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Back in the 1960s, one of the worst corporate scandals to be uncovered involved the soybean oil market. The scandal was eventually dubbed the Salad Oil Scandal.
It began when executives at the Allied Crude Vegetable Oil Co. based in New Jersey discovered that banks would make loans secured by the company’s salad oil, or soybean oil, inventory.
From Investopedia, key points regarding the Salad Oil Scandal:
• The Salad Oil Scandal was a fraudulent financial scheme in the 1960s committed by executives at Allied Crude Vegetable Oil. The premise of the scheme was to use Allied’s inventory of soybean and salad oil as collateral to obtain loans from American Express.
• The loan money was used to purchase soybean oil futures contracts. The purchase of soybean oil futures contracts would increase the price of soybean oil, increasing the value of Allied’s soybean oil inventory and enabling it to make money off of its futures contracts.
• The fraud consisted of falsification of soybean oil inventory, whereby most of the inventory was actually water covered with a small portion of soybean oil.
• Eventually, a whistleblower notified American Express investigators to take a closer look at the soybean oil tanks where they discovered the deception.
• The scandal had reverberations throughout the financial markets, leading to bankruptcies, liquidations, loan losses and mergers.
A whistleblower contacted the lending banks and suggested they take a closer look at the soybean oil tanks. When the inspectors discovered the tanks were only partially filled, the you-know-what hit the fan.
Allied filed for bankruptcy, and in rapid succession soybean oil futures fell 20%. Due to margin calls, several brokerage firms went out of business, as well.
Fast-forward 60 years to this week with a headline from businessinsider.com that blares: “A major commodity trader received containers full of painted rocks instead of the $36 million shipment of copper it paid for.”
The major points from the article stated:
• A Swiss trading house bought $36 million worth of copper and received painted rocks instead.
• The goods were secretly unloaded at night and replaced with stones that resembled semi-refined metal.
• As a victim of cargo fraud, Mercuria Energy is seeking detective action against its Turkish copper supplier.
The opening paragraphs from the article read as follows: “Swiss trading house Mercuria Energy ordered $36 million worth of copper last summer, but received instead a consignment of painted rocks from its Turkish supplier.
“Mercuria, one of the five biggest oil traders in the world, has declared a case of cargo fraud after finding containers that arrived in a Chinese port were not the 10,000 tons of the impure form of copper it paid for it was reported.
“Eight vessels were loaded with about 6,000 tons of copper blister in some 300 containers before the shipment’s journey began from Istanbul to China. Seals were also installed to prevent potential fraud.
“But before it could be out on its way, the copper was replaced with spray-painted jagged paving stones that resembled the rough look of the metal. This underhanded action secretly took place at night, citing a lawyer for Mercuria in Turkey. The unusual incident took place despite security and inspection protocols.”
I always describe my book, “Haunted By Markets: Volumes I & II,” and all 1,279 pages, as a history book. My book is a compilation of the various weekly newspaper columns I have been writing since the early 1980s for this weekly newspaper and others.
In my book, I tout often that “history tends to repeat itself in real life and in the marketplace.” This week, the fraud with copper is not much different than the Salad Oil Scandal of the 1960s.
Check out commodityinsite.com. It is there you will find “Haunted By Markets” and with it a special offer to those that subscribe to this outstanding newspaper.