The Reuben brothers have decided to sue Trafigura Group, as the consequences of a colossal fraud with nickel ripple through the global metal markets and entangle some of its most renowned figures. Legal documents that have been viewed by Bloomberg News shed new light on the case that shocked the market earlier this year, when Trafigura stated that it expected to lose almost $600 million in what it called a "systematic fraud" operated by Prateek Gupta, an Indian businessman.
The Reuben brothers' company, Hyphen Trading, which is bringing the legal proceedings, alleges that the fraud did not just involve thousands of tonnes of missing nickel but also counterfeit shipping documents, which were used to obtain financing from leading commodity bank ICBC Standard Bank Plc. The company also claims that containers supposedly holding nickel were shipped around the world, leading to the suspicion that the contents of the containers were not genuine.
Furthermore, Hyphen accuses a Singapore-based freight forwarding company of also being involved in Gupta's alleged fraud and raises questions about Trafigura's own actions, stating that the trading house stonewalled its requests to inspect its cargoes.
The Reuben brothers, David and Simon, made their first fortune in 1990s Russia in the take-no-prisoners world of commodity-trading. Currently valued at a combined $14 billion, they have not been major players in metal-trading for decades, focusing instead on developing one of the world's largest real estate portfolios.
The allegation that fraudulent shipping receipts, known as bills of lading, were circulating the nickel market, will add to growing concerns among traders and financiers. Bills of Lading are central to modern commodity trading: original bills represent legal ownership of a cargo of commodities and are often bought and sold frequently, as well as being used as collateral for borrowing. Documents are also used to secure delivery to the end-users.
Hyphen is in separate legal disputes with Trafigura over two different cargoes of nickel. In cases at the High Court in London and Singapore, Hyphen claims that Trafigura's behaviour has been suspicious, alleging that Trafigura failed to respond to enquiries about a shipment of nickel it purchased from the company.
Trafigura, meanwhile, has continued to insist that it wasn't directly involved in the alleged fraud. However, Hyphen's claims raise difficult questions for the trading house, accusing it of blocking attempts to inspect the cargo and alleging that it was the party responsible for delivering the shipment to the shipping company, Tsingtao Port, not Gupta.
Hyphen alleges that logistics company Techies ordered the cargo to be sent back to Jeddah after it had already arrived in Rotterdam, and that the shipping documents presented by Trafigura were not genuine. Trafigura's case represents another headache for the company, still pursuing Gupta in court and making staffing and operational changes in light of the scandal. Hyphen seeks the return of its $8.4m, interest and costs from Trafigura and still has not been able to inspect its "nickel".