Businessman Accused in Trafigura Nickel Nightmare Goes on Trial

More than two years after it emerged that Trafigura Group lost over half a billion dollars in an alleged nickel fraud, a trial began as the trading giant attempts to recover losses from the man it says was behind the scam.

Proceedings kicked off at the High Court in London on Monday in the trial involving Trafigura — one of the world’s top commodities suppliers — and Indian businessman Prateek Gupta. Trafigura brought the claim after shocking the market in 2023 when it announced that almost $600 million of metal in containers that it bought didn’t contain the nickel they were supposed to.

Trafigura took legal action against Gupta and several firms connected to him after saying it spent months uncovering what it believed was a systematic fraud against it. Gupta has previously denied the charges against him.

The trial was nearly delayed after Gupta’s lawyers stepped away from representing him, only to be reappointed at the last minute. Gupta is set to testify by video link from the United Arab Emirates later in the case while Socrates Economou, Trafigura’s former head of nickel, will also appear as a witness.

In opening arguments Monday, Trafigura’s lawyer Nathan Pillow said that the company had realized less than $10 million by selling the contents of around 100 cargoes it was left with when its relationship with Gupta unraveled, some of which was “essentially worthless,” iron briquettes. They would have been worth just over $500 million had they contained the London Metal Exchange-grade nickel as expected.

The case is among a string of scandals that shook metals markets in recent years and stirred worries about the fragility of warehousing and shipping networks that play a key role in the industrial economy. Other examples include the LME finding some inventories that underpinned nickel contracts were just bags of stones. A trading house was also stung by a metal cargo that turned out to be near-worthless rubble.

For the Trafigura deals — which used financing from Citigroup Inc. — it would buy nickel in the form of cathodes and briquettes from Gupta’s companies with an agreement that it would later be bought back by them, or by an alternative buyer nominated by them, or sold in the open market.

The prices of the sale and the purchase were set so that Trafigura earned a fixed fee on the deal, as if it were simply lending money — typically equivalent to an interest rate of 4% to 6%. Trafigura in legal filings has described the transactions as “transit finance.”

The trade began to unravel when Trafigura investigators arrived at the port of Rotterdam just before Christmas in 2022 to check the contents of a container that was meant to hold nickel. When they cracked it open, it was full of much lower-value materials.

The embarrassing losses have had huge repercussions inside Trafigura itself, intensifying longstanding tensions between the firm’s metals and energy units. Several of its metals trading team involved in the dealings with Gupta left the company in the wake of the scandal, though Trafigura doesn’t believe any of its employees were complicit in the fraud.

And Trafigura has also said that it was its internal audit following the events that revealed another alleged fraud — this time losing over $1 billion in Mongolian oil.

In late 2023, a judge rejected Gupta’s attempt to lift a court freeze on his assets, saying that he had failed to present convincing evidence that Trafigura staff knew that there was no nickel in the cargoes it was buying — something Trafigura has denied. The businessman has struggled to pay his legal fees, and lost sets of commercial lawyers.

Gupta and his companies have a checkered history in the trading world. Commodities merchant Gunvor Group and trade finance fund TransAsia Private Capital Ltd. lost money in earlier dealings with his firms, public filings show. Others, including banks and counterparties, became uncomfortable at times with the group’s trading activities, Bloomberg has reported.

Meanwhile, Trafigura is coming off the most profitable period in its history, and has a new chief executive officer this year in Richard Holtum.

Top photograph: Nickel briquettes; photo credit: Philip Gostelow/Bloomberg

Related:

• Trafigura Staff Tried to Hide Nickel ‘Red Flags,’ Gupta Says in Court Document
• Here Are Details of Trafigura’s Suit Against Businessman Gupta in Alleged Nickel Fraud
• Another Metals Trading House Says It Has Been Hit by a Nickel Fraud
• Billionaire Reuben Brothers Sue Trafigura Over Nickel Fraud
• Commodity Trader Trafigura Faces $577 Million Loss After Uncovering Nickel Fraud