In his defense, Prateek Gupta – the businessman Trafigura accuses of being the mastermind behind a $590mn Nickel Fraud – has stated that the global commodity trading company “devised” and “proposed” the scheme.
Gupta’s defence alleged in court documents filed on Wednesday that Trafigura employees had first suggested trading other materials which would then be presented to Citibank, the Singapore-based commodity traders lender.
Trafigura devised and suggested the arrangement for Trafigura to sign contracts with them to sell and buy nickel, but in reality, trade other materials.
Trafigura, in February, issued a global freezing order against Gupta and claimed it was the victim of “systematic fraud”, perpetrated Gupta. This led to the discovery that more than 1,000 containers contained low-value metals instead of the industrial metals used in stainless steel.
Trafigura stated in a press release that “it does not consider the defense to be credible, and will continue to vigorously pursue its claim”.
The allegation that Trafigura traders were responsible for the scheme will lead to a major showdown at the London High Court, where the case will be heard.
Gupta has spoken out for the first time in his defence. The Dubai-based businessman’s side has been revealed as part of the scandal that has shaken the global commodity trade industry and has raised serious questions about the Trafigura due diligence procedures.
In Gupta’s defense, the two individuals named as those who allegedly presented the scheme are Trafigura’s former head of nickel Sokratis Bhatia, who left the company recently, and Harshdeep Bhattia, a senior Mumbai-based broker. Both individuals did not immediately respond to requests for comments.
The defence describes a whirlwind meeting in glitzy hotels from Dubai to Mumbai, as the alleged fraud scheme was hatched and then unraveled.
Bhatia, in Mumbai in march 2019, expressed Trafigura’s desire to increase nickel trade volumes with Gupta’s companies to 50,000 tons a year.
Bhatia and Gupta then discussed via WhatsApp two months later whether they should include “the option of trading scrap metals with nickel or other metal alloys varying in nickel content to meet Trafigura’s required trading volume”.
The defence claims that Gupta Bhatia Oikonomou “expressed interest in trading other materials than nickel to increase trading volume” in the days following their meeting.
Gupta claimed that Trafigura did not care about the purity, specifications and values of the commodities being traded.
Gupta’s argument is that, after speaking with Oikonomou, and Bhatia he felt there was a need to “make it appear Trafigura traded nickel”, because Citi, its financing bank, was “generally unwilling to extend credit to trades of Nickel with purity less than 99.8% (i.e. Trades of anything else than nickel).
Gupta says that after the Dubai meeting Bhatia confirmed with Gupta Oikonomou’s desire to continue the trading relationship. However, it “needed to be kept silent” and look similar to previous trading relationships.
In the alleged scheme Gupta’s companies would purchase nickel, alloy, or scrap metal from other metals dealers, and then sell them to Trafigura. Trafigura had a large number of “buyback” deals by 2022. Trafigura purchased metal cargoes directly from companies, and then sold the cargoes back to them or other entities they designated.
The defence presents the case against Gupta, and four companies, UIL Singapore, UIL Malaysia and TMT Metals AG, of which the Indian born trader admits being a legal control.
Trafigura filed its claim also against a larger group of defendants, which it claims Gupta “de facto” controls — Spring Metal Trading, Mine Craft Trading and New Alloys Trading. Gupta has denied being in control of any of these companies at any point. In court records, the three companies are listed as litigants in Person. This means that they will be representing themselves in court.
Spring Metal and New Alloys deny the accusations made by Trafigura. Mine Craft was not reachable.
According to Gupta, the head of UIL Singapore trading Girdhar Rahi introduced these three commodity groups to the trading agreement in September 2019, “at Trafigura’s request”.
Rathi and Trafigura both agreed that the introduction was meant to “reduce the risk of Citi raising red flags as a result high volumes of trading being conducted with corporate entities owned by the same group”, according to the filing.
Citi increased its pressure on Trafigura to decrease its nickel trading activity after the price of nickel soared as a result of Russia’s invasion in Ukraine. Gupta’s companies were finding it more difficult to purchase cargoes on time from Trafigura.
Citi cancelled in October last year its $850mn line of credit to Trafigura, which was used to finance nickel shipments. As red flags grew around the trading scheme, Citi ended the credit line.
Gupta described multiple requests by Oikonomou for containers containing nickel to be produced “in order to avoid exposing this arrangement” and “to placate the bank” at a time of crisis when Citi decided the pull the credit.