What is the Salad Oil Scandal?
The Salad Oil Scandal of 1963 was a case of corporate fraud perpetrated by the Allied Crude Vegetable Oil Company, which resulted in serious losses for major banks acting as its creditors.
How Does the Salad Oil Scandal Work?
Banks for the Allied Crude Vegetable Oil Company granted it a substantial line of credit demanding its vegetable oil inventory as collateral. Consequently, cargo ships carrying the company's salad oil were subject to inspection in order to ensure that Allied Crude Vegetable Oil was delivering its finished product. The company discovered that it could circumvent the inspection process and stretch its vegetable oil output by filling the containers with a high volume of water and float several inches of vegetable oil above. Upon inspection, officials would discover true vegetable oil without reason to suspect foul play. The company's deceitful practices were exposed in 1963 when it was discovered that the company could not account for the absence of more than $175m in salad oil.
Why Does the Salad Oil Scandal Matter?
Allied Crude Vegetable Oil's CEO Tony De Angelis was indicted on charges of corporate fraud and conspiracy and was sentenced to serve a prison term of seven years. The scandal resulted in more than $150m in losses among involved banks. Most notably, American Express experienced a halving of the market value of its stock taking a loss of close to $60m.