Prosecutors in the UK say executives of a since-collapsed steel company falsified documents and created fake trades to defraud five trade finance banks out of US$150mn in order to keep the struggling trader afloat.
A prosecutor representing the UK’s Serious Fraud Office (SFO) told the first day of a criminal trial at Southwark Crown Court in London on September 11 that five executives of Balli Steel Plc told “increasingly egregious” lies throughout 2012 and early 2013 as part of a “widespread and systemic fraud” against trade finance lenders in Europe and Asia.
Former Balli executive Melis Erda is charged with six counts of conspiracy to defraud, ex-steel trader Louise Worsell faces five counts of the same charge and Vahid Alaghband, Balli’s former group chairman, is charged with one.
Along with David Spriddell, Balli’s former chief financial officer, all three are also charged with fraudulent trading. All four have pleaded not guilty.
Nasser Alaghband, brother of Vahid and Balli’s CEO at the time, pleaded guilty in June to one count of fraudulent trading and is not on trial.
The defrauded trade finance banks listed in the indictment are Rabobank, ABC International Bank, KBC Bank, DBS and The Economy Bank (TEB) – a now-defunct subsidiary of BNP Paribas. Of these, DBS was stung hardest, with the Singaporean bank owed just over £70mn when Balli went bust.
The Balli group companies went into administration in April 2013 with a combined deficit of more than £328mn including debts owed to 18 trade finance banks, almost none of which was returned to creditors, according to the SFO.
The SFO alleges that by spring 2012, the company was in dire financial straits, was unable to pay salaries and other trade finance banks were exiting their relationships with the company. SFO prosecutor Jane Bewsey argued that only the fraudulent clinching of further trade finance kept the company going.
Bewsey said the SFO has identified 38 deals in which Balli acted dishonestly to secure financing and which led to a loss to the banks.
The allegations range from lying to the banks about certain aspects of a deal to the total fabrication of trades, where no steel was being bought and sold at all.
In one example outlined to the jury, Bewsey said that Balli supplied false documents to TEB purporting to show it had purchased steel from UAE manufacturer Conares. When TEB paid the funds to Conares, the manufacturer transferred the amount to Balli, minus a fee, according to Bewsey.
In some cases Balli used the proceeds of a letter of credit to pay other creditors unrelated debts, Bewsey alleged, in a practice she said amounted to “robbing Peter to pay Paul”.
Balli provided trade finance banks with “manipulated” financial information throughout 2012 which falsely portrayed the company as profitable, the court heard.
The company appointed Deloitte in October 12 in order to explore a restructuring, but the SFO says there is no evidence the banks were told about the appointment until the company was on the cusp of collapse. Further trade finance was allegedly received after Deloitte’s engagement. Even Deloitte was not aware of how bad Balli’s true financial position was, according to Bewsey.
The court heard that Balli executives operated a Cayman Islands-registered shipping company, Trans Ocean Navigation (TON), which issued documents, such as bills of lading and invoices, for fake trades in order to secure advances from the banks.
Bewsey said the banks were not aware that TON was being run out of Balli’s office in London and were under the impression it was an independent shipping company.
The SFO alleges that funds remitted to TON by the defrauded lenders were sent to an account at Bankaus Carl F Plump, a German bank, and were sometimes used to fund the lifestyle of the Alaghband family.
The SFO’s opening submissions are expected to take up to five days.
The trial continues and is expected to last until early January next year.