Another Wirecard? Invoices Backing Greensill-Issued Bonds Never Existed, Administrator Finds
As the collapse of Greensill Capital threatens to ensnare former PM David Cameron in a humiliating public probe, the Financial Times on Thursday reported some disturbing new details that appear to suggest Greensill wasn't merely reckless, but potentially guilty of a Wirecard-style fraud. According to the FT, Greensil's administrator - who is responsible for winding down whatever assets remain and managing creditors' claims - "has failed to verify invoices underpinning loans to Sanjeev Gupta, after companies listed on the documents denied that they had ever done business with the metals magnate."
In other words, it would appear that some of the bonds issued by Greensill were backed by fraudulent invoices. Keep in mind, Credit Suisse went on to take these bonds and absorb them into "low risk" trade finance funds marketed to the bank's "professional" clients, which mostly includes institutions like sovereign wealth funds, governments and ultra-wealthy individuals. German cities that invested in a Greensill-owned bank based in Germany have also been hammered by the firm's collapse.
Social media users quickly made the connection between this latest revelation about Greensill's assets, and the situation with Wirecard.
NEW: Greensill Capital’s administrator has failed to verify invoices underpinning loans to Sanjeev Gupta, after companies listed on the documents denied that they had ever done business with the metals magnate.
— Robert Smith (@BondHack) April 1, 2021
by @cynthiao and me https://t.co/IGxyxFE1bo?
How many more billion dollar companies out there are build on fraud and wishful thinking? #Greensill #Wirecard
— Owe Jessen (@ojessen) April 1, 2021
The FT contacted at least one firm approached by Grant Thornton, the Greensill Administrator following up on debts purportedly owed to holders of the Greensill-packaged debt, and confirmed the firm's claims that a trading relationship with Gupta's LIberty Commodities "does not exist."
Grant Thornton, which is looking to recoup money owed to Greensill in its role as administrator to the collapsed firm, last month approached companies that were listed as debtors to Gupta’s Liberty Commodities trading firm, which borrowed hundreds of millions of pounds backed by invoices. Greensill had extended a receivables financing facility to Liberty Commodities that allowed it to exchange bills from customers for cash upfront.
This process, also known as factoring, meant that Greensill would get repaid when the customer settled the invoice, by paying for goods it purchased from Liberty. However, several of these companies have disputed the veracity of the invoices from the metals magnate’s commodities trading firm, according to people familiar with the matter and correspondence seen by the Financial Times.
RPS Siegen GmbH, a German scrap metals business, confirmed to the FT that it had been approached about an outstanding invoice and said that it had not traded with Liberty Commodities. “We know them, but a trading relationship between us does not exist,” said Winfried Winterhager, manager at RPS Siegen. Grant Thornton and Greensill Capital declined to comment. Gupta’s GFG Alliance said it was unable to comment without seeing the relevant invoices.
Experts who spoke with Reuters confirmed that, while the insurers were under no obligation to inform Credit Suisse about the policies, the fact that the bank didn't check is a due diligence failure.
Three insurance experts interviewed by Reuters said Tokio Marine and Marsh were not under any obligation to tell Credit Suisse because even though the fund was beneficiary of the insurance, it was not a policy holder.
Neither Marsh nor Tokio Marine could have told Credit Suisse whether the debt it had bought from Greensill met the policy conditions because the bank did not provide a list of the specific bonds and ask for checks, three sources said.
The three insurance experts said Credit Suisse had dropped the ball if it did not make its own regular checks with Tokio Marine, given the crucial nature of the insurance to the value of the Greensill bonds it bought for its clients.
“Clearly they didn’t do their due diligence,” said Scott Levy, chief executive of Bedford Row Capital, which arranges bond issues. “If Credit Suisse was doing its job properly there is no way that they could not have identified these problems.”
Sanjay Gupta's Reliance Industries, once hailed as the "savior of steel" for rescuing metals plants from Wales to Australia, disputed the notion that his company owes any money to Greensill during an interview with BBC Radio 4.
This isn't the only inconsistency creating problems for Greensill and its enablers: Credit Suisse, which has been battling the fallout from the collapse of Greensill and family office Archegos, has been called out by Reuters for failing to independently authenticate the insurance coverage
One analyst quoted by Reuters blamed Credit Suisse for failing to conduct adequate due diligence. "Clearly they didn't do their due diligence, said Scott Levy, CEO Of Bedford Row Capital, which arranges bond issues. "If Credit Suisse was doing its job properly there is no way that they could not have identified these problems.
Reuters, which has apparently been sniffing around the Greensill funds for a while, alleged that Credit Suisse representatives told its reporters that the bank had independently investigated the insurance policies covering the Greensill assets in its trade-finance funds. However, even after Reuters confirmed that some of the trade finance bonds packaged by Greensill actually weren't backed by the borrower's receivables - something that would essentially render them uninsurable - Credit Suisse still insisted that it had conducted adequate due diligence.
Greensill insurer Tokio Marine triggered the collapse of the pioneering trade finance firm by cancelling its credit insurance on the firm's assets, claiming that an employee named Greg Brereton had breached internal procedures in writing the policy (which was first established by a domestic insurer in Australia that Tokio Marine bought). News that the policies had been cancelled took Credit Suisse by surprise, and the firm immediately gated the trade finance funds, which held $10 billion in assets. It still hasn't figured out exactly how big the losses on those positions will be for clients, and the firm is reportedly considering reimbursing clients for their losses after they threatened to sue and walk away from their relationship with the bank.
According to Reuters, CS relied on emailed updates about the insurance policies from Marsh & McLennan, the broker that arranged them for Greensill, but neglected to hold regular check-ins where they discussed whether the insurer planned to maintain its coverage.
If the administrator confirms that Greensill essentially lent Gupta money on the back of some imaginary invoices, Lex Greensill and Gupta are certainly going to have a lot of explaining to do. The big question is: were they both in on the fraud? Or will Greensill manage to successfully plead ignorance? At any rate, it doesn't exactly reflect well on Cameron, who provided Lex Greensill with access to the highest levels of Cameron's government, and continued to lobby for the firm as a senior advisor until its collapse.
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