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Cops unravel brokers' role in NSEL scam

The Economic Offences Wing (EOW) of Mumbai crime branch has mapped out the nature of the crimes committed by the three brokers arrested in the Rs5,600 crore National Spot Exchange Limited (NSEL) scam.

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File photos of brokers Chintan Modi, Amit Rathi and Cherassary Krishnan, who were arrested by EOW recently.
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The Economic Offences Wing (EOW) of Mumbai crime branch has mapped out the nature of the crimes committed by the three brokers arrested in the Rs5,600 crore National Spot Exchange Limited (NSEL) scam. EOW investigations reveal that the three brokers, who were arrested on March 3, had allegedly given false information to investors and auditors of NSEL, and also allegedly traded in their clients' names without taking permission. In this way, these brokers had manipulated the trading volumes of the NSEL.

The EOW arrested Amit Rathi, Director of Anand Rathi Commodities Limited (ARCL); Cherassary Krishnan, Director of Geofin Comtrade; and Chintan Modi, Director of India Infoline Commodities Limited- three major brokers in the city.

What was ARCL's role in the scam?
ARCL started trading on the NSEL platform in 2009, and presently has 12,900 clients. In the past four years, ARCL traded worth Rs19,130.2 crore, which is around 16% of the overall turnout on the NSEL platform. It was also revealed during the investigation that ARCL had falsely assured investors that they (ARCL) had done the due diligence, and there were enough settlement guarantee funds, thus enticing them to invest in the NSEL products. "ARCL also acted as clearing and forwarding agents, and gave NSEL auditors false information that there were adequate goods in the warehouses. They should have carried out all the checks that were needed about availability of the stocks to protect the interest of their investors, but instead they gave them wrong information," said an EOW officer privy to the investigation. He added, "We also have reason to believe that there was a nexus between the defaulted borrowers in the case and ARCL, based on some transactions that point towards such nexus." The EOW sleuths also believe that ARCL masqueraded as its client to do large deals (this is known as UCC manipulation). "We have come to know that UCC manipulation (masquerading) was done rampantly from two conduit accounts without the consent of the account holder and commodities were bought without the consent of the clients, leading to unfair trade practices," said an officer. He added, "We have reason to suspect that ARCL carried out suspicious transactions of funding through multiple accounts, and to increase the volumes on NSEL platform, indulged in circular trading by transferring funds into various accounts of their own employees and relatives."

What about Geojit Comtrade?
The EOW official said that Cherassary Krishnan's Geojit Comtrade Limited joined the NSEL in 2011, and has around 1,000 clients registered on NSEL. Geojit Comtrade Ltd, too, gave false assurance to the investors that investment on the NSEL platform was safe and there was no risk involved. "Geojit Comtrade Ltd also tried market capturing practices by large-scale UCC manipulation and have done total trade worth Rs163.3 crore," said an officer from EOW. He added, "Due to such large-scale market-capturing practices, other traders were deprived from trading on the NSEL platform." He further added, "The company also issued a stock confirmation letter to the auditors of the NSEL in 2012, confirming physical stocks lying in an accredited warehouse of NSEL in Mehsana district of Gujarat, whereas they knew that there was no stock available."

And India Infoline Commodities Ltd?
The investigating agency stated that IICL became a member of NSEL in 2010 and has traded worth Rs9,183.48 crore. IICL gave its investors false assurances to expect returns between 19 to 21%. "Clients were falsely told that the deals were secured by exchange and contingency funds to protect any losses," said an EOW officer. IICL also traded in clients' names without permission.

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