Three high-profile brokers arrested in NSEL scam

The Economic Offences Wing (EOW) of Mumbai police has arrested three top directors of leading brokerage houses on Tuesday afternoon for allegedly being involved in the Rs 5,600 crore National Spot Exchange Ltd (NSEL) scam.

More arrests are likely to follow as EOW continues to probe the role of brokers in the scam.

The arrested brokers are Amit Rathi, director of Anand Rathi Financial Services Ltd, C P Krishnan, whole-time director of Geojit Comtrade Ltd, and Chintan Modi, director of India Infoline Ltd (IIFL).
The accused would be produced before Sessions Court today.

"The brokers are accused of manipulating Unique Client Code (UCC) of their clients. Even certain client codes were used without clients' consent. Trades worth Rs 1,061 crore were conducted using one client code without the client's consent. They had provided wrongful and misleading statements and enticed NSEL investors and assured them that NSEL would provide safe and fixed investments," said additional commissioner of police Rajvardhan Sinha.

He said the police is also suspecting proprietary trade by brokers for which sustained interrogation was required.

The accused have been held under Sections 120, 467, 465 of Indian Penal Code (IPC). These sections are for cheating & forgery, criminal conspiracy and mis-representation of shares.

In a statement to media, Anand Rathi Commodities Ltd, said, "We are disappointed at the turn of events and do not believe the arrest is appropriate in the circumstances. Our counsels approached the Bombay High Court to prevent any arrest late afternoon today. The court was pleased to grant an order directing no arrest of officials till March 4, if not already arrested. On submission of the order we were informed that the arrest has already taken place."

It said Anand Rathi Commodities and its directors, officials have fully co-operated with the agencies in the course of the investigations.

"We have submitted the requisite information/ documents as requested from time to time and clearly established that ARCL a did not make any illegal profits/enrichment," the brokerage house said.

According to the findings in the EOW probe, these brokers acted as clearing and forwarding agents, and gave false assurances to investors. 'Fictitious transactions' like sale of commodity to borrowers were also found during the investigations. A conflict of interest due to possible tie-up between NSEL and brokers was also revealed, police said.

EOW officials said findings also revealed short-selling by brokers to rake up volumes in NSEL. The clear instances of circular trading and advance to broking house employees also found, they said, adding that the brokers even gave confirmation of stocks to auditors of NSEL.

The EOW investigated 139 broking firms which had participated in NSEL trading after complaints were received from investors.

According to EOW, the responses of accused are evasive and they were non-cooperative during the course of investigation.

The total client base of Anand Rathi is 12,900 in NSEL, while the trading exposure stands at Rs 19,130 crore, or 16% of total turnover of NSEL.

IIFL has total trading volume of Rs 9,183 crore and Geojit Comtrade has around 1,000 NSEL clients.

NSEL, a countrywide commodity scam, had affected 13,000 retail investors across the country. The commodity exchange had been grappling with a payment crisis since suspending trade in July 2013.

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 was arrested in May 2014 for his role in scam, but was granted bail in August.