Three
UK NRIs jailed for $700-million fraud for involving 324 bogus
companies
Tricking banks in Britain and the US into funding
non-existent deals
London, June 06, 2008
Sudesh Sharma
NRI Virendra Rastogi, 40, chairman of RBG Resources, metal trading
firm ,was sentenced to 9.5 years in prison. A director, Anand
Jain, 40, and chief executive, Gautam Majumdar, 56, face eight
and nine years in jail.
Serious Fraud Office in London said:
- Between 1996 and 2002, the all three directors of RBG ran
a web of more than 300 fake customers, that were in fact paid
henchmen.
- It was "a truly audacious and ruthlessly efficient fraud
that ranged from the poorest areas of India to the corporate
tower blocks of Manhattan".
- A number of genuine metal traders were employed by RBG at
its London offices in central London who entered into real transactions
and were not aware that the business was being used as a front
for a massive fraud operation.
- The scandal was uncovered when false documents were unintentionally
sent to the company's auditors by fax.
- The fraud was "truly global", with company staff
in the United States, United Arab Emirates and Singapore, and
"was ultimately brought down by the pressing of a wrong
button on a fax machine
The fax was quickly followed by an anxious telephone call from
the head office of RBG Resources to say the documents had been
sent in error and should be shredded. The call was taken by an
accountant who was in Romania to conduct a routine audit.
He looked through the papers and was surprised to note that six
different companies, one in Belgium, one in Switzerland and four
in Hong Kong, had sent eight letters – all addressed to
RBG in London – from the same fax machine in Hong Kong.
An accountant alerted and his announcement sent alarm through
the banking industry because the company owed at least £400m
to European banks alone. It also had a sister company in the US,
run by Rastogi's brother, Narendra, which was heavily in debt
to US lenders.
The banks thought they were financing a successful metal trading
firm, quoted in the Sunday Times rich list, they were advancing
money to a company propped up by dishonesty.
Judge H H J Wadsworth said:
- They created a very impressive front that fooled banks, the
metal exchanges in both the UK and USA, and well respected accountancy
firms
- They "were involved in years of calculated dishonesty”
and that during the trial "they had shown no shadow of
regret or remorse or repentance".
They had office at Piccadilly. About 30% of RBG's income was
generated at the ground floor where 8-10 traders were working.
Rest of the 70% was generated upstairs, where Rastogi, Jain and
Majumdar were running the business. No body knows what was happening
on second floor. To show that they are big metals traders, they
had advisers including the former cabinet minister Jack Cunningham,
now a Labour peer, and the Liberal Democrat peer Lord Holme.
Interestingly, Bank investigators found:
- The "head office" of another firm turned out to
be a house in New Jersey from which an elderly woman sold scrapbooks.
- Second firm was just a building which had been empty for about
two years.
- In India's office was just cow shed
One time, NRI Virendra Rastogi was lauded as one of Britain's
most successful young entrepreneurs. At the age 34, he was in
209th place in the Sunday Times Rich List.
3 UK NRIs
found guilty of conspiracy to defraud of US $420,507,190
London, April 22, 2008
Sudesh Sharma
RBG Resources plc: Former Directors convicted
Virendra Rastogi, Anand Jain and Gautam Majumdar have been found
guilty of conspiracy to defraud in relation to their running of
RBG Resources plc (“RBG”). They are remanded in custody
pending sentencing on 5th June.
RBG Resources plc (in liquidation) was a metal trading business
based in London. In May 2002 it went into Provisional Liquidation
with amounts owing to creditors of US$420,507,190.
RBG was controlled by its Chief Executive, Virendra Rastogi and
other directors, including Messrs. Jain and Majumdar. The company's
financial statements for the year ended 31.7.00 showed turnover
in excess of US$1billion and profits before tax of US$ 11million.
In the years leading up to company's collapse it was presented
to its bankers, auditors, regulatory exchanges and the City as
an aggressively developing and successful business.
The truth was in stark contrast to this impression. Banks in
the UK and elsewhere were persuaded to provide extensive financial
facilities to RBG effectively secured against debts due to RBG
from sales to customers. In the event these debts proved valueless
as the transactions were not, as the banks believed, with independent
3rd party customers but with companies, controlled by the Rastogi
family around the world. Despite intensive investigations by the
Liquidators, there has been no substantial recovery of amounts
due to RBG's creditors.
The full extent of the fraud became apparent during the course
of the Liquidators' and SFO's respective investigations as well
as that of the authorities in the USA. RBG's `sister company',
Allied Deals inc., (“ADI”), which was run by Virendra
Rastogi's brother Narendra, comprised the other half of a worldwide
fraud, perpetrated for the benefit of the Rastogi family. Just
as RBG obtained funding from banks in UK and Europe, ADI obtained
funds from US banks. All the money was put into a common `pot'
for the use of the conspirators, to support their own lifestyles
and to maintain this elaborate fraud.. Total losses accruing to
US banks at the time of the collapse of ADI in May 2002 were just
under US$280 million.
The operation of the fraud and overview chronology
The defendants persuaded banks and funding institutions to provide
facilities to RBG amounting to many hundreds of millions of US$
by convincing the banks that they traded extensively with genuine
businesses around the world. By arrangement with the banks the
debts arising on the sales to these customers were `discounted.'
In other words RBG would receive up to 90% of the face value of
a sales invoice by drawing it down from the facility provided
by the banks. In return the banks acquired the right to receive
the full amount of the debt from the customer when the debt fell
due at the end of the credit period extended by RBG. This was
important to RBG, as it claimed to have extended lengthy credit
terms to its customers of up to six months, and the facilities
therefore provided RBG with cashflow ahead of the debts being
paid by the customers.
In reality false documentation was created and sent to the banks
as evidence of what purported to be genuine trade. The creation
of this documentation involved the co-operation of not only ADI
staff, but various `hub controllers' in key jurisdictions around
the world, notably Hong Kong, Dubai and India. These `hub controllers'
were in charge of ensuring that money was paid into the fraudulent
system, for onward transfer to the banks, at the time when the
so called debts became due. They would also act on the instruction
of the Rastogi brothers to make purchases or enter into various
business enterprises for the benefit of the Rastogi family, using
the fraudulently obtained funds.
In this way, hundreds of millions of US$ circulated around the
globe on the instruction of the conspirators, giving the impression
that RBG's and ADI's customers paid their debts regularly and
promptly. All this gave credence to the professed success of these
companies, as propounded by their respective directors. This was
a sophisticated and complex enterprise; it continued for over
four years, in increasing amounts and fooled not only the banks
(who undertook their own due diligence) but also the auditors.
It was an audacious fraud, underpinned by a very small amount
of genuine business, which could be used to give credence to the
wider claims of the businesses.
Towards the end of 2001, however, circumstances led to the banks
becoming suspicious of RBG and triggered in-depth investigations.
Movements on the tin market, and positions adopted by RBG on the
London Metal Exchange began to ring alarm bells; press coverage
of the arrest of a Rastogi brother in India also caused concern;
and short-cuts in RBG's cleverly planned processes started to
occur due to the ever increasing complexity of the web of controlled
counterparties required to perpetrate the fraud.
The findings of the banks' in-depth investigations did not make
for happy reading. Banks considered their positions and began
to pull funding to RBG. As the sources of funding dried up, the
flow of money around the world did likewise, and the banks increasingly
had problems in recovering money due.
It was at this time, during the final six months of the company,
that the Directors sought desperately to appease the banks, and
to cover up the true nature of RBG's business. The banks were
told that they didn't understand how RBG interacted with its customers,
and that matters would resolve themselves, just so long as the
funding remained in place. They were also told that, for example
the recent events of 9/11 had interrupted the international banking
of many of its customers causing cash flow difficulties.
By this time, RBG's auditors, PriceWaterhouseCoopers had identified
concerns, which culminated in their resigning in January 2002,
citing a break down in the relationship of trust between the auditors
and RBG's directors. This resignation was a serious blow to RBG,
who relied on having high profile professional names to lend credibility
to their business. RBG's directors managed to find replacement
auditors, and applied pressure on them to sign off the accounts
for the 14 months to 30th September 2001. Those accounts were
never in fact signed off, as the Provisional Liquidation overtook
events.
The appointment of Provisional Liquidators in May 2002 coincided
with the opening of an investigation by the SFO, which commenced
with immediate searches of RBG's offices and the homes of the
defendants. Search warrants were executed by officers of City
of London Police, via whom the case was referred to the SFO. City
Police continued to work with the SFO in the early stages of this
investigation.
Only a matter of days later, the US authorities undertook large
scale searches and seizures in relation to ADI's offices and various
addresses related to the US suspects.
The SFO's investigation
The SFO's investigation commenced in May 2002, and culminated
in the charging of defendants Messrs Rastogi and Jain in October
2005 and Mr. Majumdar in 2006 (who was resident in India at the
time and returned to the UK to be charged).
By the very nature of the case, this was a huge enquiry, requiring
worldwide investigations and the co-operation of the Governments
of a number of jurisdictions. Vast quantities of documents and
electronic material were inspected, reviewed and analysed, including
a warehouse of material from Hong Kong and at least 2000 boxes
of material from the USA.
The SFO would like to take this opportunity to extend our particular
thanks to the Southern District of New York US Attorney's Office,
and FBI, for their unstinting support and assistance in bringing
this case to trial. That assistance included providing access
to US defendants who had pleaded guilty to their part in the worldwide
conspiracy and who had then decided to co-operate with the authorities
in the United States. Four of those defendants provided voluminous
statements to the SFO, and three attended court to give evidence.
The SFO considers that their evidence in particular was powerful
and cogent, and helped in the clear presentation of the Crown's
case to the jury.
We would also like to acknowledge the considerable assistance
of the Department of Justice and Police in Hong Kong.
The trial
Four defendants were indicted and their trial commenced on 3rd
September 2007. Those defendants were:
Virendra Kumar Rastogi (Chief Executive and Managing Director,
born 08.02.68)
Anand Kumar Jain (Director, born 08.05.65
Gautam Majumdar (Deputy Chief Executive and Director, born 17.10.51
Jayeshkumar Patel (Senior Vice President, born 02.10.68)
The judge ordered the acquittal of Patel on both counts at the
close of the Prosecution case, following a Submission by his legal
team.
The indictment contained two counts of Conspiracy to Defraud,
the first alleging a worldwide conspiracy involving the defendants,
others at RBG and at ADI and elsewhere around the world; the second
alleged a conspiracy based at RBG in London alone. The particulars
of the indictment were as follows:
Count 1: VIRENDRA RASTOGI, ANAND JAIN, GAUTAM MAJUMDAR and JAY
PATEL between 1 January 1996 and 1 June 2002 conspired together
and with others to defraud such institutions as might provide
funds to Allied Deals Incorporated and RBG Resources plc (formerly
known as Allied Deals plc) by dishonestly causing or permitting
the said institutions to provide funds based on various metal
transactions which were false, in that:
Some of these transactions did not represent the genuine sale
or purchase of metal for value and/or
Some of these transactions were not conducted with genuine customers
and/or
Some of these transactions were in fact conducted with companies
secretly controlled or influenced by the Rastogi brothers.
Count 2: VIRENDRA RASTOGI, ANAND JAIN, GAUTAM MAJUMDAR and JAY
PATEL between 1 January 1996 and 1 June 2002 conspired together
and with others to defraud such institutions as might provide
funds to RBG Resources plc (formerly known as Allied Deals plc)
by dishonestly causing or permitting the said institutions to
provide funds based on various metal transactions which were false,
in that:
Some of these transactions did not represent the genuine sale
or purchase of metal for value and/or
Some of these transactions were not conducted with genuine customers
and/or
Some of these transactions were in fact conducted with companies
secretly controlled or influenced by the Rastogi brothers.
The jury convicted all remaining Defendants on the wider worldwide
conspiracy, which encompassed the London conspiracy. Accordingly,
the jury were not required to return verdicts on Count 2.
The trial lasted 8 months, including periods of time when court
did not sit, to allow for Christmas and Spring breaks.
The SFO will be pursuing confiscation against all remaining Defendants.
Source- Serious Fraud Office, London
