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Last week, Jignesh Shah declared he had survived a tsunami of bad news. In hindsight, he declared it one wave too soon. Nine months and seven days after the Rs 5,600-crore National Spot Exchange (NSEL) scam surfaced, the founder and chief architect of the exchange finds himself behind bars.
While speculation about this event has been loud for several months, Shah, as he said himself, managed to surf through the tsunami, often leaving investors and even some government officials puzzled. Some attributed this to the absence of strong evidence against him, while others talked about more sinister plots.
Though the past week has been hectic with news flow on the MCX stake sale and the Pricewaterhouse Coopers special audit report, Shah himself started communicating a lot with a series of interviews like the one where he made the tsunami remark.
| WHAT ANJANI SINHA SAID ABOUT JIGNESH: |
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In another interview when asked about the statement by former NSEL chief executive Anjani Sinha and FMC orders that said Shah knew everything, he continued to maintain it was ‘employee fraud’ and such frauds were common. He also made some ad hominem comments against the PwC report.
Sinha made two statements. The first was a suo motu affidavit, widely reported in the media, in which he implicated himself and absolved the NSEL board of directors, including Shah, Joseph Massey and Shreekant Javalgekar.
The second statement, which he made after his arrest in October, contained a different version. While the existence of this statement and the broader contours of it that he had reversed his earlier statement and blamed Shah were known, its details were not known.
Suddenly, this statement first surfaced in journalist inboxes last week and not before long it was on the social media pages of the NSEL Investors Forum. When Business Standard asked the FTIL spokesperson about this last week, the company said it was not aware of any statements made by Sinha before any investigative authorities. "We request you to inform the source of any such information as we are legally advised that availability of such statements in public warrants appropriate legal action,” the spokesperson said in response to an email seeking comments on Sinha’s submissions. Sinha was arrested by the Mumbai police in October last year.
The explosive contents of this statement in which Sinha had said, among other things, that NSEL was envisaged by Jignesh Shah as a platform to offer the now banned vyaj badla product in the commodities market, seemed to have put pressure on the authorities.
Vyaj badla was a cash-forward arbitrage product which gave handsome returns to traders and was popular on the BSE in the 1980s and the early 90s, before it was banned following allegations of large-scale manipulation. According to Sinha, it was Shah's plan to market NSEL as an agricultural marketing entity rather than as a vyaj badla entity to the government and the media, to pre-empt any potential concerns from these quarters.
Angry investors were quoted in media reports over the last few days, citing the detailed statement and asking why the EOW (economic offences wing of the Mumbai police) was sitting on it. One of the investors was also about to move a public interest litigation in the Supreme Court citing the statement, according to sources close to Financial Technologies.
The claims made by Sinha, in a revised statement before the EOW offer a different context and throw more light on the genesis of the Rs 5,600-crore scam. NSEL’s paired contracts on various commodities, which were modelled on badla, were at the core of the scam.
The statement also gives a never-before insight into the centralised working style of the exchange baron and a peep into his mind when conjuring up this mighty edifice that crumbled spectacularly.
In the statement made while in custody, Sinha said, “During his tenure at the BSE, he (Jignesh) became a great admirer of the vyaj badla system (earning interest on investment through the BSE cash and forward mechanism). He always used to tell us the vyaj badla system of the BSE is a better market structure compared to the current futures and options mechanism launched by the NSE.”
He added that Shah had a passion to develop a similar vyaj badla mechanism in the commodity market. “He tried to work out some mechanism for the same at MCX. But, MCX is a regulated exchange, where no contract could be launched without FMC permission. Then, he came out with the idea of a spot exchange for developing a vyaj badla market in commodities for the first time in the country.”
Shah was hopeful that the Gujarati players who were masters of the badla game would take to it like a fish to water and make him the king. “He had himself seen how a large number of Gujarati investors used to invest in BSE vyaj badla trading and earn handsome returns. He felt that if he could develop a similar market in commodities, providing handsome returns on investment, he would become the uncrowned king of the markets. NSEL is the outcome of such a vision of Jignesh Shah,” he added.
Sinha, associated with Shah for over a decade, first at MCX and then at NSEL, talks elaborately about the centralised management style in the group. “It can be verified from FTIL records that in all group companies of FTIL, appointment of directors, corporate communication, media management, dealing with ministers and senior officials in the central government are directly controlled by him. The corporate communication department looks after all group companies and reports directly to Jignesh Shah, not to the MD of the respective company,” Sinha said in the statement.
“Jignesh Shah was fully aware that NSEL was an unregulated market and no regulator was going to be appointed to regulate NSEL in the near future. Therefore, he wanted absolute control over this exchange in all matters.”
In 2012-13, Shah wanted NSEL to be opened up for newer players and volumes were ramped up to bolster the bottom line of parent Financial Technologies at a time the group’s overseas ventures were bleeding. This aggression proved costly in the end.
Sinha suggested Shah was planning to run NSEL in this fashion only until one of his international ventures picked up and made enough profit. He was also confident that he would be able to bargain and get a time frame of about six months to one year to wind down NSEL contracts.
“Jignesh Shah was of the opinion that the entire matter was civil in nature and so at the most NSEL would declare those buyers as defaulters and recover the money from their assets. He did not expect police action of such magnitude. Otherwise, he would have revisited the decision,” Sinha said in the statement.
