Mumbai: Three top brokers, including Amit Rathi of Anand Rathi Commodities, were arrested by the Economic Offences Wing here in connection with the Rs.5,574-crore National Spot Exchange Ltd (NSEL) scam, official sources said.
The Mumbai police wing also arrested Chintan Modi of IndiaInfoline Commodities and C.P. Krishnan of Geojit Comtrades, the officials added. “We questioned them and decided that it was necessary to take them under custody for further probe,” an officer said.
No further details were divulged. The arrests follow a probe since July 2013 into what is considered a Rs.5,600-crore NSEL scam in which Jignesh Shah, the founder of Financial Technologies, the promoter group of the spot exchange, and two others from the company were arrested last May.
Shah, who had to subsequently quit as the managing director and chief executive Financial Technologies, was released on bail last August in the sensational scam. He has maintained that he was only a non-executive director of the exchange and not involved directly in its routine operations.
The Mumbai police has thus far recorded the statements of over 250 witnesses in the case and has already filed a voluminous charge sheet of more than 10,000 pages along with relevant documents with the Special Maharashtra Protection of Interest of Depositors Court.
Its economic offences wing has also probed the role of around 200 brokers, brokerages and their executives besides borrowers to unravel the alleged intricacies of the scam, find the basis for the allegations of suspected money laundering and pin responsibility.
The Central Bureau of Investigation (CBI) is also involved in the probe. The value of this scam, at nearly $1 billion, exceeds that of the previous high-profile markets-related scandal perpetrated by the now-deceased rogue dealer Harshad Mehta over two decades ago.
The move to arrest the trio Tuesday also comes close on the heels of the board of Financial Technologies opposing the government’s move to remove and supersede it and amalgamate it with the National Spot Exchange.
The company’s board, which met here Sunday, passed a resolution to strongly oppose the move by the Ministry of Corporate Affairs, which sent a petition to the Company Law Board (CLB) seeking the removal of its board.
The matter is before the Bombay High Court, which had called for status quo till further orders.
Meanwhile, the shares of Financial Technologies closed at Rs.205.30 Tuesday, with a loss of Rs.9.10, or 4.24 percent. But a day before, the shares rose nearly 16 percent.
As regards the alleged scam, as per officials, a payment crisis to the tune of Rs.5,574-crore arose at the exchange, affected some 13,000 investors, and came to light in July 2013. It was after the spot exchange decided to suspend trading, merge the delivery and settlement of all contracts after 15 days.
The crisis was first suspected in the first quarter of 2012 and related to the non-payment of money or non-delivery of the purchased commodities owed to investors. Although these commodities were traded, there was no physically existence in the warehouses, which is against the norms.
To simplify, investors bought commodities through the exchange from sellers. For that, they were given what are called warehousing receipts — an assurance that the stocks physically exist in the warehouses of the exchange.
At the time of delivery came, investors were compensated with monetary returns, rather than stock delivery.
This cycle continued till such time the regulators felt something was amiss and issued a notice wanting the exchange to come clean on suspected flouting of law on commodity contracts.
Trading was suspended, but some 15 months later in July 2013, and it was found that the warehousing receipts were allegedly forged.
Scores of investors found they were duped. Shah’s empire, worth some $1 billion by virtue of his family’s 45-percent holding in Futures Technology group, came crashing down to a mere $50 million by September.
Criminal cases were filed against the group and its board. One of Shah’s associates and the chief executive was arrested and he himself and his associates had to step down. Since then, more than a dozen people have been in and out of custody connected with the alleged scam.
The Economic Offences Wing says there is hope yet for investors, since property and assets worth Rs.5,000 crore has thus far been attached – and that should take care of the bulk of money involved in the alleged scam.