A $600 million fraud case involving fake nickel cargoes kicked off at London’s High Court on Monday, with commodities giant Trafigura accusing Indian businessman Prateek Gupta of running a “Ponzi scheme.”

Trafigura, a company based in Geneva, claims that Gupta masterminded a fraudulent scheme. 

He and his associated companies allegedly agreed to supply nickel that was 99.8% pure, but instead delivered materials of low or even no value, according to a Reuters report.

Gupta acknowledges that he failed to deliver high-grade nickel shipments but asserts that Trafigura personnel were the architects of the scheme. 

They allegedly engineered a sophisticated series of transactions—described by Gupta’s legal team as a “merry-go-round”—designed to artificially inflate Trafigura’s status in the nickel market. 

According to court filings from Gupta’s lawyers, this scheme encompassed over 500 trades with a total value of $3.3 billion.

The upcoming trial, expected to feature testimony from Gupta and former senior Trafigura executives, marks the conclusion of events that originated in November 2022. 

This was the time when Trafigura initially began receiving complaints regarding cargoes it had previously sold.

Fraud

Following concerns, Trafigura inspected containers in Rotterdam, originally believed to hold high-grade nickel. 

The company’s lawyers state that these inspections revealed the containers actually contained carbon steel, a material valued at a fraction of the nickel’s worth.

Following the discovery, Trafigura conducted further inspections, which led to a $590 million charge. Subsequently, in February 2023, the company sued Gupta and his companies, citing what it termed “systematic fraud.”

On Monday, Trafigura’s lawyer, Nathan Pillow, informed the High Court that the company “paid for rubbish and was left with hundreds of millions (of dollars) of losses.”

Trafigura only recovered about $10 million from trades that totaled over $500 million, according to Pillow. This has left the company with metal whose value is estimated to be “around 2% of what we paid for it.”

Gupta’s defense

Gupta’s legal team asserts that Trafigura executives were fully aware of and complicit in the financing arrangement involving Citi. 

The core of the agreement, according to the lawyers, was to profit from the interest rate differential: borrowing funds at a lower rate from Citi and then “advancing” that capital to Gupta and his companies at a significantly higher interest rate. 

This suggests a concerted effort between Trafigura and Gupta to generate revenue through this financial maneuvering.

In court filings, his lawyers asserted that “nobody suffered” and that all parties involved benefited “so long as the circle kept turning.”

The defendants claimed that a confluence of extraordinary global events directly contributed to the scheme’s failure. 

Specifically, they cited the disruptive economic impact of the COVID-19 pandemic, which began in early 2020, and the subsequent, severe market volatility triggered by Russia’s full-scale invasion of Ukraine in February 2022. 

These events collectively drove the price of nickel—the metal at the heart of the transactions—to unprecedented levels. The rapid and dramatic surge in nickel prices fundamentally destabilized the operation.

The collapse of the scheme, the defendants argued, was precipitated when Citi, the major financial institution involved, began aggressively demanding the return of the physical nickel cargoes. 

This demand marked the point at which the complex financing arrangement, which had been dependent on stable or rising prices and continued rolling of credit, became unsustainable. 

Trafigura’s lawyers firmly deny the existence of any such agreement, asserting that the defense presented by Gupta and his companies is “a fiction conceived after the event by admitted fraudsters.”

A freezing order on Gupta’s assets remains in effect. Gupta’s attempt to have this order lifted in December 2023 was unsuccessful.

The post Trafigura’s $600M fraud trial begins: ‘paid for rubbish’ instead of high-grade nickel appeared first on Invezz