Britain tries to recoup fraudster's cash

Virendra Rastogi began operations in the UAE and eventually established a bogus network of metal traders in some of the world's major financial centres.

LONDON // The British government began court action in London yesterday to seize the assets of the mastermind behind an audacious fraud that cost banks worldwide an estimated US$750 million (Dh2.8 billion). Virendra Rastogi, 42, an Indian, began operations in the UAE and eventually established a bogus network of metal traders in some of the world's major financial centres.

Rastogi, who eventually set up the headquarters of Allied Deals/RBG Resources in London, created more than 300 fictitious customers supposedly dealing in metals, between 1996 and 2002. Investigators subsequently found that the addresses of these companies included a cowshed in India, a launderette in New Jersey and the home of a US pensioner who ran a small business selling scrapbooks. Rastogi was jailed for 9 years after a seven-month trial in London two years ago. His brother Narendra, who ran the New York office, is serving a seven-year sentence in the United States while another brother, Ravindra, was deported to India from Dubai on tax charges.

At Southwark Crown Court in London yesterday, the government began action under the Proceeds of Crime Act to recover what it can of Rastogi's ill-gotten gains, which, nine years ago, earned him a place in the Sunday Times "Rich List" with a personal fortune estimated to be in excess of $200m. However, fraud investigators admitted that tracing most of the money could be difficult as much was believed to have sent back to India, where Rastogi has a huge family. Other sums were invested in property developments in Dubai and the United States.

Rastogi, whose companies reported a turnover in excess of $1bn in 2001, made money simply by borrowing off one of more than 20 banks worldwide to finance bogus metal transactions. His brothers and accomplices in Dubai, New York, Hong Kong, Singapore, India, France and Italy would falsify documentation and Rastogi would negotiate loans from banks to finance the supposed deals. When this "imaginary metal" was in transit, he would arrange finance for another "deal" and so on, borrowing ever-increasing amounts, paying off some of the loans and pocketing the rest.

This global Ponzi scheme even listed among its assets a warehouse in the UAE that was supposed to contain "millions of dollars of inventory". Neither the inventory nor even the warehouse actually existed. From his plush offices in Piccadilly, he hired a number of genuine metal dealers, who did not know the whole operation was based on fraud, and even got Jack (now Lord) Cunningham, a former Labour cabinet minister, and three UK members of the House of Lords to act as advisers or non-executive directors.

The house of cards came crashing down at the end of 2001 when an aide in the Hong Kong office pressed a wrong button and, instead of sending eight bogus orders to Rastogi, mistakenly sent them to the firm's UK auditors, PricewaterhouseCoopers. Suspicious that eight orders from supposedly different companies dotted around the world had all come from the same fax machine, the auditors called in the police.

Within weeks, the auditors had resigned, telling Rastogi: "There is little evidence to suggest to us that business activities are consistent with transactions recorded in the books." The letter added that the auditors doubted that the commodities involved in the transactions existed. When fraud investigators raided Rastogi's office, they found him feverishly feeding documents into a shredder. "This was a fraud that involved literally billions of dollars," said a spokesman for the UK's Serious Fraud Office. "It was a truly audacious and ruthlessly efficient fraud that ranged from the poorest areas of India to the corporate tower blocks of Manhattan.The RBG Resources empire was a family business founded and driven by fraud."

At an earlier hearing in London, a High Court judge ordered Rastogi to repay $360m, but he declined to hand over any assets and was declared bankrupt. Investigators believe, however, that his investments throughout the world are substantial. @Email:[e-mail]