8.5.14

NSEL scam snippets


Nemesis caught up with Jignesh Shah as Mumbai Police arrested the 46-year-old founder of the FT Group, whose meteoric rise and dramatic fall has stunned the business world.
Shah and his trusted lieutenant Shreekant Javalgekar were taken into custody by the Economic Offences Wing on Wednesday evening for “not cooperating” with the police in connection with the Rs.5,600-crore scam at National Spot Exchange Limited, a subsidiary of the Shah-promoted Financial Technologies. Both were members on the NSEL board.
“Shah and Javalgekar were in criminal conspiracy with the other accused. They were running NSEL like a non-banking finance company, which led to the default. They were blaming Sinha for everything,” Additional Commissioner of EOW Rajvardhan Sinha told reporters soon after the arrest.
Anjani Sinha, the CEO of NSEL who was arrested earlier, said in a statement to Mumbai Police last October that NSEL directors were Shah’s puppets who wanted absolute control over the exchange.
Shah and Javalgekar were arrested under the Maharashtra Protection of Interest of Depositors’ (MPID) Act.
“They were trying to shirk responsibility. We felt they had to be taken into custody for interrogation,” said the EOW official. So far the department has made 11 arrests in the NSEL case. An EOW official said Shah did not break down upon his arrest. Mumbai Police has so far attached properties and shares worth close to Rs.5,000 crore by invoking the MPID Act.
After NSEL defaulted in July 2013, it was found that the exchange operated an elaborate money lending machine under the garb of a commodity bourse; probes conducted by multiple agencies revealed that investors were taken for a ride as commodity stocks were missing in most cases.
A major part of NSEL volumes, according to the police, were linked to FT, the leading financial market technology solutions provider. “As volumes rose in NSEL, so did FT’s profits,” said EOW’s Sinha. Significantly, EOW is taking a close look at the role played by brokers who sold the products.
According to the findings, the brokers charged investors a fee for generating warehouse receipts — a proof that the fund was secured against commodity collateral. But the receipts were never delivered, said the EOW official.
The brokers used clients’ accounts and changed client codes while carrying out trades, he said. Javalgekar’s role also came under the glare because of his association with the Indian Bullion Market Association (IBMA), a closely held group company that was promoted by NSEL along with leading bullion dealers.
“IBMA,” according to Anjani Sinha’s statement to Mumbai Police, “did market making (providing two ways buy/sale quote) as well as false volume of turnover in two agri commodities”.
“The operation continued for six months. In the process, the total loss and brokerage incurred by IBMA was Rs.1.5 crore. Jignesh Shah asked MCX (the FT Group-promoted commodity futures exchange) officials to reimburse the same through some fictitious entries. Finally, MCX paid this amount to NSEL through cheque against some fake consultancy/research report,” said the statement dated October 21, 2013.
The FT board is likely to meet on Thursday to induct new board members and a CEO.



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