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Trafigura allegedly made just $10mn from selling the contents of so-called nickel cargoes it bought for $500mn from Indian business tycoon Prateek Gupta, according to lawyers for the commodities trader accusing its former business partner of fraud.
On the first day of a five-week trial in London’s High Court, Trafigura admitted it “overpaid for rubbish” after purported nickel shipments it purchased from Gupta were found to contain various low-value materials such as iron briquettes.
In a commercial dispute that burst into the public domain two years ago, Trafigura alleges it was the victim of a “systematic fraud” perpetrated by Gupta and companies he controlled.
The scandal has rocked the commodities trading industry and raised questions over the due diligence procedures in place at Trafigura, which have since been revamped.
Lawyers for Dubai-based Gupta argue Trafigura was in on the scheme, which they allege was beneficial to the company because it was earning interest for financing the cargoes while they were being transported.
Under this alleged “loop arrangement”, Trafigura would buy cargoes from Gupta and his affiliated companies, then sell them back to him and the affiliates at the end of the journey — and was allegedly aware the cargoes did not contain the high-quality nickel they were supposed to.
Trafigura was able to draw on a low-interest credit line from Citibank for the cargoes, although Citi eventually became concerned about the size of its exposure.
About 542 trades valued at $3.3bn allegedly took place as part of this arrangement, according to court documents from Gupta’s side.
“A moment’s reflection reveals that so long as the circle kept turning . . . then each of Citi, Trafigura and [the defendant] gained, and nobody suffered,” wrote Gupta’s lawyers in court documents.
Trafigura’s legal defence said the question of whether this alleged arrangement existed is the “principal factual issue” requiring resolution at the trial.
The commodities trader’s lawyers say it is “logically and commercially absurd” to argue that Trafigura would be part of such an alleged arrangement.
“The evidence shows it to be a fiction conceived after the event by admitted fraudsters, no doubt to put off the day of judgment against them,” said Trafigura’s lawyers in court documents, referring to the defendant.
Instead, they say, the trading house was simply fooled. “Ponzi schemes involve many investors, this scheme involved one,” said Nathan Pillow, a lawyer representing Trafigura, while addressing the judge.
“The exposure accumulates, as more and more of these deals are done, until the music stops. And that is a classic case of fraud,” he added.
Switzerland-based Trafigura brought a case against Gupta in February 2023. London courts imposed a worldwide freezing order on him shortly afterwards, and subsequently also on his wife.
Trafigura and Gupta started doing business together as early as 2014. In 2022, rising nickel prices caused lenders, including Citi, to review their nickel exposure, leading to a series of events that uncovered the alleged fraud.
Trafigura is expected to call several witnesses during the trial, including Socrates Economou, its former head of nickel. Gupta is expected to testify remotely from Dubai.
One central figure in the case is former Trafigura employee Harshdeep Bhatia, who was based in Mumbai and was a key liaison with Gupta during the period concerned. Bhatia will not be testifying during the trial, according to court documents submitted by Trafigura.
Lawyers for the defendant allege that Economou and Bhatia were aware of, and in fact proposed, the alleged arrangement. Trafigura denies this.