RBG Resources plc: Former Directors Jailed For $700m Worldwide Fraud

Image via WikipediaVirendra Rastogi, Anand Jain and Gautam Majumdar have been sentenced today to a total of twenty five years and six months’ imprisonment for conspiracy to defraud in relation to their running of RBG Resources plc (”RBG”).

In relation to the same one count of conspiracy to defraud received sentences as follow:

Virendra Rastogi [Chairman - d.o.b. 02.02.1968] Nine years and six months’ imprisonment. Disqualified from acting as a company director for fifteen years

Anand Jain [Director - d.o.b. 08.05.65] Eight years and six months’ imprisonment. Disqualified as company director for ten years

Gautam Majumdar [Chief Executive Officer and Director - d.o.b. 17.10.51] Seven years and six months’ imprisonment. Disqualified as company director for ten years

This was a fraud that involved literally billions of dollars, and of the defendants HHJ Wadsworth in passing sentence said today “they created a very impressive front that fooled banks, the metal exchanges in both countries, (UK and USA), and well respected accountancy firms.” The judge also said, “they were involved in years of calculated dishonesty,” and that during the trial “they had shown no shadow of regret or remorse or repentance.”

Background Information

The Allied Deals/RBG Resources fraud was a truly global fraud that cost banks $700 million dollars worldwide but that was ultimately brought down by the pressing of a wrong button on a fax machine.

Between 1996 and 2002, Virendra Rastogi, Anand Jain and Gautam Majumdar, (together with Virendra’s brothers, Narendra who was based in the USA, Ravindra who was based in the UAE and Subhash who was based in Singapore) ran a web of in excess of 300 fake “customers” who were supposedly based in the USA, Hong Kong, Singapore, Dubai, India, France and Italy. The defendants used the supposedly independent customers to create “trades” that were then used as the collateral for cash advances from banks. Whilst the banks thought they were financing a very successful metal trading firm (one so lucrative that Virendra Rastogi appeared in the Sunday Times Rich List and had Jack Cunningham MP, Lord Holme, Lord Woolmer and Lord Gray as advisers) they were actually advancing money to a company that was propped up by dishonesty. The “customers” were actually Rastogi’s paid henchman based in addresses around the world who would falsify documentation and purport to banks and auditors to be independent traders. The truth was however far more audacious. The address of one of the customers was actually a cow shed in India. One SFO witness at trial indicated that another customer in the USA was actually just a laundrette in New Jersey and an investigator who went to locate one of the “customers” found a residential New Jersey housing estate with the house in question owned by an elderly lady who sold scrapbooks. A number of supposedly independent customers actually had the same address and when investigators phoned some of the companies the phones were actually answered by children.

Ultimately it was the complicated nature of the fraud, together with the controlling tendencies of Virendra Rastogi that led to the uncovering of the fraud. Mr Rastogi would require copies of the false customer documentation to be sent to the UK for checking by himself. One of his henchmen in Hong Kong, intending to fax a number of false letters from various “customers” to Rastogi for review, inadvertently pressed the wrong button on the fax machine and sent all the material to PricewaterhouseCoopers, who were RBG’s auditors in the UK. Although Rastogi tried to recover the documentation alleging that they were documents that had been sent in error, PwC refused to return them and resigned as RBG’s auditors. This resignation prompted concern amongst the banks. Realising that the banks investigation would reveal the extent of their dishonesty, the defendants and their accomplices went into a panicked attempt to cover up the fraud. Offices were rented, letter headed paper and business cards produced and individuals recruited to sit at desks and pretend to be employees. Investigators found hundreds of customer stamps amongst the fraudster’s papers at their Hong Kong business location, from which a ready inference could be drawn. Why would they own so many of their customer’s stamps unless they controlled them?

RBG Resources also employed a number of genuine metal traders, who were based at RBG’s London offices at 105 Piccadilly. These traders entered into real metal transactions. These traders were not aware that the business conducted by Virendra Rastogi, Anand Jain and Gautam Majumdar was founded on fraud. They were the honest veneer of a business that in many regards was (as described by SFO counsel Richard Latham QC) “rotten to the core”.

Paige Rumble, the lead SFO investigator on the case, said “This 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. The successful prosecution of this case required a huge and technical analysis by the SFO team that unravelled the truth behind the facade and demonstrated to the jury the full extent of the defendants’ dishonesty”.