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 is the average debt/equity ratio of companies in the financial services sector?

    Learn the importance of calculating the debt to equity ratio when analyzing companies operating in the financial services ... Read Answer >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. What debt/equity ratio is common for companies in the drugs sector?

    Find out more about the drugs sector, what the debt-to-equity ratio measures and what debt-to-equity ratio is common for ... Read Answer >>
  6. 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 >>
Related Articles
  1. Investing

    Why do Debt to Equity Ratios Vary From Industry to Industry?

    Obtain a better understanding of the debt/equity ratio, and learn why this fundamental financial metric varies significantly between industries.
  2. Investing

    How to Use Commodity Futures to Hedge

    Both producers and consumers of commodities can use futures to hedge. We explain, using a few examples, how to achieve commodity hedging with futures.
  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. 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.
  5. 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.
  6. Investing

    How Does Crude Oil Affect Gas Prices?

    Find out how this commodity's fluctuating price affects more than just how much you pay at the pump.
  7. Financial Advisor

    American Express: Headwinds and Tailwinds

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

    The Strategic Oil Reserves Explained

    Strategic oil reserves are one of the least known and least understood national security measures in the United States.
  9. Investing

    Investing in Oil Stocks vs. Oil Companies: What's the Difference? (USO)

    Learn about the major advantages, disadvantages and risks of investing in oil companies and investing in oil and gas exploration companies.
  10. Investing

    What Drives American Express in 2017?

    American Express surprised the market in 2016 with the rate at which its business improved.
RELATED TERMS
  1. Salad Oil Scandal

    One of the worst corporate scandals of its time. It occurred ...
  2. Crush Spread

    A trading strategy used in the soybean futures market. A soybean ...
  3. Supply Curve

    The supply curve is a graphical representation of the relationship ...
  4. De Jure Corporation

    A business that has fulfilled its requirements for formation ...
  5. Commodity Paper

    A loan or advance for which raw materials owned by the borrower ...
  6. Warehouse Financing

    A form of inventory financing in which loans are made to manufacturers ...
Hot Definitions
  1. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  2. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  3. Risk Averse

    A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
  4. Indirect Tax

    A tax that increases the price of a good so that consumers are actually paying the tax by paying more for the products. An ...
  5. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  6. Beta

    Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. ...
Trading Center