PricewaterhouseCoopers (PwC)'s report on the forensic audit of Multi Commodity Exchange (MCX) has found five entities, including bullion king Prithviraj Kothari-controlled RiddhiSiddhi Bullion, and the broking arm of leading investment banking firm Edelweiss Securities, to have carried out wash trades on the exchange.
It also found 10 National Spot Exchange Ltd (NSEL) defaulters conducted wash trades on MCX.
Through wash trade, investors simultaneously sell and buy the same financial instruments to artificially increase trading volumes.
A month ago, PwC had submitted its final report on the audit to Forward Markets Commission (FMC) and MCX; it had released only an executive summary on BSE. However, under pressure from various quarters, including FMC and bidders for Financial Technologies' 26 per cent stake in the exchange, MCX on Monday disclosed 140 pages of the report. Sources indicate the entire report has two additional volumes, which are yet to be disclosed.
PwC identified 911 related parties, of which many were found to have conducted wash trades. Also, the 10 NSEL defaulters known to have conducted wash trades had receivables from Indian Bullion Market Association (IBMA).
The PwC report has named five entities found to have been involved in wash trades - Dinesh Chhaganlal Thakkar through Tradebulls Commodities (Rs 339.07 crore), IBMA through Karvy Comtrade (Rs 165.06 crore), Proprietary Trades through Vishwas Broking (Rs 114.49 crore), RSBL Supama through RiddhiSiddhi Bullion (Rs 1,086.34 crore) and Edelweiss Securities through Edelweiss Trading and Holding (Rs 169.82 crore).
Overall, these entities carried out trades worth Rs 1,874 crore in more than 17,000 trades. The report showed entities such as RiddhiSiddhi conducted wash trades on the exchange since MCX's inception in 2003.
The report also said the quantum of these trades was so high that these had artificially inflated MCX volumes. At times, Vishwas Broking's wash trades accounted for 97 per cent of the total trade in the contract. Jindal Dyechem, Financial Technologies-related companies and RiddhiSiddhi were found to have carried out wash trades between group companies; these trades were worth Rs 1,275 crore since 2003. Though FMC had asked the exchange to club positions of related parties, the exchange did not do so, showing higher volumes.
The PwC report said IBMA, a related party, was admitted as a member and this helped increase volumes on the exchange. In July 2010, IBMA surrendered its membership and the then MCX managing director was directed to refund the admission fee, annual subscription fee, etc. This wasn't the case when other entities had surrendered membership.
Substantial volumes were seen in barley and maize, as a market maker was paid fees to ensure this was so. In several cases, Anjani Sinha, former managing director of NSEL, was found to have interfered with trades on MCX.
The undisclosed part of the PWC audit report is said to have email trails that showed some MCX employees in negative light. One such email was sent by a former MCX managing director and chief executive to his personal email address; in the mail, the chief executive had cited he was marked present for several audit committee meetings, but actually, he wasn't.
MCX has filed complaints with the Economic Offences Wing of the city police against 10 MCX employees. These complaints have been shared with FMC, seeking advice on investigation.
