On Oct. 27, Citi pulled the plug on financing any more of the deals. That set off a cascade of events: Trafigura inspectors went off to check containers that were supposed to hold nickel, only to find they didn’t. At an early January meeting in London, Gupta confirmed the scale of Trafigura’s exposure and offered to settle the amount over time. But the company decided instead to go to court. Last week, it won a $625 million freezing order in a UK court against Gupta and his companies.
“This was a systematic fraud perpetrated after a long and legitimate business relationship dating back to 2015 that involved misrepresentation and widespread falsification of primary and supporting documentation,” a spokesperson said. “Any fraud is an opportunity to review and tighten systems and procedures and a thorough review is underway.
In theory, transit finance and similar repurchase or “repo” deals are safer than a regular loan, because the ownership of the underlying commodities changes hands. That is, of course, as long as the underlying commodities exist. By that time, India’s Central Bureau of Investigation — the country’s equivalent to the FBI – had already announced a fraud investigation into Gupta in July. But it was when Citi, which had been helping to finance Trafigura’s trades with Gupta, grew uncomfortable that the alleged fraud began to unravel.The US bank “ceased supporting trades” with Gupta’s companies from Oct. 27, a court filing shows.
The issue came to a head in London on Jan. 7, when Gupta met Socrates Economou, Trafigura’s head of nickel. At that meeting, according to Trafigura’s court filings, Gupta acknowledged that Trafigura’s exposure was in excess of $500 million, and “presented a plan for the proposed settlement of this amount over a period of time and by various methods.”Bloomberg
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