hello and welcome, you are listening to Patrick boil on finance a podcast, exploring ideas, from quantitative Finance examining events occurring in markets right now and financial history to see what lessons can be taken away including interviews with some of the most interesting people in the world of Finance to learn more about the podcast visit on finance dot-org when German miners first Covered Nickel in the 15th century. They named it cooked for a
nickel or Devils copper. Because while they taught it contained copper, they couldn't recover any from it. They blame their troubles on the devil. And since they're nickel has had the nickname, The Devil's metal amongst commodity Traders. It's had a history of devilish Behavior to last week. Traffic Yura. One of the world's largest commodity trading firms, announced a five hundred and seventy seven million dollar,
right? Town claiming that they had fallen victim to a systematic fraud in the devil's metal more. Surprisingly, though, to Industry, insiders was who they were dealing with pratik Gupta of 43 year old Indian businessman with a checkered reputation who had been trading
with traffic. You're a since 2016 traffic, you're a discovered that shipments of nickel that they purchased from Gupta. Linked companies, contained no Trace. S of the valuable metal leading them to launch legal action against Gupta and secure 625 million dollar freezing order against his business Empire court documents. Show that the alleged fraud Drew in Citigroup, who financed the trades?
Barclays were gupta's companies held accounts that receive traffic Yura funds and that the Scandal could reach even deeper into the world of Commodities as traffic. You're a say that they sold. On potentially faked nickel. Car goes in 11 trades worth almost 100 million dollars. The 25,000 tons of missing nickel is not a small amount. It comes to more than 10% of the annual Imports of China.
The dominant Global nickel consumer, the alleged fraud involves trades in nickel, which was in transit during 2022 and allegedly involved, all sorts of scheming misrepresentation. And Counterfeit documents. Now, the scam of delivering metal that isn't what it's supposed to be is no new idea. The British museum has an almost 4,000 year-old clay tablet on display in which a Babylonian Merchant calls out a supplier for trying to cheat him on a shipment of copper clay.
Tablets were the Twitter of that time clay, tablet. Beefs, were quite a thing in ancient Babylonia. The Babylonians didn't have formal Metrics for Metals. But the merchant in question, knew he had been scammed and warned his supplier via clay tablet that from now on, I will not accept any Copper from you. That's not fine quality. It's amusing that he knew he had been ripped off, but was still planning on doing further business.
With the supplier. In more recent times, Metals trading has continued to be a venue for fraud last year in China alone, 500 million dollars worth of copper, went missing. Ting and traffic. Your is nickel, Scandal follows hot on the heels of the lme nickel trading scandal. From March of last year, when the London Metal Exchange, had to suspend nickel trading for fear of a total Market collapse.
This situation is quite a large fraud and it could work out to be quite far, reaching the news calls, the price of nickel to rise by around six percent on the day of its announcement as it meant that there was Complete less copper available to Industry than was previously. Estimated at 25 thousand ton black hole has just opened in the nickel supply chain. So, who are the two parties to this dispute?
Well, traffic, your is a multinational commodity trading company based in Geneva, Switzerland, it was founded in 1993 and operates in more than 50 countries. Around the world, they specialize in trading a wide. Age of Commodities, including crude oil, refined petroleum products Metals minerals and agricultural products.
They've become known for some controversial activities themselves to including their involvement in a pollution scandal in 2006 and their attempted use of a super injunction in the UK to prevent the Press from reporting on it. In addition, to its commodity trading activities traffic, your is also involved in other business. Areas like Logistics infrastructure and finance.
The company is one of the largest independent oil and metal trading companies in the world, and there's annual revenues in excess of 147 billion dollars. Just, two months ago, traffic, yours top Traders. And shareholders were celebrating having been awarded a wooden point. Seven billion dollar payout as profits boomed during the energy crisis. The Firm made a record seven billion dollars. Net profit last year. Trafficker is not a publicly listed company. It's owned by 1100 shareholders.
Many made up of Executives and Traders at the privately held firm the company still publishes, its annual accounts. And you might wonder why they would do this as a private firm. Well, every commodity trading house has a different Edge and traffickers Edge is in financing. Both in the Wade finances itself. And the financing deals. It can offer its counterparties.
They publish their accounts so that they can show their strength and because of that strength access huge amounts of financing from Big Global. Landers. The firm is reported to have seventy three billion dollars of credit lines from 140 different lenders. Okay? So, what about pratik Gupta and TMT? Well, pratik began his career. As a trainee at his father's medal, Trading Company urged of international where he became a managing director in 2008.
Now it's easier to get promotion when it's your father's company. But nonetheless, welt on the company became insolvent in 2018. After defaulting, on loans. From several Indian Banks. The Wall Street Journal reports that many people in the Commodities industry. Steer. Clear of pratik Gupta and his businesses due to his reputation in the industry.
Pratik Gupta has ties to Sanjeev Gupta, who's gfg Alliance Group of companies is implicated in the green fill Scandal that I covered a while ago, on this channel gfg, Alliance is under investigation by the UK serious, Fraud Office for its involvement in that Scandal. While Sanjeev Gupta, is not a relative of prateek Singh, despite sharing the same surname, Sanjeev is a former shareholder in ocean. Dev as would pratik gupta's alleged fraud on traffic Yura.
Many of the suspect gfg invoices involved in the green cells gamble involved, shipments of nickel to I should point out that gfg has announced that it has for years had no business or relationship with pratik Gupta and is in no way connected to any of the activities traffic, yours announcement referenced. So bankers at Credit Suisse Who were, of course, helping manage mr. Gupta's welt introduced him to TMT a small trading firm based in Switzerland less than 10
years ago. He went on to buy the firm in early 2016. TMT had a good reputation in Swiss Financial circles before being purchased and crucially had existing credit lines in place. They also had a trading relationship with traffic Yura, those credit. Lines. Soon, shrunk under the new ownership as certain counterparties backed away and TMT allegedly began asking counterparties for longer payment terms saying they were willing to pay high interest rates.
Some counterparties told the Wall Street Journal that they viewed this as a red flag and declined to deal with TMT in an unrelated case, the State Bank of India accused pratik Gupta and other business associates of Is of being party to a criminal conspiracy, the bank claims that the fraud cost it and other lenders to ish, Dev The Firm, founded by his father, nearly a hundred, and seventy five million dollars at today's exchange rates investigators in India, say that they recovered
incriminating documents. And articles after opening a fraud investigation based on a complaint from the State Bank of India. Unfortunately, by the time, the Central Bureau of Investigation, Vestigation opened its probe trafficker was already heavily exposed to mr. Gupta and his related companies. Okay, so traffic Europe began trading with TMT Metals more than a decade ago. They provided Transit Finance to TNT and two other Gupta.
Companies, essentially buying Nickel in containers that were already on board ships and then selling it when the ship's reach their destination, charging interest for the duration of The transportation in 2021 transit times for containers at Sea expanded and this was partially just due to the supply chain disruptions that were occurring at the time, but some TMT shipments took more than 300 days to be delivered.
This was significantly longer than made sense for any global Shipping route and was difficult to explain traffic Europe, began reviewing, its relationships with various trading partners last year and the risk management team started to pay more attention to TMT Metals, especially when authorities in India accused Gupta of defrauding. The State Bank of India, in October of last year, Citigroup declined to finance. The trades between traffic your and grouped as companies anymore.
Meaning the traffic you are was now financing the traits itself which led to traffic, you're investigating their counterparty more thoroughly in. Know, Remember according to court documents, an informant told traffic Yura that one or two of the purchased containers contained, something other than nickel, the fraud was exposed when the company's investigators arrived at a port in Rotterdam, just before Christmas.
And check the contents of a container and found other less valuable Metals. But no nickel inside, when the trading house confronted Gupta, he told the head of nickel and Cobalt All trading that the containers contained, mostly a cheaper nickel alloy and the small amount of other materials, rather than the high-grade nickel metal that had been paid for Gupta. Initially, blamed his business
partner in India for the mix-up. And claimed that the contents were different to avoid sanctions on shipping Russian nickel, despite no such sanctions ever having been in place at a meeting in early January, Gupta proposed. The some it owed traffic Europe but the firm instead decided to pursue a fraud claim and to request that the courts freeze gupta's acids, it probably made more sense to have assets Frozen than to give Gupta time to pay or find a way of not paying in
many ways. This story is pulling together, a number of pieces that I've covered in the past, on this channel, like the trading issues on the lme less than a year ago, the green cell scandal Which is still ongoing and the content on supply chain disruptions and economic effects of the war in Ukraine. There's been quite a bit of fraud in the nickel Market over the last few years for a few reasons but mostly that it's a highly priced industrial metal
currently worth around 26,000 dollars per ton and it has become highly financialized. It surging value is a crucial metal used in the production of electric car. Batteries has made it an attractive Target for questionable. Dealings some examples. Well, a nickel repo deal between the taxes and marik's fell apart in 2017, when it turned out, that it was based on false receipts for metal, stored by access world.
Then a part of glencore, after a two-year legal battle in attacks, has worn a 32 million dollar claim against marik's in 2019, Edie and F mom. One, a 283 million dollar fraud claim last year, against a Singapore, commodity Trader straight for a fund. Also involving fake nickel Warehouse receipt, Singaporean prosecutors have filed 105 charges against an alleged Ponzi schemer. Accused of cheating, investors out of over a billion dollars
for fictitious. Nickel traits to even in the Greenfield case where Sanjeev Gupta is. LG alliances being investigated by the UK serious, Fraud Office. Many of the suspicious invoices involved shipments of nickel so far out of 1104 containers, traffic, your has checked 156 and despite what Gupta told traffic Yura. No nickel of any grade at all has been found in them. The containers were filled with carbon steel, a low value metal worth less than a thousand dollars per ton.
Versus the roughly 26,000 dollars per ton for nickel industry. Insiders have expressed considerable surprise. The traffic you are was dealing with Gupta at all Jonas, Ray, the chief executive of Athena intelligence told the Ft that he had investigated TMT in the past, over an alleged scheme, involving a network of companies, trading between themselves, each with different bills of lading and their own finances.
Their reputation was horrendous. He told the Ft TMT Metals was blacklisted from most credit and insurance companies. As they were such a high-risk entity traffic, your has said that there's no evidence that any of its employees were complicit in the fraud. An impairment charge of up to five hundred and seventy seven million dollars.
Will be recorded by traffic. You're on the first half of 2023 related to this alleged Good fraud, that's equivalent to more than 8% of the seven billion dollar. Net profit, the company made in its 2022 Financial year, its
best year on record. While the alleged fraud has drawn in firms, like Citigroup who financed some of the trades and Barclays where gupta's companies held accounts, they are unlikely to have been materially impacted the Scandal is likely to cause Banks to increase the scrutiny and risk management procedures. Around dealing with firms, like traffic Yura. This could impact their financing Edge in the Commodities industry which would really matter to traffic Yura. It's not clear.
What will happen and who will take the head on the potentially faked nickel. Cargoes the traffic you are unwittingly sold on in 11 trades worth ninety four million dollars. It's also not yet clear if traffic, your is the only firm to have been tricked in this manner by gupta's far? Firms will have to wait and see, if more news comes out, it's somewhat amazing to me that someone would run a fraud like this where they're guaranteed to be called once the containers are open.
But, who knows? Corporate filings show that an investment vehicle of artists Financial trade Finance, startup, backed by private Equity, Firm, TD, or capital is a secured lender to TMT Metals for receivables financing. The company's website states that only the most meticulously risk assessed and commercially viable transactions. Make it through to the artist investment committee. This transaction seems to have made it through two though.
Traffic, you're a says that they have yet to decide whether to claim insurance or not. It's probably too early right now to do. So as they haven't examined, all of the metal inventories yet and they have to still see how Gupta response to their Claim experts are saying that it may be difficult for traffic your to recover their losses, through the court system, given the complexity and ownership structure of the web of companies.
It claims are behind the alleged fraud, Ian Milne, who was responsible for, trying to recover, debt from gupta's, UD trading for trade, Finance fund, trans-asia private Capital told the press that traffic yura is likely to struggle to collect money from The as well. Gupta might have a lot of money out there. Most of it is not in its name. After this flurry of fraud in the metals industry, over the last few years, things are likely to change somewhat as
lenders. Increase their scrutiny of who they deal with and the risk management procedures in place scandals like this are likely to make Banks even more wary of lending against nickel trades and a time when commodity financing in general has been ranking outdated ways of doing business like paper documents, and email will need to be replaced with more robust approaches. If fraud is to be reduced in the industry, please don't suggest
blockchain. And the comment section as the goal is to reduce the amount of fraud not to just draw in different types of fraudsters. Thanks for listening to this week's podcast. Do tell your friends about it as that's really how podcasts grow have a great day and talk to you again soon. Soon. Bye. If you enjoyed this episode, be sure to subscribe, so you're notified when a new episode is posted. Thank you to everyone who is supporting this content on patreon.
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