- The High Court trial of Trafigura v Gupta has entered its second week
Trafigura’s trade finance team raised concerns about the commodity trader’s relationship with Prateek Gupta more than two years before the company discovered what it alleges was a massive fraud by the Indian businessman, a London court has heard.
In February 2023, Trafigura accused Gupta of selling containers of what it thought was high-grade nickel, but which were later found to contain largely worthless goods, leading to losses of at least US$600mn.
Gupta has not denied that the cargoes were not nickel, but alleged in response that Trafigura devised the scheme and was a knowing participant.
As the case entered its second week, the court was today shown a September 2020 email from Trafigura’s then-head of trade finance for refined metals, Thibaut Barthelme, describing the nickel trading relationship with Gupta’s companies as a “strange business”.
“We have become the bank of this company,” Barthelme said.
The email was sent to bring the relationship to the attention of global trade finance head, Camille Trejou, and then-global head of structured and trade finance, Stephen Jansma, now Trafigura’s chief financial officer.
Barthelme said he wanted to flag the dealings with Gupta’s companies – collectively known as UIL – to his superiors because it was not getting enough internal scrutiny within the Singapore-headquartered trader.
He also highlighted “the potential reputational risk if it goes sour”.
“The voyage time is extremely long (min 3-4 months, up to 6 months(!) as the material gets discharged and picked up again in ports along the way”, Barthelme wrote, arguing it was odd that UIL were not trying to get the goods to their end customer more quickly.
He also said in his email that it seemed that the end buyers, New Alloys and Minecraft, were related to UIL.
Barthelme added that UIL were willing to accept high interest costs and irregular sales. The email noted that UIL owed money to both Credit Suisse and Deutsche Bank, and that both lenders had “refused any payments” from Trafigura to UIL.
Another member of the trade finance team followed up Barthelme’s concerns with an email suggesting UIL “is doing this business in order to use the BLs [bills of lading]” to obtain further financing.
The first witness to give evidence in the trial, Trafigura’s former nickel trading head, Socrates Economou, said he could not recall whether Jansma discussed the email or the Gupta business with him.
Economou also said he did not know why Barthelme’s email erroneously said that the trader’s operations team were inspecting the cargoes to see if they contained LME-grade nickel. No inspections took place until late 2022, the court has previously heard.
Former nickel head denies “arrangement” existed
At the time of the email, around half of the refined metals desk’s trade finance business was taken up by the Gupta trades, the businessman’s barrister, Louise Hutton, told the court.
Gupta’s lawyers have claimed that staff at Trafigura were aware of the real situation and proposed the “arrangement” to boost nickel trading volumes and profit from the difference in interest charged to UIL, compared with the smaller amount it paid to Citi bank for the same funds.
Economou repeatedly denied during the hearing that he knew of such an arrangement. He also denied Gupta’s allegations that he was the one to propose it at a June 2019 meeting at a luxury Dubai hotel.
Hutton pressed Economou on whether he knew in 2019 that at least one of Gupta’s businesses had recently fallen into insolvency.
It “seems particularly surprising that you didn’t know his businesses had gone into insolvency proceedings” around the time that Economou and another Trafigura trader, Harshdeep Bhatia, were in talks with Gupta over expanding the volume of their business, she said.
Economou said: “By that time we were already doing business for two years… I was happy with the business because the performance up to that point was very good.”
Hutton showed the court a document prepared by Gupta for Trafigura which showed volumes of goods trade soaring from 17,500 metric tonnes in 2017 to a peak of almost 70,000 metric tonnes in 2021.
“That’s fairly surprising that dealings with a metal trading business with a chequered financial past produced that scale of business in two to three years,” Hutton said.
“It was a very good and welcome increase considering it was LME-grade nickel, as we thought at the time,” Economou responded.
Hutton continued: “You wanted to finance [the trades] because you thought you could make money even if it could not provide LME-grade nickel… at the [June 2019] meeting you proposed that deal and the details were put in place afterwards.”
“That’s absolutely not true,” Economou responded.
The former nickel trading head departed Trafigura in February 2023 in the aftermath of the fraud allegations.
This is a developing story and may be updated as the hearing continues.
