The Justice Department and the Commodity Futures Trading Commission are investigating transactions tied to Radiant World, the privately held firm that grew into one of the world’s largest iron ore traders, Bloomberg reported Friday, citing people familiar with the matter. Justice Department officials are examining the company’s business, while the futures regulator is looking at trades that moved through it.

Here is what the case turns on. Radiant World buys iron ore from miners and resells it to steelmakers, and like most trading middlemen it borrows money to bridge the gap between paying the seller and getting paid by the buyer. The collateral it hands the bank is paperwork — an invoice showing that a large, creditworthy customer owes it money for a shipment. Lenders accept that paper because the name on the invoice is good for it. The allegation is that some of those shipments never took place.

One case has been documented in detail. Radiant World used invoices bearing Vitol’s name to obtain financing from Italy’s Intesa Sanpaolo. When the bank checked, Vitol told it some of the trades had never happened. Intesa has said its exposure runs to roughly €200 million and is largely provisioned for. Jefferies Financial Group’s Point Bonita fund has less than $300 million at stake. Between those two lenders alone, close to half a billion dollars is riding on the answer.

The commercial fallout arrived first. Vitol and Cargill have ended their business with Radiant World, and Glencore has stopped writing new deals with the firm after questions surfaced about the validity of its trade documents. That is three of the largest commodity houses on earth walking away from the same counterparty within weeks.

The paperwork concerns are not new. Bloomberg has reported that an internal investigation at Rabobank concluded in 2020 that Radiant World had been involved in multiple trades using falsified bills of lading — the shipping receipts that prove cargo actually exists — and that the Dutch bank cut off its credit that year. The findings never traveled beyond Rabobank. There is no shared registry in commodity trade finance, so a document rejected at one bank can be presented at the next one without triggering any alarm.

Radiant World has denied the reporting and said previously that it had never been investigated or prosecuted by regulators. The company could not immediately be reached regarding Friday’s report, and neither agency has confirmed an investigation.

The scale explains why lenders are paying attention. Radiant World handled about 7 million tons of iron ore in 2014 and roughly 43 million tons by 2024 — six times the volume in a decade — on about $12 billion in annual revenue, financed by bank and credit-fund lines running into the hundreds of millions of dollars, much of it secured by trade paperwork.

For Jefferies, the timing is unwelcome. Point Bonita was already being wound down after investors demanded their money back when the fund’s largest exposure turned out to be First Brands, the auto parts supplier that collapsed. The structure was the same one now under scrutiny: investors were told the fund’s biggest positions were with household corporate names, when what it actually held were invoices those companies owed to a middleman, bought from the middleman.

The market has already moved. Iron ore prices slid to a 13-month low as China’s construction sector contracted to its weakest reading since the start of the pandemic, with the financing scare on top of it. Iron ore is the raw material for steel, and steel prices feed into cars, appliances, machinery and construction — the reason a paperwork dispute among traders eventually reaches American buyers.

JBizNews Desk | New York

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