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.
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