The 'largest investor' in NSEL who exited unscathed

Last year, just before the National Spot Exchange (NSEL) scam broke out, a large investor with inside information, allegedly close to Jignesh Shah, head of the promoter company, quietly sold off investments worth several hundred crores. While, around 13,000 other investors in the exchange remained oblivious of what was to hit them.

The said investor, a corporate group, is being probed by the Mumbai Police’s economic offences wing (EOW). It had, as mentioned, significant exposure to NSEL but exited its positions just before the scam erupted on July 31, 2013.

This entity was also one of the largest players in Multi Commodity Exchange (MCX), the futures platform which then belonged to the Shah-controlled Financial Technologies (FT) group.

WAS SGF USED TO PAY OFF LARGE INVESTOR?

• In a meeting with the Forward Markets Commission (FMC) on August 1, 2013, NSEL said that it had a settlement guarantee fund (SGF) of Rs 860 crore
• In a subsequent written response, NSEL told FMC that the SGF was of Rs 738.55 crore
• On August 4, in a meeting with investors and borrowers it said the SGF was worth just Rs 62 crore
• Similarly, different sets of numbers were given on commodity stocks

Source: FMC letter quoted in the EOW chargesheet

Allegations of a particular market player being favoured over others were flying thick and fast in the early days of the scam. Some investors had even pointed to a Mumbai-based entity with interests in financial services. The mysterious shrinking and disappearance of NSEL’s Rs 800 crore settlement guarantee fund had added credence to this theory. Conclusive evidence was elusive.

Now, the EOW has stated this strand of the investigation is still alive, in its latest chargesheet. This was filed on Monday, accusing FT group founder, Jignesh Shah, of criminal conspiracy. “Investigation on this aspect is still in progress,” the chargesheet said.

The group, the agency suggested, was close to Shah, as both had lending and investment transactions dating back to 2005. Describing the unnamed group and its transactions, the chargesheet said, “During investigation, it is disclosed that Jignesh Shah had invested Rs 5 crore in one company through his company, La Fin Financial Services, in the year 2005. This company, along with its sister concerns, is one of the largest investors of both MCX as well as NSEL.”

The group also had transactions with other FT group entities and directors. EOW has found this group, through one of its arms, had invested Rs 5 crore in National Bulk Handling Corporation (NBHC) till 2012. NBHC, an FT group entity and sister concern of NSEL, which dealt in commodities’ warehouses, was sold off to India Value Fund, a private equity firm, after the NSEL scam broke out.

“They also gave a loan of Rs 2.05 crore to one director of NSEL. This group, in spite of largest investor (sic), didn’t lose any money and withdrew just before outbreak of this scam. All these indicate insider trading in the platform of NSEL,” the investigative agency said.

The chargesheet also lists various assets of Shah and his wife, Rupal Shah, that have been secured/recovered or seized by the agency. These include 20.71 million FTIL shares worth Rs 602 crore at Wednesday’s close of Rs 290.85 and 1.2 million shares of Edelweiss Financial Services, which at Rs 62.30 each was worth Rs 7.47 crore. Also, investments in instruments of several infrastructure financing institutions such as Indian Railway Finance Corporation, National Highways Authority of India, Power Finance Corporation and L&T Infra Finance. It also listed nine bank accounts with a total credit balance of Rs 13.68 crore. Several houses and land assets of Shah in Mumbai and Pune were also listed in the chargesheet.