Trafigura staff knew about nickel fraud, Gupta says in court document

By Eric Onstad

LONDON (Reuters) - Employees at commodity trader Trafigura worked with Indian businessman Prateek Gupta to keep secret a deal to substitute scrap and other low-value metal for nickel, Gupta alleged in a court document released on Tuesday.

Geneva-based Trafigura filed a lawsuit against Gupta in February, alleging seven companies that Trafigura said were controlled by him carried out systematic fraud involving nickel cargoes.

Gupta earlier on Tuesday asked a London court to lift a freezing order on his personal and business assets because he said the commodity trader failed to disclose full information when it demanded the freeze in the case.

In a court document made public at the hearing, Gupta produced chat exchanges and emails with Trafigura staff that he alleges are proof that he was not alone in the operation to switch high- and low-value metals.

Responding to Gupta's allegations, Trafigura said in a separate document that the new evidence was vague and did not prove that its staff knew about the substitution.

Lawyers for Gupta in July rejected Trafigura's allegations that he was responsible, but the new documents go into extensive detail.

Gupta alleged that Trafigura's head of nickel trading Sokratis Oikonomou came up with the scheme, which the parties were careful not to write down, because he wanted to expand to "a position of dominance in the market".

FINANCING SCHEME

Gupta said Oikonomou proposed in May 2019 to boost nickel trading between Trafigura and Gupta's firms to 50,000 metric tons a year, but Gupta said he replied that there was not enough high-grade nickel and proposed to include scrap and alloys.

When Gupta asked Trafigura's Indian-based trader Harshdeep Bhatia in an email on May 31, 2019 whether he should include a presentation on stainless steel scrap, according to the document, Bhatia replied:"Suggest we test waters with credit limits first and bring scrap during discussion".

Reuters was unable to contact Oikonomou and Bhatia for comment, both of whom no longer work for Trafigura.

Oikonomou rejected trading low-grade nickel in the open, because Trafigura's bank Citi would only finance high-grade nickel, Gupta said.

Citi has repeatedly declined to comment on the case.

Gupta alleged that Oikonomou proposed a "transit financing" operation, in which some Gupta-owned or linked companies would sell nickel to Trafigura and when they arrived at another port, other Gupta associated firms would buy them back, to ensure others did not discover the substitution.

Trafigura acknowledges that the two parties operated a transit financing operation, but denies it was devised to surreptitiously trade low-grade nickel.

WRONG COMMODITY CODES

Trafigura has also acknowledged it paid for pure nickel without verifying its authenticity, but said the lack of valid documents, commodity codes and testing was an oversight.

Gupta alleged, however, it was a key part of the secret deal.

"The bills of lading were always sent in draft to Trafigura in advance for their team to check and approve," Gupta said.

As trading increased, most volumes consisted of other metals masquerading as nickel in the transit scheme, but there were still occasional one-off sales of real high-grade nickel, Gupta said.

For those sales, Trafigura traders closely examined bills of lading for the correct commodity code and the document cited emails in January and March 2020 from Trafigura requesting that codes needed to be corrected.

In 2022 when a spike in nickel prices meant that the value of nickel cargoes were exceeding credit lines while shipment periods were also lengthening, Citi demanded a pullback, Gupta said.

On March 14, 2022, Bhatia asked Gupta in a WhatsApp message to find at least one container of real nickel in case Citi requested a warehouse inspection, the document said.

Bhatia's following reply to Gupta on WhatsApp on March 15, 2022 was evidence Trafigura was part of the scheme, Gupta alleged:

"Intent to do Warehousing is critical to buy time for everyone... so can keep things under control at our side."

No inspection took place in March, but Citi renewed the request in November and Gupta replied that an inspection could not be allowed.

Bhatia replied to Gupta in a message on Nov. 7, 2022, according to the document: "Sirjee, Appreciate and have all support. Banks will need to (be) kept at bay and will need plan."

Later, the document says Gupta sold metal to a Chinese third party to raise cash, hoping he could buy it back before it was exposed, and Bhatia warned in messages of the danger on Dec. 1, 2022:"We'll buy this back can not be exposed in China (too) long bro... seriously its gonna explode ... we all need to get out of it ASAP as consequences are beyond words".

(Reporting by Eric Onstad; Editing by Emelia Sithole-Matarise)