NSEL investor group asks Sebi to probe FTIL role in NSEL scam

Ashish Rukhaiyar, Ami Shah

2 September 2015

Mint

Mumbai, Sept. 2 — The NSEL Investors Action Group has written to the Securities and Exchange Board of India (Sebi) asking the capital market watchdog to probe the role of Financial Technologies India Ltd (FTIL) in the Rs.5,574 crore settlement scam at the National Spot Exchange Ltd (NSEL). Issues related to the company siphoning off funds along with insider trading and stock price manipulation need to be probed by Sebi, said the investor group.In a 16-page letter addressed to Sebi chairman U.K. Sinha, the investor group said, “it is now clear that NSEL scam was masterminded and perpetrated by a listed entity – Financial Technologies India Ltd”. The group added that there are numerous emails between the top officials of NSEL and FTIL to corroborate the involvement of the Jignesh Shah-promoted listed entity.

Investors have sent a copy of the letter to the Prime Minister’s Office, the finance ministry and the Central Bureau of Investigation.

An FTIL spokesperson said the Bombay high court has already directed Sebi to look into the complaints and, if necessary, investigate the same, and complete the process within 12 weeks.

“There is a clear vested interest agenda at play in timing the circulation of such a letter which has already been covered by media and the matter in question is sub judice. Any attempt to influence the judiciary decision or outcome is not considered legal in the Indian judiciary system,” said the spokesperson, adding that FTIL’s legal counsel Amarchand Mangaldas will send a detailed response by Wednesday.

In an order issued on 6 August, the Bombay high court had directed Sebi to look into demands for a probe into the role of FTIL in the NSEL scam within 12 weeks’ time.

FTIL owns 99.99% of NSEL, on which trading was suspended after the settlement fraud came to light in July 2013.

A bench comprising justices V.M. Kanade and B.P. Colabawalla had directed Sebi to look into the complaints filed by the petitioners and decide on the basis of merit. The bench clarified that the court has not expressed any opinion on the merits of the case and that Sebi can decide if the complaints merit an investigation.

The bench was hearing a petition filed by a number of of entities-Smita Bhartia, Meenal Maheshwari and IGL Finance Ltd-that have invested money in NSEL, which suspended trading operations completely in August 2013 after the discovery of the fraud on 31 July.

In their letter dated 31 August, NSEL investors alleged that FTIL has siphoned off funds by selling its stake in exchanges such as Bourse Africa and Multi Commodity Exchange of India Ltd (MCX), along with the other overseas bourses floated by the company.

According to the investors, FTIL sold its stake in Bourse Africa to Continental Africa Holdings Ltd for $40.5 million in November 2014, but records showed that the buying entity was a “thinly capitalized shell company” formed only on 17 July 2014.

Further, FTIL sold a 15% stake in MCX at Rs.600 per share at a time when the market price was Rs.783. “MCX was sold at 23% less than market (price), thus cheating investors of FTIL. It is believed a huge cash transaction took place in this deal and this must be investigated by you for the benefit of Indian investors,” says the letter.

Investors who have lost money in the scam also believe that majority of the loans given by FTIL to its overseas subsidiaries have been given after the scam came to light, suggesting that the company is trying to “send as much money as possible beyond the Indian jurisdiction”.

On the issue of insider trading, investors have alleged that a promoter group entity of FTIL did not comply with the Sebi norms for disclosure of shareholding. They have also highlighted the fact that the Economic Offences Wing of the Mumbai Police, in an affidavit, has stated that NSEL auditor Mukesh P. Shah was involved in insider trading in the shares of FTIL.

“The variation in the prices of shares of FTIL and MCX prior to and after the scam as well as the sale of shares by a few KMPs (key management personnel) connected with MCX and FTIL… showed that these persons had conducted the sales just prior to the disclosure of the scam when they had access to price sensitive information,” states the letter.