comparing operating expense to net sales. Calculated as:
  4. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  5. Pro Forma

    A Latin term meaning "for the sake of form". In the investing world, it describes a method of calculating financial results ...
  6. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
Trading Center