The%20Salad%20Oil%20Scandal

1
The Salad Oil Scandal

• Nicole Billick
• Dwain Carryl
• Ian Lyngen

Financial Fraud
2
The Salad Oil Scandal

• Background
• Anthony DeAngelis
• One of the biggest con artists in market history,
  aka The Great Salad Oil Swindler
• Allied Crude Vegetable Oil Refining
• Operation timeline late 1950s through early
  1960s
• Involved 175M salad oil missing - busted 1963
• How started banks willing to make loans secured
  by salad oil inventory

Financial Fraud
3
The Salad Oil Scandal

• Inventory Overstatement Scheme
• Warehousing receipts for 1.8 billion pounds
  missing oil
• Warehousing companies trusting, kept blank
  receipts unlocked
• The rest was about deceiving auditors
  disguising how much oil was actually in tanks
• Just add water
• Welded vertical pipes
• Tape measure
• Phantom tanks
• Repainting the numbers
• Pumps

Financial Fraud
4
The Salad Oil Scandal

• Result
• American Express
• Allied Crude Vegetable Oil Refining
• Tino
• Brokerage firms - Williston and Beane Ira Haupt
  and Co

Financial Fraud
5
The Salad Oil Scandal

• Detection
• Tino DeAngelis dreamed of cornering the market,
  and to achieve this he needed to own all of the
  supply.
• He borrowed against the overstated inventories
  through American Express and other lenders.
• He then used those proceeds to buy up supply in
  the commodities market through the spot and
  futures markets.
• In Mid-November 1963, Allied Crude was unable to
  meet a margin call, because the firm had
  over-leveraged its position.
• Unable to meet the 18 million in margin calls to
  Ira Haupt Co. and J.R. Williston Beane,
  Allied Crude was forced into Chapter 11
  Bankruptcy.
• Bankruptcy Referee Denied Chapter 11 and sent to
  Liquidation.
• This was because failed to post 20,000 indemnity
  for costs to maintain assets.
• Liquidation status prompted American Express
  Warehousing to conduct audits of the oil it would
  soon liquidate.

Financial Fraud
6
The Salad Oil Scandal

• Audit Reveals
• Claimed to Have 150 million of oil, but only
  found 6 million worth.
• Allied Crude was claiming to house more vegetable
  oil then there could possibly be in the country.
• Tino had been writing fraudulent warehouse
  receipts.
• Total of 51 companies were stuck with loans on
  oil supposedly stored by Allied Crude.
• Most of the money went to cover operating losses
  created by Allied Crudes trades in the commodity
  markets. Plus 500,000 Tino has in a Swiss Bank
  account
• President John F. Kennedys Assassination
• Overshadowed the scandal in the financial
  markets.
• But Tino De Angelis still saw justice, sentenced
  to seven years in federal prison.

Financial Fraud
7
The Salad Oil Scandal

• Conceptually What Went Wrong?
• Allied Crude Vegetable Oil Refining Corp.
  overstated oil inventory by a variety of schemes
  to use the inflated inventory as collateral for
  loans.
• Practices of oil inventory auditors facilitated
  the execution of fraud.
• Warning signs were ignored by a number of
  watch-dogs.
• Reality check?

Financial Fraud
8
The Salad Oil Scandal

• How Could This Fraud Have Been Prevented?
• SEC Suggests seven steps
• Set proper tone in top management.
• Maintain internal controls
• Enforce written code of conduct.
• Effective internal audit.
• Strong audit committees.
• External auditors should not cave to pressures
  from management
• Better education of business professional can
  reduce risks.
• Practical suggestions
• Difficult to prevent the elaborate of a fraud,
  but early detection can reduce damages.
• Make sure audits are done as thoroughly as
  possible.
• Know as much about the people a firm is
  conducting business with, Tino DeAngelis had
  already been implicated in a number of
  questionable practices long before he started
  Allied Crude.

Financial Fraud