https://fortune.com/2023/02/09/nickel-fraud-allegations-trafigura-group-half-billion-loss/ FINANCE NICKEL A major commodities trader says they have uncovered a major fraud after discovering their Nickel shipment contained no Nickel—and it’s costing them more than a half billion dollars The missing nickel is a blow for the company that has grown rapidly in the past decade to become one of the world’s largest trading houses. BY ARCHIE HUNTER , JACK FARCHY , AND BLOOMBERG February 09, 2023 10:10 AM EST Commodity trader Trafigura Group is facing more than half a billion dollars in losses after discovering metal cargoes it bought didn’t contain the nickel they were supposed to. Trafigura has spent the past two months uncovering what it believes is a systematic fraud against it. It has started legal action against Indian businessman Prateek Gupta and several companies connected to him including TMT Metals and subsidiaries of UD Trading Group, Trafigura said in a statement. The missing nickel is a blow for the company that has grown rapidly in the past decade to become one of the world’s largest trading houses. It’s also another black mark for the metals-trading industry, which in recent years has been beset by tales of fake warehouse receipts, duplicate shipping documents and containers filled with painted rocks. Trafigura has recorded a $577 million impairment as a result of the fraud, although the final cost could be lower if it’s able to recover some funds. The group’s head of nickel and cobalt trading, Socrates Economou, is leaving the company, according to people familiar with the matter. However, Trafigura said it does not believe that anyone at the company was complicit in the fraud. A person who answered the phone at UD Trading’s Dubai office had no immediate comment and said that Gupta was not available. Calls made to TMT Metals’ London office on Thursday afternoon went unanswered. Trafigura has been trading with Gupta’s companies since at least 2015, but started reviewing the relationship last year, the people said. It had been buying nickel in containers already on board ships, and then selling it on when the vessels reached their destination. The trade began to unravel when Trafigura investigators arrived at the port of Rotterdam just before Christmas 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. No Nickel “Since late December 2022, a small proportion of the containers purchased from these companies have been inspected as they reached their destination, and were found not to contain nickel,” Trafigura said in the statement. “The majority of the shipments remain in transit awaiting further inspection.” Nickel is a popular metal with fraudsters. Its high value means that a single container full can be worth $500,000, yet it is traded in relatively large volumes and without the strict security that accompanies shipments of precious metals like gold. Other traders were caught out by nickel for different reasons in the past year, as the metal was at the center of a massive short squeeze that brought the London Metal Exchange to its knees. For Trafigura, one of the largest traders of energy and metals, the loss will raise questions about its processes for verifying trades and checking counterparties. It will put further pressure on Trafigura’s metals unit, already outshone by the company’s energy traders. The metals unit’s operating profit before depreciation and amortization in the year to September fell 24% from the previous year, which together with a record performance from the energy traders meant that metals contributed just 16% of the company’s overall operating profit, the lowest in more than a decade. However, the company said it still expects its overall profit for the six months to March to be higher than the previous year, notwithstanding the nickel loss. Economou is a Trafigura veteran who joined the company in 2007, and was appointed head of nickel and cobalt trading in 2016 after stints in Johannesburg developing the company’s copper and cobalt business in the Democratic Republic of Congo, and as head of refined metals for China. He was one of Trafigura’s most senior metals traders, but missed out on promotion to run the metals division when current co-heads Kostas Bintas and Gonzalo De Olazaval were appointed in 2021. Trafigura said it “remains committed to building its presence in the fast-growing battery metals markets.” © 2022 Fortune Media IP Limited. All Rights Reserved.
The missing nickel is a blow for the company that has grown rapidly in the past decade to become one of the world’s largest trading houses. It’s also another black mark for the metals-trading industry, which in recent years has been beset by tales of fake warehouse receipts, duplicate shipping documents and containers filled with painted rocks. _____________________________________________________ Who knows, there are hundreds or thousands of cheaters in this case.
That's like a ~1 000 containers. Now if you have an ability to pay $500 000 000 for some metal, then please have an ability to hire few people, pay them 6-is figures, just to check few containers all day long before loading and make payments for the mining company after each 10 or 100 containers that were loaded. The story doesn't make sense. They're involved too.
"Now if you have an ability to pay $500 000 000 for some metal" Same principle as retail pikers trading forex positions of several million USD I guess, margins might be very thin. I agree it's a bit weird they didn't detect this faster, but it's not that improbable it's simple naiveness. I.e. you don't expect to be screwed over in such an audacious and clearly illegal way by an on-the-paper legitimate counter party.
re: History repeats itself in no no nickel in the nickel shipment. Greatest fraud of all was the Salad Oil Swindle date is 1964. Adjust for inflation and Feel the enormity A SAMPLER OF AMERICAN SCANDAL! Iii. Commodities: Soybeans and Salad Oil; the Greatest Scandal in the History of Wall Street Is Sti April 1 1964 Peter Vanderwicken III. COMMODITIES: SOYBEANS AND SALAD OIL; THE GREATEST SCANDAL IN THE HISTORY OF WALL STREET IS STILL GOING ON Peter Vanderwicken Billie Sol Estes, F. Donald Coster, Charles Ponzi and the other great swindlers of yore have been put to shame. There reigneth a new Sultan of Swindle—a pudgy little man named Anthony “Tino” DeAngelis who, in a marathon lasting more than two years until last November, took some of the most sophisticated bankers and brokers in the world for nearly $150,000,000. He makes Billie Sol (who got only about $22,000,000) and Coster (who as president of McKesson & Robbins in the Twenties appropriated $8,000,000 and shot himself to death as police arrived) and Ponzi (who, starting in the Twenties, got $15,000,000 from people who invested in his get-rich-quick scheme) look like pikers. Tino already has caused the failure of two famous old Wall Street brokerage houses, the bankruptcy of a subsidiary of the mighty American Express Co., and the scandal disclosed by his own bankruptcy is belatedly spurring changes in the way foods, fibers, oils and metals are bought and sold on the nation’s commodity exchanges. The case is, in fact, the biggest Wall Street scandal in history and as a corporate swindle stands second only to that of the Swedish match king, Ivar Kreuger, who bilked investors of $500,000,000 until the Depression caught him. Tino’s downfall, ironically, was triggered unwittingly by the U.S. Senate, whose delay in approving grain sales to Russia last fall brought crashing down the prices of the vegetable oils on which his empire was shakily built. Yet this enormous swindle, which so far totals about $150,000,000, has created little stir in the press and aroused no such public sense of awe and indignation as did Billie Sol just two years ago. Why? The case is, first of all, extremely involved. It is both a pure and simple swindle involving leading American and European bankers and brokers and at the same time a huge financial scandal, disclosing—based on the facts here set forth—incredible stupidity and laxity in the management of the nation’s commodity exchanges. The scandal hasn’t received too much public attention because it concerns the ways commodities are traded, and these are a mysterious and impenetrable maze to the public, to most government officials and newspaper reporters. Perhaps Americans are becoming blasé about scandals. They’re here to stay, we tell ourselves, and we may avoid engagement merely by looking the other way. Or if we’re lucky, we may even profit from them—at another’s expense. I: The Swindle Tino began his swindle simply by overdoing a perfectly common business practice: borrowing money by using his inventory as collateral, the inventory being edible vegetable oils. In the late Fifties Tino bought and sold increasingly large quantities of cottonseed, soybean and other oils. Tino dominated the market in cottonseed and soybean oils; he was the largest U.S. exporter of them, and by last fall he owned contracts allowing him to buy about a third of the entire U.S. cottonseed-oil production for a year and about a tenth of the soybean-oil crop. The two oils are key ingredients of salad dressings and margarine, and are used in soy sauce, soap, paint and plastics. As the principal trader in them, Tino was a big operator. Tino created a complex of twelve closely held companies. At the apex of this fog-shrouded empire was “Allied Crude Vegetable Oil Refining Corp.,” whose bankruptcy in mid-November finally alerted its victims to the unfolding swindle. Allied claimed to store millions of pounds of oils at a labyrinthine “tank farm” on the waterfront at Bayonne, New Jersey, where they could easily be shipped to European customers. It leased a hundred thirty-nine huge storage tanks at Bayonne, and subleased most of them to the subsidiary of American Express, called American Express Warehousing, Ltd. Amex Warehousing stored oils for Allied under a contract and, for reasons which will presently become clear, declared itself bankrupt on December 30. Allied also subleased some tanks to another warehousing concern called Harbor Tank Storage Co.—and some of these tanks, like Billie Sol’s fertilizer tanks, apparently never existed. Allied’s inventory of oils in the storage companies’ tanks was checked once a week. The capacity of each tank was known, and to measure the contents Allied employees dropped a weighted tape from the top. When it supposedly touched the thick oil, they measured the distance from the top, and from that they falsified the number of pounds of oil in each tank. Allied employees testified at its bankruptcy hearings that increasingly for some two years they had falsified the inventory records without knowledge of the storage firm by stopping the tape before it hit oil ; that made it appear each tank held more oil than it really did. By the time Allied went bankrupt, Amex Warehousing’s figures showed it was storing 923,540,000 pounds of oils for Allied in its tanks. Yet nobody seems to have noticed that the tanks it subleased could only hold, when completely full, a bit less than 500,000,000 pounds. At Harbor Tank Storage, Tino went a step further and stored nonexistent oil in nonexistent tanks. He was helped by the fact that Harbor Tank’s boss at Bayonne, one Joseph Lomuscio, was an old buddy. Allied paid Joe a $200-a-week salary, and paid other sums, totaling thousands of dollars, to a company called Bulk Weighers & Samplers, Inc., of which Lomuscio was president. This company, among other activities, found it necessary to have a subsidiary whose sole asset was a $1,500 show horse named King Tudor. The company had its office at Lomuscio’s posh suburban New Jersey home, where his phone was listed under the name of W.S. Bulk. Early in the court proceedings, Lomuscio, who took the Fifth Amendment twenty-five times, was cited for contempt for refusing to produce the records of Bulk Weighers. Earlier in the scheme, Tino’s nonexistent tanks and oils theoretically hadn’t caused anyone to lose money. But they set the stage for the swindle by letting Amex Warehousing think it was storing far more oil for him than it actually was. It is common practice for purchasers of commodities from dealers like Allied to finance the purchase by having the seller furnish “warehouse receipts” issued by a storage company and certifying that it is storing the commodities he has bought; the purchaser then can use the receipts as collateral for loans. When Tino sold oil, Amex Warehousing thought it stored over 923,000,000 pounds of it and issued receipts for that amount; Harbor Tank certified it held millions of pounds more. Many of Allied’s customers, believing the receipts genuinely showed they had bought the oils, used them to obtain loans totaling millions of dollars from leading banks in the U.S., England, Germany and The Netherlands. Some customers used them unwittingly to supply margin, or down payments, to their brokers to buy other commodities. Since he had such an easy time getting customers and bankers to pay for real, but worthless, receipts, Tino last fall reasoned that it would be even easier simply to forge warehouse receipts showing Allied itself owned more oils and pledge them as collateral for loans to Allied. Two days before Christmas a Federal grand jury presented Tino with an eighteen-count indictment charging that he transported more than $39,000,000 of forged receipts, supposedly certifying the storage of more than 395,000,000 pounds of soybean oil, from Bayonne to New York City. He pleaded innocent. Allied’s customers meanwhile have made claims for 1,700,000,000 pounds of oils that they bought from Allied and received warehouse receipts for—yet when Allied went bankrupt there were only about 100,000,000 pounds of the oils at Bayonne. (The 1,600,000,000 shortage is worth about $150,000,000.) Amex Warehousing, of course, is liable to the holders of its worthless receipts, and this enormous liability forced the company into bankruptcy, although the president of parent American Express stated it was “morally bound” to make good its subsidiary’s debts. In a matter of days the price of American Express stock dived forty-one percent when the scandal broke. One of the most enlightening revelations of the whole affair is how easily a concern can be duped. For some two years Tino regularly created nonexistent oils, and increased the amounts nearly every week. Yet neither Amex Warehousing nor the bankers were suspicious. Tino’s worthless warehouse receipts for millions of dollars were accepted by the friendly Chase Manhattan, First National City Bank, Bank of America, and other institutions of like repute. Tino made most of his fake inventories and forged receipts in the last few months of 1963 ; until then, he produced enough oils to make shipments to customers demanding theirs. But then, it wasn’t all oil he was shipping. A surveying firm hired by one of Allied’s creditors shortly after the scandal broke reported thusly on its difficulties in measuring tanks supposedly storing Allied’s oil: “Solid materials in large shore tanks were not level so that accurate gauge could not be obtained. Some tanks that had solid material on top contained liquid underneath. This liquid may have been water. From our observations most tanks appeared to contain sludge on the bottom.” Some months earlier Senator Williams of Delaware charged in a Senate speech about one of Allied’s affiliates that when in 1961 the Agriculture Department contracted with it to supply about $70,000,000 of soybeah oil to several foreign governments much of it was shipped in leaky cans and was rancid when it arrived. During the 1962-63 season Spain rejected 14,000 tons of a 50,000ton shipment from Allied because it contained fish oil, cottonseed oil, coconut oil and substances other than that called for in the contract. Another 13,000 tons of the same shipment were rejected because of undescribed “contamination.” Tino also had been in trouble with the U.S. government before. In 1953 the Securities and Exchange Commission charged that a meat-packing company he then headed had understated its losses. Later that year the company went bankrupt, and in 1958 Tino was indicted for allegedly inducing a company employee to perjure himself in the 1953 investigation ; he was found innocent. He’s a rolypoly, bespectacled little man, forty-eight years old, who ended his education in his third year of high school for “economic reasons.” By the time he was twenty, he says, he was a foreman in a New York hog-processing company ; at twenty-four he had his own butchering concern. He likes grey; he wears grey suits, grey ties, grey horn-rimmed glasses. Most of the tanks at Bayonne are grey, too. At a press conference a few days before he was indicted Tino blamed his downfall on overly optimistic forecasts of commodity exports by the Agriculture Department which, he said, induced Allied to buy large numbers of commodity futures contracts “the carrying charges of which were enormous and resulted in irreparable injury to the company.” And that brings us to the scandal of the commodities markets. II: The Scandal Despite Tino’s nonexistent oil at Bayonne, he did own plenty of it— or, more exactly, he owned contracts to buy plenty of it in future months. These futures contracts are traded, rather like stocks, on commodity exchanges ; those for cottonseed oil are traded mostly on the New York Produce Exchange, and those for soybean oil mostly on Chicago’s Board of Trade. Each contract allows its purchaser to undertake to buy 60,000 pounds (one railroad tank car) of a specified quality oil at some future date and stated place. All large commodities dealers buy and sell futures contracts as a “hedge” against price changes in the cash or immediate-delivery market, because price changes in the futures market tend to offset changes in the cash market and thus prevent losses. Tino had bought futures contracts in the normal course of business in the past. But when the Russians began making purchases of grain abroad, speculation grew that they might also buy some U.S. grain—and perhaps other commodities as well. Tino, hoping for a sharp price rise in cottonseed and soybean oil, began buying futures contracts heavily. By mid-November Allied owned about ninety percent of all the cottonseed-oil futures contracts on the Produce Exchange, entitling it to buy some 600,000,000 pounds of oil in the future, or about a third of the total U.S. production. Allied also owned about forty percent of the soybean-oil contracts, enough to buy about 700,000,000 pounds of the oil, more than a tenth of the total crop. Tino owned a far greater share of both commodities than anyone else and he had, in fact, almost cornered the market in them both. Commodity prices did rise, just as Tino had figured. The price for cottonseed oil rose from 13.25 cents a pound in late September to 13.86 cents in mid-November; soybean oil rose from 9.20 cents to 10.30 cents in the same period. In the commodities markets, where price changes are measured in hundredths of a cent a pound, these were major increases. Tino, meanwhile, was buying up futures contracts heavily—-and using his worthless and forged warehouse receipts to help pay for them. (Continued on page 136) (Continued from page 93) But then, in mid-November, the Senate was considering whether it should ratify the wheat sale—and some key Senators were opposed. This naturally dampened hopes for lucrative sales of other commodities to the Russians. In a few days, the price of cottonseed oil fell to 12.32 cents a pound and soybean oil to 7.60 cents. Tino, like most other traders, had bought most of his contracts on margin. The margin, or down payment, that buyers of commodity contracts must put Lip is exceedingly low—less than ten percent of the contract’s value usually and often nothing at all. A buyer of stocks, by contrast, must put up seventy percent of the purchase price in cash. But commodity-exchange rules say that if the price drops, a purchaser must pay the entire amount of the drop in cash. Thus, if Allied had bought 1,000 contracts for an oil at ten cents and the price fell a penny, it would have had to put up $600,000 in cash. In November Allied actually owned, all told, about 20,000 contracts—and the price of soybean oil fell nearly three cents. Tino needed millions in margin—and he didn’t have it. Allied’s brokers, as a result, became responsible for paying his margin, and they had to pay it from their own capital. Allied at the time did most of its business with two old and respected stock and commodity brokerage firms, Ira Hacipt & Co. and J. R. Williston & Beane, Inc. Haupt had to pay the clearing association of the commodity exchanges $18,000,000 for Allied’s margin and Williston paid about $610,000. This enormous drain on their capital was more than the two firms could stand; Haupt failed completely and the New York Stock Exchange put up $7,500,000 initially to reimburse its customers, many of whom had allowed Haupt to pledge their securities for loans to help finance their securities purchases. Haupt also had pledged many of Allied’s forged warehouse receipts to obtain loans. Williston, which wasn’t hit so hard, was simply merged into a stronger firm. Government investigators promptly began asking how Tino had almost been able to corner the most important commodity on the New York Produce Exchange and cause the failure of one of its member firms. And officials of the commodity exchanges were incapable of offering plausible explanations. Among them are smug men who have done things the same way for half a century and who have never considered it necessary to modernize or change their trading methods or to improve their procedures (such as requiring an initial margin for trading firms). When asked why, after the debacle arose and thousands of the brokerage firms’ customers were faced with losses because of laxity on the commodity exchanges, one top official could say : “We have no interest in protecting securities customers.” This public-be-damned attitude was common in Wall Street, of course, before the securities laws were enacted in the early Thirties to prevent it. Ii'responsibility in the securities markets is now a rare thing. But somehow Congress was persuaded in the Thirties to exempt the commodity exchanges from the laws requiring greater responsibility, and they have taken full advantage of the exemption. But it may not last long; the Agriculture Department is already drafting legislation to require major improvements and prevent further abuses on the commodity exchanges. Senator McClellan’s investigating subcommittee, the P.B.I. and the S.E.C. (which has no power over commodity exchanges) are all examining the situation, and the chairman of the House Agriculture Committee has called for new controls over the commodity exchanges. The Produce Exchange claims it had no responsibility for the whole infamous affair on the ground it didn’t know Allied was buying so heavily. Yet Allied’s suspiciously heavy buying was such common knowledge among commodity traders and their brokers as early as last summer that Williston, for one, became alarmed and was trying to end its dealings with Allied when prices crashed. When Allied in early October asked another major brokerage firm to handle some of its trading the firm checked with other brokers and credit-information services, received bad reports, and refused to deal with Allied, to its present relief. In June, when the managing director of the Produce Exchange was asked about the unusual activity in cottonseed-oil futures, he expressed little concern, and said: “It’s good business. We are delighted.” The exchange, moreover, is responsible for setting margin requirements. It could at any time have required—as did some brokerage firms—that Allied and other trading firms put up part of the purchase price in cash, thus greatly minimizing losses when prices fell. And the Agriculture Department’s Commodities Exchange Authority, which does keep tabs on who buys commodities, says it discussed its concern about Allied’s heavy purchases with the Produce Exchange. Why didn’t anyone do anything? One reason may be that people were making nice profits. Brokers were making small fortunes in commissions from Allied, other commodities dealers and many speculators were gaining as contracts prices steadily rose, and the exchange was taking in fat sums from its cut of the brokers’ commissions. The profits waiting to be plucked were apparently limitless. This attitude, held by dozens of eminently respectable and self-righteous bankers, brokers, traders and exchange officials is what may have permitted Tino to launch his scheme. It fosters the kind of careless laxity that led supposedly cautious bankers to accept a growing flood of worthless receipts for cash loans, and brokers to pile up thousands of dangerously vulnerable contracts bought mostly with their own credit. The affair is evidence that a panting, grabbing, striving sickness is abroad in America. Those are sugarplum trees dancing in the distance, and only a little laxity here, a little fudging there, a quick turning of the eyes, will bring them closer. It’s a pleasant sickness; we all get goodies for nothing. It’s also highly contagious; unless checked quickly it spreads and soon becomes an epidemic. The last such epidemic in America was almost thirty-five years ago—in 1929. -Hf
re: receipts fraud for multiple loans Summary In May 2014, it was discovered that Dezheng Resources, a Chinese trading company, had multiple warehouse receipts issued for metal stored in the ports of Qingdao and Penglai in Shandong province. Approximately 400’000 tons of alumina, aluminium and copper worth around $380 million were used to obtain $4.2 billion in financing from 18 Chinese and 7 international banks. The fraud was discovered in the course of a government corruption investigation of a Party official. The warehouses have been put under lockdown and have not reopened since. A large part of the financing had been done in the form of commodity repurchase agreements, or repos. These instruments are ownership structures, in which title to the goods and risks pass from the trader to the financier for the duration of the transaction, as opposed to secured lending, in which the goods are pledged to the lender who has a security interest in them. Among the many lawsuits that followed the scandal, the most prominent one was Mercuria v Citibank that was expected to be a test of a key principle of repos, that of the true sale. The objective of this report is to study the consequences of the scandal for commodity repo financing. We start by examining the functioning of these instruments and the context in which the scandal happened. Based on that knowledge, we analyze how Qingdao has affected the use of repos and draw up recommendations regarding the legal and operational aspects of setting up these deals. https://doc.rero.ch/record/278182/files/Dmitry_MINKO_Bachelor_Thesis_Final.pdf