Jignesh Shah, founder of Financial Technologies (India) Ltd, was today arrested by the Economic Offences Wing (EOW) of Mumbai police for his alleged involvement in the Rs 5600-crore National Spot Exchange Limited (NSEL) scam.
Along with Shah, Shrikant Javalgekar, former CEO of Multi Commodity Exchange of India (MCX), was arrested. His arrest was because of his alleged links with the Indian Bullion Market Association (IBMA), which is a wholly owned subsidiary of NSEL.
Both have been arrested under the Maharashtra Protection of Interest of Depositors Act and they would be held in police custody.
The two high-profile arrests mark an important point in the NSEL payment crisis.
Troubles for the exchange began after it was asked in July last year to suspend spot trade in most of its contracts because of suspected trading violations. It could not settle the outstanding trades, sparking an investigation by the police and regulators. There were 24 members who defaulted payment to about 13,000 investors.
After the crisis came to light, the first high-profile arrest was that of Anjani Sinha, former managing director & CEO of NSEL, by the EOW in October last year. With Shah’s arrest, the total number of arrests in the scam has gone up to 11.
Rajvardhan Sinha, additional commissioner of police, EOW, told reporters here today that both Shah and Javalgekar did not give satisfactory answers during interrogations and that the arrests were necessary to take the investigation to its logical conclusion. “They were not co-operating with us during the investigation and they were evasive. We realised that their custody is important to help in better investigation of the case,’’ he added.
Sinha said the EoW team during investigations found both Shah and Javalgekar were involved in criminal conspiracy. He pointed out that the volume of trades at NSEL were linked with profits of FTIL and that higher trades at the exchange, meant more profits for the parent company. He added that the next course of action by the EOW would be to investigate the role of some of the brokers in the entire crisis.
Sinha said some of the brokerages indulged in malpractices. This included the use of client accounts for unauthorised trades.
The board of FTIL will meet tomorrow to discuss the arrest of its founder and chart a future course of action.
FTIL has been declared unfit by the Forward Markets Commission (FMC) to run an exchange and it has been ordered to pare its stake in MCX to 2 per cent from 26 per cent currently.
Shah’s arrest came on a day FTIL moved the Securities Appellate Tribunal (SAT), challenging a ruling by the Securities and Exchange Board of India (Sebi) which said it was not “fit and proper” to have a stake in any stock exchange.
FTIL will have to divest its entire stake to meet tighter commodity exchange ownership guidelines issued yesterday by the FMC.
On March 19, the market regulator had directed FTIL to divest existing holdings in MCX-SX and four other entities that included National Stock Exchange, Delhi Stock Exchange (DSE), Vadodara Stock Exchange (VSE) and MCX-SX Clearing Corporation (MCX-SX CCL).