- No reason for Trafigura to participate in fraudulent nickel trading scheme, court finds
- Prateek Gupta “faked serious illness” as fraud unravelled
- Trafigura to trace funds in bid to recover US$500mn
A London court has ruled that Trafigura had no commercial rationale to enter a fraudulent nickel trading scheme with businessman Prateek Gupta, who it said provided dishonest testimony and potentially suppressed evidence during a closely watched trial.
Judge Pushpinder Saini ruled that commodity trading giant Trafigura could pursue recovery of around US$500mn from Gupta and several of his companies, collectively referred to as UIL, in a written judgment handed down on January 30.
Between 2018 and 2022, Trafigura financed shipments supposedly containing LME-grade nickel, which would be repurchased by Gupta companies at a later date.
Throughout 2022, UIL increasingly failed to repurchase the cargoes. Later that year, as concerns grew internally, Trafigura inspected the containers for the first time and, instead of nickel, discovered only low-value or worthless materials, prompting the trader to sue Gupta for fraud.
Gupta’s defence, described by the judge as “somewhat unconventional”, was that the fraudulent trading arrangement was created by senior figures on Trafigura’s metals desk and proposed to Gupta at a 2019 meeting in Dubai. The Indian businessman claimed he was simply following orders.
He argued Trafigura proposed the scheme to benefit commercially, earning the difference between the interest it was paying Citi on its financing line and the amount it was charging to Gupta’s companies.
He also said ahead of the trial that Trafigura would gain a dominant position in the nickel market as a result.
But according to Judge Saini, the scheme was “a clear fraud on Trafigura, implemented by deceitful documentation, and in turn necessitating a substantial fraud on third parties, including banks, shipping lines and insurers”.
“It cannot have been – and I find that no honest person can have believed that it was – of commercial benefit to or in the interests of Trafigura for it to be involved in such a scheme.”
Judge Pushpinder Saini
He said that, notably, Trafigura would have incurred huge risks by switching from legitimate trading in 2018 to a fraudulent arrangement the following year.
The judge pointed out there was no obligation among Gupta’s companies to repurchase the cargoes.
“If [UIL] were unwilling, or unable, to make payment, then they could simply refuse to do so,” he said. “In substance, Trafigura would therefore have been making a gift of its money – with UIL having a free option to return that gift, or not, if or when it suited them.”
Yet the rate of return Trafigura would be earning would be “wholly inadequate and uncommercial as compensation for the risk of unsecured lending (let alone quasi-lending), a fortiori to admitted fraudsters”, he said.
This would also have involved Trafigura defrauding its own banks, potentially irreparably damaging its relationship with Citi and others, the judge said.
Unreliable evidence
Judge Saini repeatedly cast doubt on the reliability of Gupta’s oral evidence, which was delivered by remote video link from Dubai, saying he “did not find him to be an honest witness”.
On several occasions, when asked whether something was true, Gupta would only say “potentially”, the judge noted. He described this practice as “a way… of giving himself wriggle room”.
Judge Saini concluded he could not rely on Gupta’s statements unless supported by documents, yet found there to be a lack of written evidence for his defence.
For instance, Gupta disclosed only limited examples of messages between him and Girdhar Rathi, a UIL trader who Gupta claimed was heavily involved in the scheme.
“These communications would have been highly significant,” the judge said.
“I infer that this documentation has been suppressed or destroyed because it would show that which is obvious: namely, that Mr Gupta, his associates and UIL were perpetrating a fraud on Trafigura.”
Judge Pushpinder Saini
He added he believed these documents, if disclosed, would have shown Gupta “was pulling all the strings”.
Judge Saini also took aim at Gupta’s claim that Trafigura’s then-head of nickel trading, Socrates Economou, had proposed the scheme “out of the blue” at the 2019 meeting in Dubai.
“Even if [Economou] were the sort of person minded to consider such a dangerously self-harming course, it is incredible to suggest that he would have proposed this over lunch to a complete stranger,” he said.
The duo met again in August 2021, this time in Geneva. Before the meeting, WhatsApp records disclosed to the court show another Trafigura trader – who Gupta said was also involved in the scheme – reminding Gupta of who Economou was.
The judge said it would be surprising that such a reminder was necessary if the trio had been running a “secret and dishonest arrangement” for the previous two years.
Instead, the judge said, Gupta’s story was “invented after the fact by knitting together pieces of communications (taken out of context)”.
Part of the trial was held in private because it related to medical records supplied by Gupta, which resulted in him giving evidence remotely from Dubai.
Gupta had told Trafigura traders in November 2022 – when the commodities company was pushing to inspect cargoes that had not been repurchased by UIL – that he had been hospitalised and underwent major surgery for a heart condition. As a result, he had been slow to respond to Trafigura’s concerns.
But Judge Saini said that, upon reviewing records, Gupta had not in fact been hospitalised nor underwent surgery at that time.
The Indian businessman therefore “was prepared to fake serious illness, even to those he now seeks to implicate in his fraud… to play for time”, the judge found.
Pursuing recovery
The exact amount Trafigura is entitled to recover from Gupta totals around US$500mn, the judgment found. For some trades, the exact amount depends on finding a resolution with other involved parties.
The judgment noted that the next phase of proceedings will involve efforts to trace funds that Trafigura paid to UIL that were not repaid.
A spokesperson for Trafigura said: “We are continuing to pursue recovery from Mr Gupta.”
Three of the other defendants – Spring Metal, Mine Craft and New Alloys Trading – were not incorporated in Gupta’s name. However, Judge Saini ruled that the named directors were allowing their companies to be used as fronts for Gupta, leaving him liable for their conduct.
Spring Metal, for example, was incorporated by a man who runs “a small sandwich shop” in Hong Kong but whose father previously worked for Gupta, he said.
New Alloys Trading’s sole shareholder was also the 25% owner of insolvent Mauritius-based lender Silver Bank. The other 75% was owned by Gupta’s wife, and its largest borrower was Gupta himself, the judgment said.
Judge Saini said Economou and his colleagues at Trafigura were victims of Gupta’s fraud and “emerge from these proceedings with their personal and professional reputations intact”.
The Trafigura spokesperson said the company welcomed the judgment, “which comprehensively finds in favour of Trafigura and recognises the systematic fraud perpetrated by Mr Gupta and the corporate defendants”.
Gupta could not be reached for comment. A former legal representative for Gupta did not respond when contacted, and their firm ceased to represent him on January 27.
