SALAD OIL CRISIS

Team 1
 WHAT LED TO THE
Started Allied Crude Vegetable Oil Refining Co. CRISIS?
In 1955, company was created to take advantage of US government’s Food for
Peace program. Goal of this program was to sell surplus commodities to Europe
at low prices.

American Express gives loan to De Angelis. AmEx created a division that specialized
in field warehousing, which gave De Angelis receipts for millions of pounds of
vegetable oil. De Angelis takes receipts to brokers and discounts receipts for cash.
De Angelis falsifies warehouse receipts for vegetable oil he didn’t have.
AmEx’s role
Corner Soybean Oil Market
Plan to use his large inventories of commodities as collateral to get loans
from Wall Street Banks and finance companies. Buying soybean futures
would drive up price of his vegetable oil holdings, which increases value of
inventories and allow him to profit from his future contracts.

Lax in inspection
Inspections were scheduled weekly, usually on Fridays and Saturdays and were never
surprise inspections. The inspector would get the figures from Allied Crude and then the
inspector would accompany an Allied Crude employee to the top of the tanks and an
Allied Crude employee would lower a weighted tape measure into the tank and call off
the level of feet of oil in the tank. If the inspector or American Express were paying any
attention they would have quickly found out that they guaranteed that Tino was holding Taking more firms down
more oil than the Department of Agriculture reported existed in the whole of the United Unsatisfied with the American Express loans, De Angelis was able to get
States! additional loans from Bunge Ltd., Staley, Proctor and Gamble, and The
Bank of America. By the time the swindle collapsed, De Angelis had
gotten loans from a total of 51 companies.
Effects of Crisis on the Economy

Crisis led to a crash in In addition to American Warren Buffet bought

the future markets Express, the scandal 5% of American Express
Soybean prices fell weakened other Wall Street amid the scandal
from $9.875 a bushel firms, which contributed to fallout, resulting in one
to $7.75. the financial chaos that of his early investment
followed the Kennedy success.
assassination.

1 2 3 4 5

It led investors to It caused 16 wall street

attempt to cash in, firms to declare
which resulted in bankruptcy, 51
American Express stock companies struck with
to drop more than 50%, bad loans. Main brokers,
which cost the company Williston & Beane and Ira
nearly $58 million. Haupt &co. bailed out for
$450 million.
How did the Crisis Resolve?
Bankruptcy Declared
On November 19, 1963 Allied Crude
declared bankruptcy. The two main
brokerage houses Tino worked with: J.R.
Williston & Beane, and Ira Haupt & Co.
1 $37 in January of 1964. Warren
were immediately suspended from trading.
2 4
American express
American Express’s stock collapsed
falling from $65 in October of 1963 to
Buffett did some research and
believed the fundamentals of
American Express were strong and
he invested $20 million into the
company, earning back 10x his
investment over the next ten years.

Ira Haupt
Ira Haupt owed 313 million dollars that it had
no way of paying back. Owing to President
Kennedy’s assassination, the market was
shutdown for 4 days. Due to this they were
3 J.R. Williston & Beane
On November11 1963, the New York
Stock Exchange was able to organize
able to raise $100 million to make Ira Haupt’s a bailout of J.R. Williston & Beane.
customers whole, this was the first time in
the history of the Stock Exchange that they
took responsibility for a firm’s failure.
 Conclusion

Tino was not in the oil business rather in a money making

business. The oil merely provided notional backing for him.
It was not the absence of oil that ultimately defeated him,
that part of the swindle was brilliant in both conception and
execution and was virtually self-perpetuating as long as
there was enough in store. It was the speculation in oil
futures which proved to be his downfall. He used to do this
just for his sole benefit and this was not the only controversy
in which he was a part of considering his background, which
leads us to say “A SWINDLER WILL ALWAYS BE A
SWINDLER”

The chart above, based upon hourly, intraday calculations of the DJIA
between October 1 and December 31 of 1963, shows both the panic sell
off on November 22, the full recovery on November 26, and the move to
new highs that ultimately followed.
 LEARNINGS

Background Check Alluring Profit Banks Responsibility Heedless

Investigation

• Investors must have • Investors were • Lending banks • Tanks were filled
essential background completely lured with displayed an mostly with water with
check before investing. the interest paid on irresponsible degree minimum of oil
As mentioned in The their loans of laxity when floating on the top
Great Salad Oil Swindle • Brokers and employees warehouse receipts • Tanks were
by Norman Charles must be honest as they were fraudulent interconnected so the
Miller, Tino had kept their mouth shut oil could be
allegations of due to higher paycheck transferred between
underworld connections paid by Tino tanks when
inspectors went from
one tank to the other