- Commodity trader accuses businessman Prateek Gupta and his companies of fraud
- Trafigura’s relationship with Citi key to Gupta’s defence
- Emails show Trafigura was dismayed when Citi revoked its financing
A long-awaited trial has kicked off in London over Trafigura’s claims it was defrauded out of some US$600mn through a nickel trading scheme “masterminded” by Indian businessman Prateek Gupta.
Trafigura accused Gupta and eight businesses it said are linked to him of a “systematic fraud” in early 2023, after the trader revealed it had suffered losses originally estimated at around US$577mn from trading what it believed was high-grade refined nickel.
The trial is scheduled to last around five weeks and is set to provide a glimpse inside the secretive world of commodity trading, largely conducted by publicity-shy privately held companies.
Trafigura’s witnesses will include current and former senior staff such as former metals trader Socrates Economou and then-head of trade finance for refined metals Thibaut Barthelme. Gupta is set to give evidence via video link from Dubai for up to four days.
Trafigura’s relationship with Citi, which financed the trading with Gupta’s companies, is set to feature heavily in the proceedings. The US bank stopped lending money to Trafigura to buy nickel from the firms in October 2022, shortly before the alleged fraud was uncovered.
When containers were inspected from late 2022, they were found to include comparatively worthless goods such as iron briquettes or aluminium sheets, Trafigura told London’s High Court on November 17.
The trader’s barrister Nathan Pillow told the hearing that the Singapore-headquartered company ultimately recouped only around 2% of the funds it had paid Gupta’s companies, referred to as the UIL group, for the nickel.
Pillow said Gupta has admitted that he or others directed by him prepared “thousands” of fraudulent shipping documents, including bills of lading, analysis certificates and insurance documents, to carry out the alleged fraud. The total value of the trade conducted between Trafigura and Gupta was US$3.3bn, he said.
In a written submission to court shared with reporters, Trafigura said that Gupta has admitted that the cargoes did not contain high-grade nickel and he never intended them to.
Therefore, the trader said the businessman’s only remaining defence is that Trafigura was party to what both parties call “the arrangement” of trading activity between them.
That leaves Trafigura in a position of not attempting to prove that a fraudulent scheme existed, but instead arguing at trial that Trafigura was not party to the fraud and did not know the cargoes were not high-grade nickel.
“The evidence shows it [the alleged arrangement] to be a fiction conceived after the event by admitted fraudsters, no doubt to put off the day of judgment against them,” Trafigura’s written submission said.
Trafigura’s barristers dismissed documents or practices that Gupta’s legal team have claimed should have been red flags to Trafigura, such as an absence of certificates of analysis and incorrect HS codes on bills of lading.
Trafigura barrister David Peters took the judge through an internal spreadsheet created by a UIL company which he said had been altered before it had been sent to Trafigura, so that it described products being traded as nickel alloys instead of low-value products such as carbon and stainless steel.
“Why doctor a spreadsheet in this way, if it were true that Trafigura knew the cargo didn’t contain LME nickel?” Peter asked. “In short, why lie?”
The original version of the spreadsheet accurately depicted what was ultimately uncovered in the containers when they were inspected, Peters said. He showed the court images of opened containers filled with metal sheets or white sacks of brown lumps that Peters said were iron briquettes.
Peters said 77 of the 100 trades at the heart of the dispute contained steel sheets, three contained aluminium ingots, and 11 contained iron brickettes which Trafigura has been unable to sell.
Citi’s “red flags”
In a written submission to the court, Gupta’s lawyers argued Trafigura was motivated to continue the alleged scheme because it was earning a profit from lending money to Gupta’s companies at a higher rate than it was paying Citi to borrow it.
Peters showed the court emails indicating Barthelme was unhappy with his colleagues’ handling of the relationship with Gupta’s companies, including one that began: “The position of the nickel BLs [bills of lading] business we do with UIL is again deteriorating.”
Barthelme suggested moving cargoes to an LME warehouse even though “that was not the ‘arrangement’” with UIL, according to an email. Peters told the court that instead of those emails demonstrating Barthelme was aware of a secret “arrangement” with Gupta, they showed he instead believed the cargoes consisted of high-grade nickel.
An email from Barthelme shown to the court indicated he was concerned by Citi’s requests to inspect the containers.
“We can’t avoid [inspections] this time… if we find no materials or if there is an issue, they will know immediately and who knows how they will react,” the email said.
Trafigura said that rather than the email suggesting an awareness that the cargoes didn’t contain nickel, it reflected that issues with the relationship with UIL had been building for over a year.
It was “perhaps unsurprising that Mr Barthelme is beginning to worry what an inspection might reveal” and “doesn’t show that he knew the cargoes didn’t contain nickel”, Peters argued.
The court was also shown an email from Trafigura’s then-chief financial officer Christophe Salmon, which he sent after Citi had informed him that it was ending financing for the nickel trading with UIL in October 2022.
“They say they have sufficient red flags on this flow to stop it immediately,” Salmon wrote.
“I strongly complain that the first reaction of Citi is to drop its client (Trafigura) rather than to act in partnership. I have asked for factual information (they may have good intel after all) which they say they will share this afternoon.”
The email recommended that Trafigura proceed with random inspections of the containers.
No witnesses from Citi are expected to give evidence.
The revelation of the alleged fraud generated widespread interest when it was revealed in 2023, both because its scale and because of surprise that Trafigura was conducting long-standing business with Gupta’s companies, which had previously been embroiled in allegations of non-payment.
The trial continues.
