New Twist in Gupta $590 Billion Nickel Fraud, Reuben Brothers Sue Trafigura

The Saga whereby Trafigura Group was defrauded by around $590 million has taken another twist. Bloomberg reports, citing documents, that Trafigura one of the largest commodity traders in the world is being sued by the Reuben brothers alleging that the fraud didn’t just involve thousands of tons of missing nickel, but also counterfeit shipping documents. Hyphen Trading Ltd., owned by the Reuben brothers accuses a Singapore freight forwarding company of being involved and raises questions about Trafigura’s own actions, saying that the trading house stonewalled its requests to inspect its cargoes. Spokespeople for Trafigura and for the Reubens declined to comment.

No Nickel in those pipes …

Looking back last year Trafigura said they may have been defrauded as much $577 million in a fraud involving nickel and companies it believed were controlled by the metal’s trader Prateek Gupta. They have since raised that to $590 million in their latest earnings statement.

Nickel was party to a violent short squeeze last March when LME suspended nickel trading after Nickel prices roughly doubled to all-time highs up 500% in a day. Nickel soared over $100,000 a ton to an all-time high on the London Metal Exchange when prices surged around $40,000 in just one hour. The metal has been hot with its use in the energy transition trade.

The Swiss trading group believed they were buying containers full of nickel. However, that was not the case and Trafigura said they were the victim of a “systemic fraud” that could cost it more than half a billion dollars. Trafigura said it had been defrauded by companies it believed were controlled by the metal’s trader Prateek Gupta, who didn’t immediately respond to requests for comment according to The Wall Street Journal. The Gupta companies included TMT Metals and subsidiaries of UD Trading Group. TMT and UD.

Trafigura said the alleged fraud revolved around boxes sold by TMT Metals, units of UD Trading Group, and others it didn’t name, which were purportedly full of nickel. But when Trafigura began to examine some of the containers in December, they didn’t contain the metal.

Trafigura said there was no evidence to suggest any of its employees were involved, and that it had been duped by false documents. Trafigura said Thursday that most shipments hadn’t yet been inspected, because they were still in transit.

However, in the latest update per Bloomberg:

Legal filings seen by Bloomberg News shed new light on the case that shocked the market earlier this year, when Trafigura said it expected to lose nearly $600 million in what it called a “systematic fraud” perpetrated by Indian businessman Prateek Gupta.

In them, Hyphen Trading Ltd., the company owned by the Reuben brothers which is bringing the legal proceedings, alleges that the fraud didn’t just involve thousands of tons of missing nickel, but also counterfeit shipping documents — which ended up being used to obtain financing from leading commodity bank ICBC Standard Bank Plc. It describes how containers supposedly holding nickel were shipped back and forth around the world, apparently to avoid having to open them and reveal their true contents.

Moreover, Hyphen accuses a Singapore freight forwarding company of being involved in Gupta’s alleged fraud. It also raises questions about Trafigura’s own actions, saying that the trading house stonewalled its requests to inspect its cargoes.

Hyphen is in two separate legal disputes with Trafigura over two different cargoes of nickel.

Case One: In Singapore courts. Hyphen bought just over $10 million of nickel from the London Metal Exchange (LME) and loaded it on to several ships. They then discovered Trafigura’s lawyers had written to the shipping company claiming that Trafigura was the rightful owner of the cargo instead.

Both Hyphen and Trafigura claim to have the original bills of lading, an impossibility that suggests at least one set of documents is counterfeit.

Case Two: In the UK High Court. Hyphen filed last week on a cargo of that Hyphen bought from Trafigura in September last year. For $8.4 million, Hyphen bought just over 404 tons of nickel that had been loaded in Kaohsiung, Taiwan, onto a container ship called the OOCL Jakarta. The plan was for Hyphen to take delivery of the cargo when it arrived in Rotterdam.

The shipment was financed via a repurchase agreement with ICBC Standard Bank for a number of months. A spokesperson for ICBC Standard Bank declined to comment.

The containers arrived in Rotterdam in mid-November on a different ship and no-one told Hyphen. From there they were not unloaded and “inexplicably remained on the vessel when it set off on its return trip to Asia, before the “nickel” was finally unloaded in Jeddah, Saudi Arabia, according to the complaint.”

Hyphen was still unaware in December about the whereabouts of its cargo, together with Argentum, a US hedge fund it was working with, the trader began to press Trafigura for information.

“On 16 December, Hyphen asked for information concerning where the Goods had been stored at Kaohsiung (before shipment). Trafigura did not reply,” according to Hyphen’s complaint. “Hyphen pressed for a response on 19, 20, 22 December. Argentem itself pressed on 20, 21 and 22 December. Trafigura did not reply.”

On Dec. 27, Trafigura did respond to the demand for an inspection: according to Hyphen’s complaint, it allegedly refused the request, citing “logistical complications.”

Back to the alleged fraud that two months earlier where Citigroup Inc. suddenly informed Trafigura it would no longer finance any trades with firms linked to Gupta. By December, Trafigura was applying “almost daily pressure” on Gupta for information, according to an earlier Trafigura court filing.

Hyphen was unaware of this and Hyphen executives were becoming increasingly frustrated with Trafigura’s lack of answers about their cargo, understandably Trafigura executives were in a similar state.

Fast forward to Feb. 9, of this year Trafigura publicly accused Gupta of the nickel fraud. Understandably Hyphen began to panic.

It visited the Singapore offices of the shipping line, OOCL, to present the original bills of lading it had received from Trafigura, in triplicate. But OOCL pointed out a discrepancy, while Hyphen’s bills of lading just listed Trafigura as shipper, the copy of the documents on OOCL’s system also included the name of a Singapore logistics company, Techies Logistics (S) Pte, as “forwarding agent.”

A month later, Hyphen tried a new tactic: it turned up in Rotterdam and demanded to take physical delivery of its cargo. OOCL refused. Finally, on April 5, OOCL’s lawyers finally delivered the bombshell: Hyphen had paid Trafigura $8.4 million and received a bill of lading that was not genuine.

“The Trafigura BL is likely to be a fraudulent document,” Hyphen concluded.

Trafigura acknowledged, in its lawsuit against Gupta, that it had sold cargoes bought from his companies to several third parties, including Hyphen and was “potentially exposed to a claim by them in the event (which now of course seems likely) that those cargoes did not contain nickel.”

It even raised the possibility that some of the bills of lading involved might not be genuine.

Hyphen in its claim goes further:

From Bloomberg:

Hyphen alleges that it was logistics company Techies that ordered the cargo to be sent back to Jeddah after it had already arrived in Rotterdam.

“Hyphen infers that Techies’ actions (whether known or unknown to Trafigura) were motivated by a complicity or other kind of involvement in the Gupta Fraud,” it said. Techies did not respond to emails, messages and phone calls seeking comment.

For Trafigura, the case represents yet another headache in the fallout from the alleged fraud. The company continues to pursue Gupta in court, and has made staffing and operational changes in response to the saga.

Hyphen, meanwhile, is seeking the $8.4 million it paid, plus costs and interest from Trafigura.

It still hasn’t been able to gain access to its “nickel.”

Who are The Reuben Brothers

David and Simon Reuben made their first fortune in 1990s Russia. Now worth a combined $14 billion, and they have not been major players in metals trading for decades, focusing instead on building one of the world’s biggest real estate portfolios. However, Bloomberg reports they have continued to dabble in the sector through entities like Hyphen, which describes itself as a “commodities trader and financier” focused on refined metals.

About Trafigura

Trafigura is an independent, employee-owned physical trading and logistics business established 30 years ago. Trafigura relocated its global headquarters to Singapore in 2012 to save millions in tax. They are among the market leaders in energy, metals and minerals with 61 offices globally. The companies says; “We forge robust connections through our global network, efficient logistics and unparalleled market understanding. Our end-to-end services connect producers, processors and consumers worldwide. We invest hundreds of millions of dollars in infrastructure.”

Source: WSJ Bloomberg

From The TradersCommunity News Desk