The Man Trafigura Blames for a $577 Million Nickel Upset

The Wall Street Journal couldn’t reach Mr. Gupta for comment. Companies that Trafigura implicated in the alleged scheme didn’t respond to requests for comment. Efforts to reach employees by visiting office locations in Dubai and London weren’t successful.

The Journal reviewed a variety of court and police documents and company filings, and spoke with people who had interacted with Mr. Gupta and his companies in the past few years, such as financiers and commodity traders.

Trafigura said in a Feb. 9 statement that it had begun legal proceedings against Mr. Gupta and the companies it had implicated. A day earlier, Trafigura had asked a London judge to freeze assets related to Mr. Gupta and the companies, according to a submission the trading house made to the court. Within hours, the judge had frozen up to $625 million in assets, his court order shows.

Mr. Gupta, 43 years old, is the scion of an Indian family that ran a public metals-and-power company,

Ushdev International Ltd.

511736 -19.58%

He had pushed abroad in recent years, including by buying a small trading firm, TMT Metals AG, in early 2016.

Bankers at

Credit Suisse Group AG

CS -1.47%

, which was then helping manage Mr. Gupta’s wealth, had introduced him to Zug, Switzerland-based TMT, some of the people said.

With a dozen or so staff, TMT traded aluminum, zinc and lead, some of the people said. It had a solid reputation in Swiss financial circles, and existing credit lines, some of them said. 

Following the deal, some of TMT’s existing staff grew disillusioned. Promises of new businesses and clients didn’t materialize, some of the people said, and senior staff began leaving in 2017 when noncompete deals ended, they added. 

After the takeover, some banks including Credit Suisse began to cut credit lines to TMT, partly because they were less confident in having it as a client following the change of ownership, some of the people said. 

The reduction in credit lines coincided with a broader retreat by banks from extending financing to smaller players that produced or traded commodities, given challenging industry dynamics.

In addition, the insurer

American International Group Inc.

AIG -2.20%

stopped providing trade credit insurance to TMT, some people said. The pullback was partly due to concerns about potential risks stemming from Mr. Gupta’s companies, some of these people said. AIG backed out in late 2019, one of them said. The Journal couldn’t learn what the specific concerns involved.

In 2021, TMT approached

OCI Ltd.

010060 -1.05%

through a broker, said Oliver Chapman, OCI’s group chief executive. His U.K.-based company helps clients streamline their supply chains. 

TMT asked OCI to procure metal products and asked to hold off paying for up to 180 days, during which time OCI would essentially be extending credit. 

Mr. Chapman said the lengthy payment terms, and the high interest TMT was willing to pay, were red flags. Already concerned by market perceptions of TMT and related companies, Mr. Chapman turned down the deal.

He says problems such as the one Trafigura says it has discovered make banks and insurers wary of doing business in commodities. That, he says, in particular hurts smaller companies in the industry that are seeking banking and insurance services.

“This is one of these unfortunate wake-up calls from time to time for trading houses,” said Jean-François Lambert, former head of commodities trade finance at

HSBC

HSBC 0.69%

and an industry consultant.

Not all institutions severed ties to Mr. Gupta early on.

Citigroup Inc.,

C -0.29%

for instance, financed Trafigura’s nickel trades with his companies until late October 2022, according to Trafigura’s recent court submission. 

Mr. Gupta had also run into trouble back in India.

The businessman had worked with his parents at Mumbai-listed Ushdev, which traded metals and invested in power projects. He became managing director in 2009 after his father Vijay Gupta died. Suman Gupta, his mother, was the company chair, and the younger Mr. Gupta became vice chair in 2012.

Metal prices globally skidded after China’s economy slowed in 2015, and a court began insolvency proceedings for Ushdev in 2018. Trafigura’s rival Gunvor Group was among those owed money by Ushdev, a list of creditors showed.

In July 2022, India’s Central Bureau of Investigation said it had searched three locations and recovered “incriminating documents/articles” after opening a fraud investigation based on a complaint from

State Bank of India.

A second CBI document, published on the bureau’s website, showed this investigation focused on Ushdev.

State Bank of India complained that from April 2013 to March 2018, Mr. Gupta, his mother, Ushdev and unnamed others had been “party to a criminal conspiracy,” that document showed. The bank claimed the fraud cost it and other lenders nearly 14.4 billion rupees, the equivalent of about $174 million at today’s exchange rates. 

Ms. Gupta couldn’t be reached for comment. The CBI hasn’t brought any charges.

By the time the CBI opened its probe, Trafigura was already heavily exposed to Mr. Gupta and related companies—but the company said it took months to uncover the scale of the problem. Trafigura’s potential losses became apparent only when the trading house searched more than 100 containers in Taiwan, the United Arab Emirates and the Netherlands in December and January and found no nickel, it told the U.K. court.

“A number of red flags led to our making efforts to reduce our exposure to companies owned by UD Group and TMT Metals,” said a Trafigura spokesperson.

The spokesperson said the alleged fraud followed a legitimate business relationship dating to 2015. “Any fraud is an opportunity to review and tighten systems and procedures and a thorough review is under way,” she added.

—Rory Jones and Summer Said in Dubai and Margot Patrick in London contributed to this article.

Write to Joe Wallace at joe.wallace@wsj.com, Julie Steinberg at julie.steinberg@wsj.com and Philip Wen at philip.wen@wsj.com

The Wall Street Journal couldn’t reach Mr. Gupta for comment. Companies that Trafigura implicated in the alleged scheme didn’t respond to requests for comment. Efforts to reach employees by visiting office locations in Dubai and London weren’t successful.

The Journal reviewed a variety of court and police documents and company filings, and spoke with people who had interacted with Mr. Gupta and his companies in the past few years, such as financiers and commodity traders.

Trafigura said in a Feb. 9 statement that it had begun legal proceedings against Mr. Gupta and the companies it had implicated. A day earlier, Trafigura had asked a London judge to freeze assets related to Mr. Gupta and the companies, according to a submission the trading house made to the court. Within hours, the judge had frozen up to $625 million in assets, his court order shows.

Mr. Gupta, 43 years old, is the scion of an Indian family that ran a public metals-and-power company,

Ushdev International Ltd.

511736 -19.58%

He had pushed abroad in recent years, including by buying a small trading firm, TMT Metals AG, in early 2016.

Bankers at

Credit Suisse Group AG

CS -1.47%

, which was then helping manage Mr. Gupta’s wealth, had introduced him to Zug, Switzerland-based TMT, some of the people said.

With a dozen or so staff, TMT traded aluminum, zinc and lead, some of the people said. It had a solid reputation in Swiss financial circles, and existing credit lines, some of them said. 

Following the deal, some of TMT’s existing staff grew disillusioned. Promises of new businesses and clients didn’t materialize, some of the people said, and senior staff began leaving in 2017 when noncompete deals ended, they added. 

After the takeover, some banks including Credit Suisse began to cut credit lines to TMT, partly because they were less confident in having it as a client following the change of ownership, some of the people said. 

The reduction in credit lines coincided with a broader retreat by banks from extending financing to smaller players that produced or traded commodities, given challenging industry dynamics.

In addition, the insurer

American International Group Inc.

AIG -2.20%

stopped providing trade credit insurance to TMT, some people said. The pullback was partly due to concerns about potential risks stemming from Mr. Gupta’s companies, some of these people said. AIG backed out in late 2019, one of them said. The Journal couldn’t learn what the specific concerns involved.

In 2021, TMT approached

OCI Ltd.

010060 -1.05%

through a broker, said Oliver Chapman, OCI’s group chief executive. His U.K.-based company helps clients streamline their supply chains. 

TMT asked OCI to procure metal products and asked to hold off paying for up to 180 days, during which time OCI would essentially be extending credit. 

Mr. Chapman said the lengthy payment terms, and the high interest TMT was willing to pay, were red flags. Already concerned by market perceptions of TMT and related companies, Mr. Chapman turned down the deal.

He says problems such as the one Trafigura says it has discovered make banks and insurers wary of doing business in commodities. That, he says, in particular hurts smaller companies in the industry that are seeking banking and insurance services.

“This is one of these unfortunate wake-up calls from time to time for trading houses,” said Jean-François Lambert, former head of commodities trade finance at

HSBC

HSBC 0.69%

and an industry consultant.

Not all institutions severed ties to Mr. Gupta early on.

Citigroup Inc.,

C -0.29%

for instance, financed Trafigura’s nickel trades with his companies until late October 2022, according to Trafigura’s recent court submission. 

Mr. Gupta had also run into trouble back in India.

The businessman had worked with his parents at Mumbai-listed Ushdev, which traded metals and invested in power projects. He became managing director in 2009 after his father Vijay Gupta died. Suman Gupta, his mother, was the company chair, and the younger Mr. Gupta became vice chair in 2012.

Metal prices globally skidded after China’s economy slowed in 2015, and a court began insolvency proceedings for Ushdev in 2018. Trafigura’s rival Gunvor Group was among those owed money by Ushdev, a list of creditors showed.

In July 2022, India’s Central Bureau of Investigation said it had searched three locations and recovered “incriminating documents/articles” after opening a fraud investigation based on a complaint from

State Bank of India.

A second CBI document, published on the bureau’s website, showed this investigation focused on Ushdev.

State Bank of India complained that from April 2013 to March 2018, Mr. Gupta, his mother, Ushdev and unnamed others had been “party to a criminal conspiracy,” that document showed. The bank claimed the fraud cost it and other lenders nearly 14.4 billion rupees, the equivalent of about $174 million at today’s exchange rates. 

Ms. Gupta couldn’t be reached for comment. The CBI hasn’t brought any charges.

By the time the CBI opened its probe, Trafigura was already heavily exposed to Mr. Gupta and related companies—but the company said it took months to uncover the scale of the problem. Trafigura’s potential losses became apparent only when the trading house searched more than 100 containers in Taiwan, the United Arab Emirates and the Netherlands in December and January and found no nickel, it told the U.K. court.

“A number of red flags led to our making efforts to reduce our exposure to companies owned by UD Group and TMT Metals,” said a Trafigura spokesperson.

The spokesperson said the alleged fraud followed a legitimate business relationship dating to 2015. “Any fraud is an opportunity to review and tighten systems and procedures and a thorough review is under way,” she added.

—Rory Jones and Summer Said in Dubai and Margot Patrick in London contributed to this article.

Write to Joe Wallace at joe.wallace@wsj.com, Julie Steinberg at julie.steinberg@wsj.com and Philip Wen at philip.wen@wsj.com