Mumbai: Cracking down on commodity brokerages for their alleged role in the Rs 5,600-crore scam at National Spot Exchange Ltd (NSEL), Mumbai Police on Tuesday arrested three top executives of leading broking houses.
The arrested executives are from Anand Rathi Commodities, India InfoLine Commodities and Kochi-based Geojit Comtrade (rechristened Geofin Comtrade last November), which are among the biggest names in the commodity brokerage market.
With this, the total number of arrests in the scam, which came to light in July 2013, has risen to 24.
"In a first action on the broking firms, Anand Rathi Commodities Managing Director Amit Rathi, India InfoLine Commodities Vice-President Chintan Modi and Geojit Comtrade Whole-Time Director C P Krishnan were placed under arrest for their alleged involvement in the scam," said an officer of Mumbai Police's Economic Offence Wing (EOW) on Tuesday evening.
Additional Commissioner of Police (EOW) Rajvardhan Sinha said, "The trio, booked for cheating, forgery, criminal conspiracy and criminal misappropriation, among other charges, would be produced before the Maharashtra Protection of Interest of Depositors (MPID) Act Court (which is hearing the case) tomorrow."
When contacted, none of the three brokerages offered comments on the development.
"The three persons were evasive and non-cooperative (during probe) and hence we felt their custodial interrogation is necessary and we placed them under arrest," Mr Sinha said.
The IPS officer said there were about 130 broking firms that participated or traded on the now-crippled electronic commodities bourse.
"Since beginning of the case, the broking firms have been under our scanner following allegations of manipulation levelled against them by investors," said Mr Sinha, who is also acting chief of Mumbai Crime Branch.
The EOW sleuths started the probe with broking firms with maximum exposure in the NSEL platform, he said.
Throwing light on the three broking firms, the EOW chief said Anand Rathi had a total client base of 12,900 investors/clients with a trading exposure of Rs 19,130 crore, which was about 16 per cent of total turnover on NSEL.
InfoLine's total trading volume was Rs 9,183.48 crore, he said but did not share its client base. GeoFin had about 1,000 clients with Rs 5,526.66 crore exposure. The findings of the probe against three firms are more or less same, he added.
"These firms made false assurances to investors with wrongful and misleading statements, leading to enticement for investments on the NSEL platform. The investors were assured that the exchange offered fixed returns on investments and it is a safe place to put money in."
"These brokerages also told investors they did due diligence of various parameters on the exchange. They also assured the clients the exchange has adequate settlement guarantee funds and claimed it was regulated by FMC (commodities market watchdog)," Mr Sinha said.
Some of the broking firms, including these three, also acted as clearing and forwarding agents, he said.
"Our probe revealed there were certain fictitious transactions between the broking houses and borrowers, raising suspicion of illegal gratification for promoting certain borrowing entities."
The EOW chief said, "We suspected proprietary trading on the platform. It was also found there were conflicts of interests because of possible tie-up between NSEL and brokerages."
"Illegal practices were carried out to rake up volume of the trade exchange. Instances of circular trading, advance to the broking house employees or their relatives for trading on NSEL without any jurisdiction have also emerged."
The scam came to light after the government in late July 2013 ordered the Jignesh Shah-promoted spot exchange to stop trading in some instruments which led to a payment crisis. Following this, the exchange was forced to suspend trading and eventually down shutters, leaving over 11,000 investors in the lurch.
As investigative agencies began to probe the roles of the management and brokers in the scam, the NSEL investors demanded an inquiry into the role of brokers.
The NSEL promoters are yet to pay back even one-third of the committed repayment amount to investors, even though it had given a written payment schedule to the Government and the regulators.
Following the crisis, many senior officials of NSEL, which is fully-owned by the Jignesh Shah-promoted Financial Technologies, were arrested. Among them was Shah, who was arrested in May 2014 and got bail in August. As the scope of probe got widened, the regulators declared Mr Shah was not fit to hold more than 2 per cent stake in any of the over half-a-dozen exchanges he set up and was ordered to merge NSEL with his commodity bourse MCX.