LONDON, (Reuters) – Commodity trader Trafigura has been racing to get a British judge to secretly freeze $625 million worth of assets of a web of firms accused of fraud without alerting the Indian businessman who owns and controls them, Prateek Gupta, according to court documents seen by Reuters yesterday.
Trafigura said last week it booked a $577 million charge in the first half of 2023 after uncovering “systematic fraud” by companies controlled by Gupta involving nickel cargoes.
Some of the first containers inspected were found to contain carbon steel, which is worth a fraction of the price of nickel.
A lawyer in Singapore representing Gupta and one of his companies said: “The matter is before the courts and is therefore subjudice. Our client will respond accordingly in court.”
Geneva-based Trafigura moved quietly behind the scenes in recent weeks with its lawyers to convince a judge that Gupta’s assets needed to be frozen while at the same time holding talks with Gupta about a settlement, according to documents filed by Trafigura’s lawyers.
The trading firm named seven companies in its legal papers it said are controlled by Gupta, including TMT Metals UK.
Since Trafigura began to suspect in October last year that around 25,000 tonnes of metal sold by Gupta’s firms may not be high-grade nickel, it scrambled to inspect over 1,000 shipping containers, the documents showed.
The trading firm and its lawyers needed enough proof to convince a judge of the fraud, but did not want extensive activity to alert Gupta of their suspicions.
“This placed Trafigura in an invidious position,” the documents said. “Such inspections inevitably carry a risk of tipping off the (Gupta companies) to the risk of legal proceedings.”
“Trafigura resolved, on 10 January, to bring a fraud claim… and to seek a WFO (worldwide freezing order) whilst attempting (a) to avoid alerting Mr Gupta to that plan; and (b) to elicit some part of the promised payments from him.”
Trafigura ended up inspecting 156 out of 1,104 containers by the time it filed court papers, none of which contained nickel.
An early red flag came in October when Citi C.N pulled the plug on any new financing for trades between Trafigura and Gupta’s companies, the filings show.
The documents do not make clear why Citi withdrew its financial support. Citi declined to comment.
The deals involved Trafigura buying nickel from Gupta companies and selling it back to those companies at a future date for a higher price.
This so-called transit finance would earn Trafigura a return equivalent to the interest on the value of that nickel during the time the commodity trader owned the metal.
Trafigura held several meetings with Gupta, in which he initially said some of the containers contained nickel alloy instead of high-grade nickel.
Gupta even provided a spreadsheet in early December that detailed the contents of 93 cargoes, showing 75 contained nickel alloy and the others carbon steel and aluminium.
On Dec. 22, Trafigura inspected eight cargoes in Rotterdam that were supposed to contain nickel alloy. Later in January, it managed to open another 117 containers.
“None of those containers appeared to contained nickel in any form,” the court documents said.
“It (Trafigura) was being strung along by Mr Gupta disclosing elements (but not the true extent) of the fraud, and promising to offer security sufficient to make Trafigura whole or at least substantially to compensate it,” the documents said.
On Jan. 7, Gupta held a meeting with Trafigura’s head of nickel trading Socrates Oikonomou, according to the documents.
“Gupta acknowledged that Trafigura’s exposure was in excess of $500 million and presented a plan for the proposed settlement of this amount over a period of time and by various methods,” the documents said.
Shortly thereafter, Trafigura launched its strategy to take court action and seek a freezing order while not alerting Gupta, even accepting a payment of $5 million from TMT Metals UK on Jan. 31, the filings showed.
A closed-door hearing was held before a British high court judge on Feb. 8, to which Gupta and his companies were not invited or notified.
The next day, Justice David Foxton issued a freezing order worth $625 million regarding assets tied to Gupta and seven Gupta-controlled companies, including those in Singapore, Malaysia and Switzerland.
The order gives Gupta and his companies the right to challenge it.
