Criminal connivance by Jignesh Shah: EOW

Chargesheet says he helped the scam perpetrators bend and break the rules, solely motivated by profit

Jignesh Shah was under pressure to ensure that National Spot Exchange (NSEL) succeeded, for which he allowed wrongdoing on it, says the chargesheet filed by the city police’s economic offences wing (EOW) on Monday.

It says he was deeply involved in the fraud in question (the Rs 5,600-crore payments scam). Financial Technologies (FTIL, which promoted NSEL), of which he is the chairman and group chief executive, had contended “the payment default at NSEL had arisen due to the complicity between certain erstwhile officials of NSEL and defaulting members”.

The police say investigation against FTIL, NSEL, directors and key management personnel, borrowers and some brokers are still on and a final report will be given.

EOW says Shah allowed borrowers of funds to retain the custody of commodities offered as collateral to investors; these should have been under NSEL control. Other allegations include conduct of wash trades (fictitious ones) on NSEL to jack up volumes and profits, allowing margin waivers and other facilities to borrowers which were serial defaulters on the exchange and so on. “Shah was aware of the fact that there is virtually no stock of commodities with the exchange which investors were supposedly buying on the NSEL platform,” says the charge.

Around 25 borrowers of funds on the exchange took away Rs 5,600 crore, put in by about 13,000 investors.

EOW says Shah found NSEL the best bet to show a quick success, as it was not under the regulations of any authority, unlike his other ventures. To jack up volumes on the exchange, police said they found wash trades on the exchange. The stated volume of daily trade was Rs 10 crore in March 2010, which surged to Rs 1,700 crore a day by 2012-13, with profit going from Rs 30 crore to Rs 130 crore, a little over half of the FTIL group profit.

The police has also accused him of making some informal arrangements in adjusting profits with other group subsidiaries.

They say he made several presentations to government officials about safety at NSEL, and to investors. Being head of an audit committee at NSEL, he neglected the charge. He could have ensured that exposure to borrowers wasn't allowed beyond their financial strength, ensuring that stock was kept with independent warehouse agencies rather than allowing custody with borrowers in their own factories. They say he connived with perpetrators of crime.

EOW has also blamed the board of directors at NSEL for completely ignoring repeated defaults by a number of borrowers. Instead of barring them from trading, they were given margin exemptions and loans to them were also facilitated, by extending corporate guarantees. The chargesheet also cites a case still under investigation, where an investor was allowed to exit before the exchange suspended operations.

They have listed assets valued at Rs 4,902 crore that have been attached. These include shares worth Rs 739 crore, including those belonging to Shah.