Trafigura Staff Raised Nickel Concerns Years Before Fraud Claim
(Bloomberg) — Trafigura Group’s trade finance desk raised questions as early as 2020 over the company’s nickel-financing deals with firms run by Prateek Gupta, which would later lose the trading house around $600 million.
Trafigura’s lawyers last week described the situation as “a sort of Ponzi scheme,” with the trading house as the sole victim. The risks of those deals with Gupta were highlighted by Thibaut Barthelme, a member of Trafigura’s trade finance desk.
“Main concern is that we have become the bank of this company and that if we stop doing this, they have no other way to finance that business,” Barthelme said in a September 2020 email to his department bosses, Stephan Jansma and Camille Treujou.
The email was submitted to a court in London on Monday as Gupta’s lawyers questioned Socrates Economou, the former Trafigura nickel head who oversaw the trades.
A person close to Trafigura said that the company did seek to limit its exposure to Gupta after the warnings that were raised in September 2020. But the emails nonetheless highlight that senior figures in the trading house were aware of concerns about the relationship more than two years before its eventual collapse. Jansma is now Trafigura’s chief financial officer.
The world’s biggest metals trader shocked financial markets in early 2023 when it revealed it had been the victim of the alleged fraud. The company said it found that over half a billion dollars of metal in containers that it bought didn’t contain the nickel they were supposed to, but were filled with with stainless steel, aluminum and worthless iron briquettes.
Gupta denies the allegations against him.
Despite the concerns raised by its trade finance department, by 2021, the business with Gupta was almost 70,000 tons, or $1.2 billion worth of annual trading, according to a presentation submitted as evidence on Monday.
A person close to Trafigura said that raising concerns to management was a normal part of the role of the company’s trade finance team. Trafigura was reassured because it believed the trade with Gupta was secured by physical cargoes of nickel, the person said.
Trafigura refers to the deals with Gupta, where the Indian businessman’s firms would sell the trading house cargoes already onboard vessels before later buying them back at a premium, as “transit financing.” Gupta’s lawyers call them “circular buy-back trades.”
Gupta says that Trafigura executives were aware that the cargoes didn’t contain LME brand nickel, something the company has always denied.
The prices of the sale and the purchase were set so that Trafigura earned a fixed fee on the deal, as if it were simply lending money — typically equivalent to an interest rate of 4% to 6%. The trading house used financing from Citigroup Inc.
The trade began to unravel when Trafigura investigators arrived at the port of Rotterdam just before Christmas in 2022 to check the contents of a container that was meant to hold nickel. When they cracked it open, it was full of much lower-value materials.
Evidence submitted to court on Monday shows that developing a large scale business relationship with Gupta rang alarm bells for some at Trafigura at an earlier stage.
“It’s a strange business strategy, long voyage times, high interest costs, irregular sales,” according to the email from Barthelme, who noted that both Credit Suisse and Deutsche Bank AG were unwilling to process payments to Gupta’s companies.
In skeleton arguments and documents submitted to the courts last week, the dealings seem to have also had a mixed reception among senior Trafigura metals staff. Co-heads of metals Kostas Bintas and Gonzalo de Olazaval “did not like it,” according to a June 2022 email from a Trafigura trade finance executive, which was cited by Gupta’s lawyers.
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