The 1963 Fraud That Almost Killed American Express

The salad oil scandal of 1963 nearly destroyed American Express. A fraud involving tanks of soybean oil, water, and forged warehouse receipts cut deep into the financial system. AmEx, then a major issuer of warehouse receipts, was left exposed. Losses topped $58 million. For a company of AmEx's size in the early 1960s, it was crippling.

The scam was run by Allied Crude Vegetable Oil. They filled massive storage tanks with mostly water, floating a thin layer of oil on top. Inspectors checked the tanks, saw oil, and signed off. Banks and brokers accepted the receipts as collateral. When the fraud collapsed, the receipts were worthless. Creditors looked to American Express, which had guaranteed many of the receipts, to make good.

AmEx's reputation collapsed almost overnight. Shares fell more than 50 percent. Analysts speculated the company could go under. Trust in the brand - the foundation of its traveler's checks and charge card businesses - was evaporating.

This is where Warren Buffett enters the picture. Just 33 years old at the time, Buffett studied the scandal closely. He concluded that while AmEx would take a big financial hit, the core brand was not broken. Travelers still used its checks. Customers still relied on its charge cards. The losses were real, but the franchise was intact.

Buffett bet big. Through his partnerships, he bought roughly $13 million worth of AmEx stock - nearly 40 percent of his assets under management. It was a defining early move in his career. The stock eventually tripled as AmEx recovered, cementing Buffett's reputation as a value investor who could see through market panic.

American Express itself pulled through by doing the hard work: covering losses, restoring trust, and focusing on its payments and travel businesses. The scandal pushed the company to exit the warehouse receipts business entirely. It doubled down on services with higher margins and more direct ties to consumers. Over time, AmEx transformed into the financial powerhouse recognized today.

For perspective: AmEx's market cap today exceeds $100 billion. A $10,000 investment in the company's shares at the time of the scandal would have compounded into millions. The salad oil scandal, once viewed as a near-death experience, became the crucible that forced AmEx to abandon commodity guarantees and build its modern business around cards, travel, and financial services.

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