Benzinga | Dec 30, 2021 10:28AM EST

This Day In Market History: Salad Oil Scandal Tanks American Express Stock

Each day, Benzinga takes a look back at a notable market-related moment that happened on this date.

What Happened? On this day 58 years ago, American Express Company (NYSE:AXP) subsidiary American Express Warehousing declared bankruptcy after inspectors exposed a fraud scheme orchestrated by commodities trader and con man Anthony "Tino" De Angelis.

Where Was The Market?The S&P 500 was trading at 74.54 and the Dow Jones Industrial Average was trading at 759.90.

What Else Was Going On In The World? In 1963, U.S. President John F. Kennedy was assassinated in Dallas by Lee Harvey Oswald. The Alcatraz Penitentiary in San Francisco Bay closed. The average cost of a new house was $12,650.

Salad Oil Scandal: De Angelis and his company Allied Crude Vegetable Oil company obtained a contract with federal program Food for Peace, which was in charge of selling excess U.S. food stocks to poor countries.

De Angelis began borrowing money against his salad oil inventory, which was extremely exaggerated. Allied would trick inspectors in multiple ways, including filling cargo ships mostly with sea water and floating a few feet of salad oil on top. Allied would also transfer the same oil stock from tank to tank to tank.

De Angelis posted 1.8 billion pounds of soybean oil as collateral for $180 million in loans from American Express, Bank of America Corp (NYSE:BAC) and other international banks and trading companies. In reality, Allied has only about 110 million pounds of oil.

The Salad Oil Scandal forced American Express Warehousing into bankruptcy and drove American Express' stock price down from $60 to $35. Opportunist investor Warren Buffett swooped in and invested about 25% of his assets at the time into American Express shares, which were back up 150% within four years.

De Angelis was convicted of fraud and conspiracy charges and served seven years in prison.