'Rich List' tycoon is jailed for £350m fraud involving 324 bogus companies

Three businessmen at the centre of one of the biggest and longest-running frauds in banking history received stiff prison sentences yesterday after their £350m edifice of deceit was brought tumbling down by a fax sent to the wrong office.

Only six years ago, Virendra Rastogi, boss of the London-based metals trading company RBG Resources, was lauded as one of Britain's most successful young entrepreneurs. At the age 34, he was in 209th place in the Sunday Times Rich List, level with the rock star Sting, with a fortune estimated at £150m.

Today, he is beginning a nine-and-a-half-year sentence for conspiracy to defraud. Two directors of his company, Anand Jain and Gautam Majumdar, received prison terms totalling 16 years.

In what a judge described as a "crime of the utmost gravity", Rastogi, 40, spent six years tricking banks in Britain and the US into funding non-existent deals. The companies they funded, supposedly with multimillion-pound turnovers, were sham operations. One was based in a launderette, another in the home of a woman who sold scrapbooks. A third was based in a cow shed in India.

The trio might still be living off the proceeds of their fraud were it not for the fateful day when a fax machine in the Bucharest office of the accountants PricewaterhouseCoopers began spewing printed paper.

The fax was quickly followed by an anxious telephone call from the head office of RBG Resources to say the documents had been sent in error and should be shredded. The call was taken by an accountant who was in Romania to conduct a routine audit.

He looked through the papers and was surprised to note that six different companies, one in Belgium, one in Switzerland and four in Hong Kong, had sent eight letters – all addressed to RBG in London – from the same fax machine in Hong Kong.

The accountant alerted his superiors and soon afterwards PricewaterhouseCoopers resigned as RBG's auditor, giving its reason as a breakdown of trust. The announcement sent alarm through the banking industry because the company owed at least £400m to European banks alone. It also had a sister company in the US, run by Rastogi's brother, Narendra, which was heavily in debt to US lenders.

RBG was assumed to be a major metals trader with impressive advisers including the former cabinet minister Jack Cunningham, now a Labour peer, and the Liberal Democrat peer Lord Holme. Its head office was at 105 Piccadilly where, on the ground floor, eight or nine traders generated the legitimate business that accounted for about 30 per cent of RBG's income. The other 70 per cent was generated upstairs, where Rastogi, Jain and Majumdar were based. Neither the politicians on the payroll, nor anyone downstairs, knew anything about what went on upstairs.

Worried about what they had heard from the auditors, the banks decided to stop lending. At once, another odd thing happened. About 300 RBG customers around the world, who had all been handing over millions of pounds every month, simultaneously stopped paying. The banks asked Rastogi why, but his explanations did not ring true.

Two German banks, GMAC and West LB, and some of the US banks decided to contact the customers directly. Accountants from Ernst & Young were hired to look for them, and found there was no hard evidence that any of the firms existed. In some cases, when investigators rang what were supposed to be company switchboards, they heard children's voices. They went to Moradabad, India, to the supposed address of a major RBG customer – and found a cow shed.

An investigator from a US bank went to visit another "customer" and found a building which had been empty for about two years. The "head office" of another firm turned out to be a house in New Jersey from which an elderly woman sold scrapbooks. A third location had a notice in the window saying it was the headquarters of a metals trading operation – but the investigator soon realised it was actually a laundrette.

During the trial at Southwark Crown Court, jurors heard that the scam went undetected for years because, before a loan was due to be repaid, RBG would borrow a larger amount from another bank and use the new loan to pay off the previous one, pocketing the difference each time.

Using 324 fake companies, RBG produced documents that appeared to show the relevant deals had completed successfully. More than £300m was unaccounted for when it collapsed, none of which has been recovered.

Passing sentence, Judge James Wadsworth, QC, said: "They created a very impressive front that fooled banks, the metal exchanges in both countries, and well respected accountancy firms.

"They were involved in years of calculated dishonesty. They had shown no shadow of regret or remorse or repentance."