Three leading brokers arrested in NSEL scam

Amit Rathi of Anand Rathi, Chintan Modi of IIFL and C P Krishnan of Geofin Comitrade have been taken into custody for mis-selling NSEL products as investment vehicles

At least three leading brokers were arrested on Tuesday for their alleged involvement in the scam surrounding the National Spot Exchange Ltd. 

Amit Rathi of Anand Rathi Commodities Ltd, CP Krishnan of Geofin Comtrade and Chintan Modi of India Infoline Commodities were taken into custody for their involvement in the NSEL scam that led to the collapse of the company. 

They have reportedly been charged under sections 409, 465, 467, 468, 471, 474, 477 and 120 B of the Indian Penal Code, and sections 3 and 4 of the Maharashtra Protection of Interest of Depositors in Financial Establishments (MPID) Act. These charges include cheating, criminal conspiracy, forgery of documents and inducement for cheating.

 

The Economic Offences Wing of Mumbai Police had been investigating the roles of brokers in the scam for some time now. Executives at Anand Rathi, Motilal Oswal, Geofin Comtrade and IIFL had already been questioned by the EOW. 

According to NSEL data, brokers seemed to have been gaming the system; there were indications that they modified client codes as many as 300,000 times, which is very unusual. Client codes are changed after the deal on the exchange is done in one name and then transferred in another name and allowed only for bona fide mistakes.

In equities and commodities, changes in client codes are allowed only in a genuine case. In commodities, change in client code was done to transfer profit and loss to launder money, which was stopped.
 

“Brokers of the exchange had in the beginning of the day transacted deals in their own names or in names of one or two clients and later internally transferred to various other names by modifying client codes,” a source told Business Standard last month. Unlike regular exchanges, where trading happens through the day, the bulk of trades at NSEL took place in the early hours of trading. 

Brokers are alleged to have sold NSEL products as investment vehicles. Around 200 brokers are alleged to have mis-sold NSEL products by promising an assured return to investors. In past, even NSEL Investors have also wrote to EOW demanding investigating the role of brokers since they were the point of contact for investors and had assured the latter of returns.

The police had earlier said these brokers were first carrying out deals on their account and later, parting ways with investors to earn huge margins. 

In November last year, Jignesh Shah, founder of Financial Technologies (FTIL) stepped down from his positions of managing director and CEO; FTIl was the lead promoter group of NSEL, with a 99.9% stake. Shah had been earlier arrested May 2014 for his role in the Rs 5,000 crore scame at NSEL, but was granted bail in August.