What Was The Salad Oil Scandal?

In the early 1960s, a little-known company with a humble product—salad oil—triggered one of the most shocking financial scandals in U.S. history. The so-called Salad Oil Scandal, also known as the “Soybean Scandal,” involved massive fraud, billions in today’s dollars in losses, and the collapse of several major financial institutions. At the center of it all was Anthony “Tino” De Angelis, a Bronx-born shipping clerk turned swindler who exploited weak oversight and Wall Street greed.

Setting the Stage: Post-War America and the Rise of Commodity Trading

The United States in the post-World War II era saw rapid economic growth, expanding trade, and an increasingly interconnected financial system. Agricultural commodities—soybeans, cotton, corn, and more were booming, and with global hunger a concern, the U.S. government often subsidized exports of edible goods like soybean oil.

Soybean oil, a key ingredient in margarine and salad dressings, became a major trade item. Companies that held soybean oil reserves could use them as collateral for loans, making the commodity not only a food product but a financial instrument. This environment was ripe for manipulation and Tino De Angelis saw his opportunity.

The Rise of Tino De Angelis

Anthony "Tino" De Angelis was no Wall Street insider. Born in 1915, he started as a meat delivery boy in the Bronx and rose to manage a school lunch program, where he was first accused of shady dealings. In 1955, he launched Allied Crude Vegetable Oil Refining Corporation, based in Bayonne, New Jersey.

Allied Crude wasn’t a household name, but it quickly became a major player in the salad oil market. De Angelis positioned his company as an exporter of vegetable oil, specifically to Europe, to take advantage of government-subsidized food aid programs.

By the late 1950s, De Angelis was doing business with some of the biggest financial institutions in the U.S. He promised consistent profits by exporting soybean oil to Europe and used his massive oil "reserves" as collateral for loans. But there was a problem: the oil largely didn’t exist.

The Fraud: Empty Tanks and Floating Barrels

De Angelis discovered a fatal flaw in the inspection system. Banks and commodity traders like American Express, Bank of America, and Chase Manhattan Bank relied on third-party inspectors, like the warehouse firm American Express Warehousing, to verify the contents of storage tanks.

Here’s how the scam worked:

• De Angelis claimed to have millions of gallons of soybean oil stored in tanks.
• Inspectors, relying on dipsticks (long measuring rods), would check tank levels.
• What they didn’t realize was that De Angelis had filled the tanks mostly with water and then poured a thin layer of salad oil on top—which floated due to being lighter than water.
• The dipstick would hit the oil layer, giving the illusion the tank was full of oil.

To make matters worse, he would move small quantities of real oil between different tanks or even between barges to fool multiple inspectors at once. This “carousel” of fake reserves allowed him to borrow enormous sums against phantom inventory.

At its peak, Allied Crude was claiming to have over 1.8 billion pounds of soybean oil—while in reality, less than 10% of that actually existed.

The Collapse: November 1963

The house of cards came crashing down in November 1963. Traders began to notice something was off—soybean oil prices were behaving erratically, and foreign buyers weren’t receiving shipments. A few suspicious parties began pulling at loose threads.

Eventually, inspectors discovered the water-under-oil trick and realized the scale of the deception. The fraud was exposed, and panic set in.

Over $180 million (equivalent to $1.7 billion today) had been lent to Allied Crude based on non-existent inventory. The revelation sent shockwaves through Wall Street and caused immediate financial chaos.

Major Casualties

Several major financial institutions were severely impacted:

1. American Express
2. The company's warehousing subsidiary had vouched for Allied Crude’s tanks. When the fraud was uncovered, AmEx stock dropped by over 50% in a matter of days. It faced lawsuits, investor panic, and nearly collapsed.
3. Bank of America and Chase Manhattan Bank
4. Both had extended large loans to Allied Crude and took substantial losses.
5. Lehman Brothers
6. A key commodity trader involved in financing Allied Crude’s deals, Lehman took a severe hit that would haunt it for years.

Despite these setbacks, most of these firms survived, but barely.

The Fallout and Legal Consequences

Anthony De Angelis was arrested and charged with fraud. In court, the scale and simplicity of his deception shocked even seasoned prosecutors. In 1965, De Angelis was sentenced to seven years in federal prison, of which he served about five.

The scandal prompted massive lawsuits between banks, insurers, and the federal government. Everyone tried to recover losses and shift the blame, especially toward American Express, which had certified the nonexistent oil.

Regulatory Changes

The Salad Oil Scandal exposed major vulnerabilities in financial systems, especially regarding collateral verification, auditing, and warehouse inspections.

The U.S. government and financial institutions responded by:

• Tightening collateral auditing standards for commodity-based loans.
• Increasing regulatory oversight of warehouse receipts and inspection companies.
• Implementing better insurance controls to prevent fraud of this magnitude.

It also led to a more cautious approach in how banks lent money against physical goods and spurred reforms in inventory certification practices.

Warren Buffett’s American Express Investment

Interestingly, this scandal led to one of Warren Buffett’s most famous early moves. While most investors fled American Express during the crisis, Buffett believed the company’s core business was still strong.

He saw the panic as an opportunity. Buffett bought $13 million worth of AmEx stock (a huge amount for him at the time) and ended up making a fortune. It became one of his first legendary value-investing plays and helped solidify his reputation as a savvy long-term investor.

Why It Still Matters Today

The Salad Oil Scandal remains a cautionary tale about greed, trust, and oversight. It showed how systemic weaknesses combined with blind faith in the status quo can lead to massive financial disasters.

In today’s era of complex financial instruments, blockchain logistics, and AI-driven analytics, it's tempting to think that such fraud couldn’t happen again. But scandals like Enron, Wirecard, and FTX remind us that whenever there's money, there’s opportunity for manipulation.

At its core, the scandal is a timeless story: one man’s ambition, a system asleep at the wheel, and a marketplace too eager to believe.

The Salad Oil Scandal was more than just a quirky tale of oil and water—it was a wake-up call for Wall Street and a milestone in the history of corporate fraud. The ripple effects reshaped financial oversight and investor caution for years to come. Tino De Angelis may not be a household name today, but the lessons of his scheme endure. It reminds us that trust must be earned, due diligence must be rigorous, and that even something as bland as salad oil can stir up a financial storm.