Allied Deals Inc. Global Metal Trading Ponzi Scheme
05/02 - Only nine of the 80 naturally occurring metals are brokered and monitored on the London Metals Exchange or the New York Mercantile Exchange's Comex division.
The rest are controlled by some 2,000 unregulated metal traders.
The Piscataway, New Jersey, headquarters of Allied Deals Inc. is where prosecutors say four executives led by Narendra Kumar Rastogi put together a global metals-trading scam that bilked around ten banks of as much as $1 billion in the past two years using fake invoices, made-up companies, falsified shipments and hundreds of accomplices.
The 13-year-old company, which numbered about 200 employees at its peak about two years ago, has marble floors, solid-carved raised-paneled doors and leather couches. Each executive has an office about 50 feet by 30 feet.
The Rastogi family started trading metals in India in the 1950s, buying scrap and selling to Delhi foundries, later building an export-import business of brassware, handicrafts and metals, according to Namasthenri, a Web site for non-resident Indians.
In the late 1980s, at age 20, Virendra Rastogi founded a New York office of Allied Deals, according to the Web site and is listed with his family in 209th place on the London Sunday Times Rich List 2002, in a tie with 10 others, including the singer Sting.
Their fortune is put at about 150 million pounds ($136.7 million).
Their group of metal trading companies also included Hampton Lane Inc., SAI Commodity Inc. and at another office in London's Piccadilly Square Rastogi's younger brother Virendra ran a related company, RBG Resources Plc.
Prosecutors charged them with using the metal trading companies in a global Ponzi scheme which falsely represented to the banks that they were arranging shipments and needed financing for customers in India, Hong Kong and elsewhere, then used new loans to pay off maturing credit to keep the fraud going.
The scam involved fake addresses and people posing as customers overseas to greet bank investigators and in one case, a non-existent warehouse in the United Arab Emirates that was supposed to contain "millions of dollars of inventory did not exist.
They sometimes sent identical documents to different banks as support for separate loans.
The fraud first became apparent in September, when a representative of J.P. Morgan walked to the lower Manhattan headquarters of Island Metals, which received a $1.2 million loan, and found a door with a peephole and determined it wasn't a sophisticated metals trading business.
Traders say it's easy for unscrupulous dealers to take the money and run. One method involves creating an offshore shell company to issue bills of lading and other ownership papers for nonexistent material.
The trading company's bank then authorizes a letter of credit to be drawn against the traders' credit line, which in the metal business is usually no less than $5 million.
If the metal fails to materialize, the issuing bank cannot re-collect on the letter of credit and the trading company that executed the deal is responsible for the shortfall.
Allied and its affiliates used shell corporations as one of their methods of defrauding banks, with which they had had credit lines of up to $15 million, the U.S. court complaint said.
Metal traders who have done business with Allied Deals suggested that in order to build up a reputation with the banks which ultimately increased their credit line, the accused had a history of securing letters of credit to buy significant lots of strategic metals, only to sell the material to customers for the same price rather than for a profit.
Their lawyers dismissed the allegations of fraud and said that matter represents a "legitimate business dispute" between Rastogi and the banks.
Similar bank frauds have occurred in the past.
In 1996, a former Philip Morris Cos. employee pleaded guilty to charges he fraudulently obtained a $350 million loan from a group of seven banks led by Signet Banking Corp. by claiming he needed the financing for a top-secret international project of the tobacco company.
The government recovered $200 million of the loan.