Salad oil scandal

Before Allied, De Angelis ran Gobel, a company selling lard, which was repeatedly in trouble for poor business practices. Gobel was sued by the Yugoslav government for failing to meet quality requirements, by the United States government for supplying meat from uncertified sources and by the German government for providing low-quality materials. These lawsuits eventually led to the company going bankrupt. The SEC also accused Gobel and De Angelis of getting loans backed by fictitious inventory but failed to get a conviction. In the aftermath of Gobel, De Angelis created Allied and was immediately in trouble with the government. De Angelis aimed to take advantage of the Food for Peace program and participate as a supplier. In 1961, Allied was suspended by the Agriculture Department for falsifying shipping papers to collect government funds. Allied soon settled the claim by agreeing to pay back the funds with interest. Allied's business practices also raised flags. According to Miller, it was rumored that Allied was a front for the mafia because the prices Allied operated on did not seem profitable. Even the volume that Allied reported seemed unmanageable. In 1963, Allied claimed to store more vegetable oil than existed in the entire nation. Miller claims that numerous financial institutions ignored these risks because the profit from Allied was too great. Allied was the most profitable customer of American Express Warehousing. Even when American Express sold the warehousing unit, it specifically kept Allied as its customer while selling off the rest of the warehousing business. Similarly, banks and brokers found a very profitable client in Allied and continued doing business with it despite the risks. ==Fraud==

Allied used its physical inventory of oil as collateral to get loans. Instead of directly verifying the collateral, banks would rely on warehouses to audit and certify the inventory in the form of warehouse receipts. To get access to increasing amounts of cash, Allied fraudulently inflated its inventory. Allied fooled warehouse inspectors by building hidden compartments in tanks to reduce the oil needed to fill them. Other times, the same oil would be moved from one tank to the next so the same oil would be counted multiple times. Though the most common tactic was to simply fill the tanks with water. Eventually, De Angelis skipped even trying to trick auditors and resorted to forging warehouse receipts directly. By 1963, the amount of soybean and cottonseed oil claimed to exist in a single facility by Allied exceeded all the soybean and cottonseed oil in the country. In all, Allied posted of oil as collateral to fraudulently obtain $180 million in loans, when the actual stock was a mere . == Collapse ==

As the growing fraud already caused Allied to purchase large amounts of oil futures, De Angelis fatally decided to double down and try to corner the market. By November 14, 90% of cottonseed oil contracts on the Produce Exchange were owned by Allied. Allied's purchasing activity elevated the price of cottonseed and soybean oil futures to artificial levels but Allied needed to continue buying to keep the prices there, as even a minor drop in prices would result in millions of dollars of margin calls against Allied. On November 15, Allied was informed that its activities in the futures market were being investigated by the Commodity Exchange Authority which meant that Allied could no longer continue buying futures to support the inflated prices. On the same day, the US Senate suspended debate over the Soviet Union wheat deal which reduced confidence in a similar deal occurring for other commodities. As a result, cottonseed and soybean oil futures prices collapsed. Margin calls began immediately and Allied started filing for bankruptcy on November 18. == Impact ==

As the certifier of the bulk of the warehouse receipts, the American Express subsidiary, American Express Warehousing, Ltd., was liable for the losses. As a result, American Express Warehousing filed for bankruptcy with $130,000 in assets against $210 million in claims. Some of the questionable transactions include $700,000 worth of checks withdrawn by De Angelis's son Thomas De Angelis. Additionally, $500,000 was discovered in a Swiss numbered bank account. While funds from this account were returned, it was suspected that De Angelis had similarly hidden more funds. De Angelis was charged with 19 counts of fraud and conspiracy for forging warehouse receipts. De Angelis pled guilty to 4 charges and was sentenced to 20 years, with an expected serving time of 7 years. ==See also==