Commodities Broker Files $284M Suit Alleging Metals Fraud – in Echo of Natixis/Marex Case

By Eric Onstad | January 23, 2019

Broker ED&F Man has filed a $284 million lawsuit against two Hong Kong companies, alleging that they knowingly provided fraudulent warehouse receipts for nickel stored in Asia, court documents show.

The two Hong Kong firms, Come Harvest Holdings Ltd (CHH) and Mega Wealth International Trading Ltd, have denied the charges.

News of the filing comes in the first week of a trial at London’s High Court that also relates to fraudulent warehouse receipts for nickel. In this case, French bank Natixis is suing commodities broker Marex Spectron for $32 million.

Other details in the cases are also similar. CHH is a defendant in both the Natixis/Marex suit and the ED&F Man case.

ED&F Man declined to comment on the case.

In Tuesday’s hearing of the Natixis/Marex trial, Judge Simon Bryan said he had received an email from lawyers acting for CHH and Mega Wealth expressing concern that proceedings in the Natixis/Marex case would have an impact on their clients in the ED&F Man case since much of the background was the same.

A lawyer for CHH and Mega Wealth said on Tuesday they had no immediate comment.

CHH is mentioned in the Natixis/Marex case, but is not a party to the action.

None of the parties in the Natixis/Marex case have disputed that the warehouse receipts for nickel were fraudulent but no accusation has been made as to who faked them.

The warehouse receipts were part of a repurchase (repo) agreement, brokered by ED&F Man between Australia and New Zealand Banking Group (ANZ) and the two Hong Kong firms.

ANZ is not a party to ED&F Man’s lawsuit in UK courts, but in June 2017, it filed papers asking the U.S. District Court in San Francisco to allow it to interview U.S. witnesses about the alleged warehouse receipt fraud. ANZ declined to comment.

Forgeries

ED&F Man paid $117.3 million to CHH and $167.2 million to Mega Wealth for nickel stored in Asian warehouses, but the warehouse receipts the two firms provided were forgeries, lawyers for ED&F Man said in court documents.

The ED&F Man documents alleged the two Hong Kong firms knew or had sufficient reason to suspect the receipts were forged.

The two Hong Kong companies said they had no knowledge that the receipts were fake, a defense filing showed.

During the Natixis/Marex trial on Tuesday, the insurer for Marex alleged that CHH owner Wong Wei Kwok was under pressure to repay a $50 million loan when he secured the Marex-brokered deal for financing in return for the warehouse receipts for nickel.

Marex has filed a claim for indemnity with its insurer for potential losses from the fraud. The insurer, Lloyd’s syndicate MCAP, has rejected this claim.

MCAP lawyer Luke Parsons told the court on Tuesday that Marex had not gathered enough background knowledge about CHH and its owner before finalizing the deal involving the warehouse receipts.

The lawyer for CHH and Mega Wealth, who also represents Wong, said all three clients had no immediate comment about the allegations in the Natixis/Marex trial.

The practice of using metal as collateral in warehouse repo deals has come under increasing scrutiny since a $3 billion fraud four years ago at Qingdao port in China, which led to a $440 million fine for the firm involved, Dezheng Resources, and a 23-year jail sentence for its chairman.

Reporting by Eric Onstad; editing by Dale Hudson and Edmund Blair)

Related:

Marex Spectron’s Metals Financing Deal Triggers Fraud Lawsuit, Insurance Dispute

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