Trafigura: 10 days to uncover the $500mn fraud scandal

Heartbreak, handwritten notes and 1,000 shipping containers full of mystery – the details of one of London’s biggest frauds read like a thriller.

Singapore-based Trafigura has accused steel tycoon Prateek Gupta and his companies of selling him fake nickel products worth millions of dollars, in a major lawsuit that has sparked a backlash in the sector.

Court documents show how the situation unfolded over a 10-day period in November as relations between the two sides soured, and how Trafigura faced complaints from its customers, including threats of legal action, before making a decision. the decision to follow Gupta in the election. the courts.

The documents, obtained by the Financial Times newspaper, shed new light on how the alleged fraud of one of the world’s largest retailers was finally exposed.

Trafigura alleges that 43-year-old Gupta is the “mastermind” behind several related companies including TMT Metals, UIL Malaysia and UIL Singapore, which are all defendants in the case.

The trading relationship started in around 2014 with domestic zinc transactions in India and has grown to global trade in nickel and aluminum.

By 2022, most of the deals between Trafigura and the Gupta groups were “return trades”. Trafigura will buy goods from the group, own it during its run – providing significant business support – and then sell it to one of the companies linked to Gupta, or to a third party with him or his associates. They arranged his work, he pays interest.

However, in the spring of 2022 as the price of nickel rose, Citibank – which is providing a credit line of $850mn to Trafigura to finance these transactions – began to worry about the size of the nickel transaction and the length of time it was taking to buy. happen.

Last summer the head of nickel trader Trafigura, Sokratis Oikonomou, was also concerned. “It has come to my attention that the UIL entities have ceased to participate in any repatriated transactions and have ceased to pay any fees to Trafigura,” he wrote in court testimony.

At Citi’s request, Oikonomou arranged to conduct a physical inspection on November 9.

However, before that happened, Citi suspended its line of credit, apparently alarmed by the “red flags” the project was supposed to do, and Trafigura began subsidizing the equipment from the balance sheet.

As the inspection date in Rotterdam approaches, Gupta says he is suffering from health problems. And on November 7, two days before he was examined, in a WhatsApp message to his counterpart at Trafigura, he said he had a heart attack.

Nickel prices rise in spring 2022 © Andrey Rudakov/Bloomberg

Due to his health, he returned to trading. “I’m covering the terms of the reduction,” he said, referring to the reduction of Trafigura’s nickel influence with his companies. “However, I need you to stop looking,” he said, to “avoid any trouble between us”.

Trafigura moved forward. “My priority at that time was to ensure that the investigation . . . he continued,” Oikonomou recalled in his written testimony.

When the containers were opened in Rotterdam, none were found to contain nickel. Inspectors instead found carbon steel, usually less than 20 percent of the value of nickel.

While Gupta said he was still in hospital, managers at Trafigura learned through news reports that he was facing serious legal issues in India. India’s Central Bureau of Investigation is investigating Gupta and his company, Ushdev International, for allegedly embezzling $174 million from State Bank of India through illegal stock trading, according to an indictment published in July (Gupta he said in December that the charges against him). settled, according to court documents).

After being released from the hospital in November, Gupta tried to strike a deal with Trafigura. He said the goods were not as expected, pointing out that he will return them as soon as he gets the money to do so.

As part of this discussion, Gupta presented Trafigura with a document containing 93 items related to the dispute, and it was alleged that none of them contained pure nickel as stipulated in the contract.

On separate occasions, he and his business partner Arvind Prasad presented Trafigura with a list of assets that they suggested could serve as collateral as the payment plan was structured. These include a wind farm and steel mill in India, a Singaporean energy company called Ultravolt, and an engineering group, Hangji Global.

Prasad did not immediately respond to a request for comment.

Gupta also provided letters of credit from Silver Bank, a small lender in Mauritius that recently came under scrutiny for its ties to steel dealers.

During this time Gupta also tried to raise money by taking a loan from TMT Metals Group. In a WhatsApp message to Oikonomou, he claimed to have a Swiss family office ready to invest 100 million euros and a real estate fund from a “respectable country” ready to invest a million dollars. 100.

In the meantime, Trafigura faced a new problem when its customers to whom it sold some of the products suspected of transporting nickel began to discover that the products contained the wrong product. Trafigura said in court documents that Gupta and his network arranged the deal for third-party clients.

While Gupta initially claimed that TMT had raised €50 million through the sale of bonds, he later said that know-your-customer “issues” were holding the money back from clearing. On Christmas Eve, Gupta hosted a video call between the investor – whose identity was not disclosed in the affidavit – and Oikonomou to explain the “reasons for the delay”.

At a meeting near London’s Heathrow Airport in early January, Gupta presented Oikonomou with a handwritten note outlining the payment plan. He proposed paying $200 million at the end of March, with the remainder coming over the next two years. However, Trafigura does not believe that this decision can be relied upon.

On November 17, Chinese customer Xiamen C&D Aluminum Co notified Trafigura of discrepancies in customs regulations and certification for a 286-tonne shipment it had received.

Two weeks later Xiamen threatened to take legal action. In early December, Trafigura agreed to buy back the problematic goods it had sold to its Xiamen subsidiaries.

Not long ago, another customer, Argentem of the United States, raised similar concerns. As early as January 3rd, Mind ID of Singapore opened nickel containers that were supposed to contain no metal. A fourth client, Axiom of Hong Kong, organized a survey in Rotterdam on January 9, which revealed the same thing.

As outcry from customers mounted, Trafigura’s management team met on 10 January. Members of business, services, insurance and legal organizations all presented different options. Management has decided that the trading season is over – it’s time to pursue fraud claims and seek a global freeze on the defendants’ assets.

When the case was filed in the London courts four weeks later, even more evidence was gathered. Xiamen received more shipments and wrote to Trafigura in early February saying “the goods are incorrect” and “fraud, not a simple problem”.

Xiamen, Argentem, Mind ID and Axiom did not respond to multiple requests for comment.

A Gupta spokesman said his team was “preparing a strong response to Trafigura’s allegations and intends to share that soon”.

In the meantime, Gupta stood firm for a while, paying Trafigura $5 million in late January while continuing to seek more money.

While the Trafigura case has not yet continued its operation, it has suffered from financial problems. The commodity trader has announced a $577mn write-down and is in talks with customers who have received shipments of nickel to find a solution.

It is still unclear how anyone at Trafigura knew what Gupta was up to. The main trader in the Gupta account was Harshdeep Bhatia of Mumbai, who may have introduced both sides, according to Oikonomou’s testimony.

Bhatia had a “clear understanding” with Gupta, according to a statement by Trafigura lawyer Reza Ispahani based on their WhatsApp exchanges, although he said there was “no direct evidence” that Bhatia was involved in the fraud. .

Ispahani’s witness statement added that “we are unable to block what we see as some gaps in the WhatsApp exchange” between Gupta and Bhatia. Bhatia did not respond to requests for comment.

There are also questions about Trafigura’s compliance after court documents revealed a number of errors, including not requiring certification and ignoring customs regulations.

Trafigura said it “has seen no evidence that anyone at Trafigura is involved or involved in this illegal activity”, and that “the fraud is limited to a specific line of business”.

Even the value of the contents of the container remains a mystery, according to court documents.

More than 156 containers were inspected on February 6, out of approximately 1,100 containers affected. Some contain carbon steel, some metals and metal products – but none yet contain nickel or nickel alloys.

“Frankly Trafigura did not know what was in the container,” Oikonomou said in his written testimony.

While any legal settlement could take months or even years, some supplies are still at sea, with the last one arriving in May of this year.

As the court battle begins, some signs can be revealed.

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