Miner Bluestone Resources sues Greensill Capital alleging ‘continuous fraud’

West Virginia coal miner Bluestone Resources says Greensill “engaged in conduct that exceeded the traditional role of a lender, and exerted control over Bluestone”.

The headquarters of the Greensill Bank in Bremen, northern Germany. Picture: AFP

West Virginia coalminer Bluestone Resources is suing Greensill Capital, alleging the collapsed ­financier perpetrated a “continuous and profitable fraud” on the company — as well as introduced it to Sanjeev Gupta’s GFG ­Alliance.

And GFG, which owns the Whyalla steelworks, does not just owe Greensill money — which is about $US5bn ($6.5bn) and counting — it also “failed” to make payments to Bluestone in December.

And so concerned was Bluestone about GFG’s late payment, that it withheld an entire coal shipment in January, citing “concerns regarding the credit risk of GFG”. But Greensill representatives urged Bluestone to continue to do business with Mr Gupta’s steel empire.

Bluestone Resources commenced proceedings in the federal court in New York on Tuesday, claiming a “sudden and unjustified abandonment” from Greensill after it borrowed $US850m from the global financier.

Its lawsuit names Greensill’s founder, Lex Greensill, and Roland Hartley-Urquhart, a senior Greensill executive who handled the deal with Bluestone, as defendants.

The move creates another headache for administrators from Grant Thornton, after US private group Apollo Global Management abandoned a deal to buy most of Greensill’s assets and Credit Suisse appointed McGrath­Nicol as receivers for shares Greensill’s Australian parent owns in the company’s British arm.

Despite Bluestone’s concerns about the credit risk of GFG — which is now negotiating a standstill with Greensill — regarding the $US5bn it owes — Greensill representatives continued to encourage the miner to do business with Mr Gupta’s group.

“Following GFG’s failure to make payment to Bluestone when due in December 2020, defendant Mr Hartley-Urquhart vouched for GFG and urged plaintiffs to continue to do business with GFG despite the late payment but later agreed that if he were in Bluestone’s shoes he would not ship to GFG,” Bluestone said in its filing to the federal court in New York.

“Throughout the relationship between the parties, defendants engaged in conduct that exceeded the traditional role of a lender, and exerted control over Bluestone.”

Greensill introduced GFG to Bluestone in January last year. At the time Bluestone said it understood GFG was a Greensill client but “had no knowledge as to the extent or pervasive nature of the relationship between GFG and defendants”.

“After defendants introduced plaintiffs to GFG, plaintiffs were emphatically encouraged by the defendants into a customer relationship with GFG, delivering met coal to the defendants’ recommended business partner.

“Bluestone sold their first delivery of met coal to GFG in June 2020 for which GFG was granted an extended payment period, to December 2020, for which GFG still was late in payment.

“Bluestone sold a second round of cargo in December 2020, to ship in January 2021 — Bluestone ultimately withheld the shipment due to concerns regarding the credit risk of GFG.”

Bluestone alleged Greensill, which it borrowed $US850m from between 2018 and this year, committed fraud against it “under the guise of establishing a long-term financing arrangement with Bluestone”.

The coalminer was one of Greensill’s biggest clients. But to receive financing, it had to pay Greensill $US108m in fees. Greensill also received warrants to buy stakes in Bluestone, which were worth “at least another $US100m”.

“Such fees were a key component of the Enterprise Financing relationship and were memorialised in a total of no fewer than 16 fee and fee side letters,” Bluestone said in its court filing.

It said Greensill “used their business relationship with Bluestone to prime the pump for defendants’ larger fraudulent activ­ities, which plaintiffs now learn spanned multiple countries and led to the collapse of Greensill Capital”.

“Greensill Capital’s sudden and unjustified abandonment of Bluestone, together with all of the press surrounding Greensill Capital’s fall, now present a clear and present threat to Bluestone’s business,” Bluestone said.