Swiss Trader Sues Deutsche Bank Over China Metal Fraud

(Bloomberg) -- Swiss commodities trading house Mercuria Energy Group Ltd. sued Deutsche Bank AG, alleging fraud in a Chinese metals warehousing scandal.

Mercuria, fronted by a trio of former Goldman Sachs Group Inc. executives, alleges that Deutsche Bank failed to deliver about $21.8 million worth of aluminum in 2014 that was supposed to be stored at a warehouse in Qingdao, China.

Mercuria was among the hardest hit trading houses from the fallout of a wide-scale fraud committed in the Chinese ports of Qingdao and Penglai. Warehouse receipts were forged and metal sold multiple times to different buyers in mid-2014. Metals were also alleged to have been pledged several times as collateral for loans, leading to hundreds of millions of dollars of bank writedowns and provisions by traders including Mercuria.

“It transpired that the aluminum was not in the warehouse and/or did not exist at all at the time the release undertakings were issued as a result of a large-scale fraud,” a Singapore subsidiary of Mercuria said in documents filed in London’s High Court of Justice.

Deutsche Bank was “unjustly enriched” at Mercuria’s expense, the trading house said in the lawsuit, which was filed in November. Mercuria is seeking $23.5 million in total, it said in the claim.

A Mercuria spokesman in Geneva declined to comment on the case and the firm’s lawyer didn’t respond to requests for comment. A Deutsche Bank spokesman declined to comment.

Mercuria settled a legal dispute with Citigroup Inc. in 2016 in a separate but related case. Mercuria had sued the U.S. bank in 2015 seeking $270 million in damages.

Like the dispute with Citi, the Deutsche Bank claim centers on payments relating to metals-backed sale and repurchase transactions. Known as “repo” deals, a trader sells metal to a bank with an agreement to buy back the same or equivalent metal for a higher price at a later date.

--With assistance from Steven Arons.

To contact the reporters on this story: Andy Hoffman in Geneva at ahoffman31@bloomberg.net;Alex Verge in London at averge2@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Christopher Elser, Dylan Griffiths

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