Home / Companies / News /  NSEL crisis: EOW to attach properties of Jignesh Shah, Joseph Massey

Mumbai: Mumbai police’s economic offences wing (EOW) said on Tuesday that it would seize the properties of Jignesh Shah, chairman and managing director of Financial Technologies (India) Ltd, (FTIL), and others this week in connection with the 5,574.35 crore payment crisis at group unit National Spot Exchange Ltd (NSEL).

The EOW spelled out its intent on a day FTIL, which owns 99.99% of the spot exchange, announced the sale of another unit, Singapore Mercantile Exchange (SMX), to US-based IntercontinentalExchange Group Inc. for $150 million (around 932 crore) in cash.

The police also intends to seize the properties of Joseph Massey, former chief executive officer of MCX Stock Exchange Ltd (MCX-SX), and all directors of NSEL in connection with its investigation into the payments crisis that surfaced at the end of July.

The investigating agency said it is preparing to file the first charge-sheet in the NSEL case.

“We have approached 2-3 prominent lawyers for the case and will soon finalize the first charge-sheet," said Rajvardhan Sinha, additional commissioner of police, EOW.

So far, EOW has attached at least 166 properties of defaulting borrowers of NSE and will present its valuation report within a month. The agency has also recovered at least 145.57 crore from the bank accounts that have been frozen in connection with the NSEL crisis.

But Sinha said the EOW had not found any evidence to establish that NSEL investors’ money had been routed to FTIL or its other group companies. On Tuesday, both Shah and Massey visited the EOW headquarters in Mumbai to discuss issues related to the settlement process in the NSEL case.

Meanwhile, FTIL said it will spend the money raised from the sale of SMX to repay all its overseas and foreign currency debt. Its stock rose 2.07% to 185.05 on the BSE on Tuesday while the benchmark Sensex gained 0.19% to 20,890.82 points. In the past two days, the stock has risen 22.47%.

Singapore-based SMX is an Asian commodities and currency derivatives exchange that also offers futures and options contracts on precious and base metals, farm produce, energy, currencies and commodity indices. IntercontinentalExchange said the acquisition will add to its current network of markets and clearing houses in the US, Canada, Brazil, the UK and continental Europe.

The acquisition will include SMX Clearing Corp., a wholly-owned subsidiary of Singapore Mercantile Exchange, and the clearing house for all trades on the exchange. The transaction is expected to close by the end of 2013.

SMX and SMX Clearing Corp. had together incurred a loss of 90.2 crore in the fiscal year ended March, FTIL’s annual report shows.

Shah had “mixed emotions" about parting ways with an asset he had nurtured, the company said in a statement, but “he would be happy to watch it scale new heights with satisfaction from a distance under ICE".

“Financial Technologies needs to generate cash," said Deven Choksey, managing director and chief executive of KR Choksey Shares and Securities Pvt. Ltd, a brokerage. “Some assets had to be sold, which is happening now."

“First and foremost, they may be looking at paying off foreign debt. It is a step in the right direction, and eventually, if more such assets are sold, they may be used towards paying off NSEL investors," he added.

FTIL has interests in a few exchanges overseas and owns 99.98% in Bourse Africa Ltd (BAL), 100% in Mauritius’ Global Board of Trade Ltd and Bahrain Financial Exchange.

The company also owns 100% of the subsidiaries of BAL—ICX Africa Ltd, Bourse Zambia Ltd, Bourse Exchange Nigeria Ltd, Bourse Africa (Kenya) Ltd, Bourse Uganda Ltd and Bourse Tanzania Ltd.

In addition to this, it and Multi-Commodity Exchange of India Ltd (MCX) together hold around a 31% stake in the Dubai Gold and Commodities Exchange.

Investors who had their money stuck in NSEL did not take kindly to the sale. They wrote a letter to NSEL saying that pending the conclusion of investigation on the culpability of the company, its board and senior management, all funds from sale of assets should be maintained in the company’s bank accounts in India, and earmarked for meeting the spot exchange’s obligations.

“They might consider selling stakes in other foreign exchanges. We are saying that we should be paid from SMX stake sale," said Sharad Kumar Saraf, chairman of NSEL Investors Forum, a group formed by aggrieved investors. “If they don't, we will take legal action."

“Financial Technologies should pass on benefit of stake sale to NSEL investors," said Ashok Mittal, president of Commodity Participants Association of India, a commodity brokers’ group.

“They should also sell their stake in other exchanges owned by them to repay the NSEL investors."

The crisis at NSEL came to light on 31 July when the exchange abruptly suspended trading in all but its e-series contracts. These, too, were suspended a week later. The closure of trading may have been prompted by an instruction from the ministry of consumer affairs to the exchange asking it not to offer futures contracts. A spot exchange isn’t supposed to do so, but NSEL was doing that.

NSEL tried to implement the change but because its appeal was to investors and members who were not interested in spot trades, it eventually had to suspend all trading. It later emerged that all trading on NSEL happened in paired contracts, with investors, through brokers, buying a spot contract and selling a futures one for the same commodity.

The entities selling on spot and buying futures were planters or processors and members of the exchange. It turned out there were only 24 of them, and they used the paired contracts as a way to raise easy money. When the trading was suspended, the investors were left holding contracts that the members couldn’t buy because they didn’t have the money to do so.

On 14 August, NSEL proposed a payout plan, but it has been unable to stick to the schedule and has not made a single complete payout.

Five people have been arrested by Mumbai Police’s Economic Offences Wing in connection with the payment crisis.

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