ED: Jignesh Shah was the brain behind NSEL scam

Jignesh Shah, founder of Financial Technologies India Ltd (FTIL) - promoter of National Spot Exchange Limited (NSEL), laundered the ill-gotten wealth he made by duping NSEL investors of Rs 5,600 crore by buying private property, the Enforcement Directorate (ED) told the PMLA court yesterday. Seeking his custody, the agency said the "proceeds of the crime" provisionally attached during investigations amounted to Rs 837 crore. Shah was arrested on Tuesday after 10 hours of questioning.

Jignesh Shah

The architect
The ED said the NSEL and the FTIL were effectively under Shah's control at relevant times and he was one of the main architects of money-laundering activities.

Sister subsidiaries of Shah-controlled companies were created to route the proceeds of the crime and keep his firms untainted, it added.

It charged Shah with being the brain behind multi-layered, interconnected transactions.

According to the agency, NSEL, its directors and office bearers hatched a criminal conspiracy to defraud investors, convinced them to trade on NSEL's platform, prepared bogus warehouses receipts and falsified accounts, thereby breaching the trust of nearly 13,000 investors and duping them of Rs 5,600 crore.

ED sought Shah's custody to unearth and trace the trail of siphoned funds. Defence counsel Aabad Ponda claimed that Shah's arrest was illegal. "Shah is already listed as an accused by the agency in their complaint filed before the court last year. The court had issued summons and in the last hearing, he was exempted from appearance and was directed to appear before the court on June 18 for his bail hearing. However, while the judicial process was on, the agency arrested him for the same charges in the case. This is illegal," he said.

Special public prosecutor Hiten Venegaokar, however, said this is a separate case. "This case pertains to the money laundered by Shah, which he earned through the NSEL platform and transferred to his various companies in a layered transaction."

The court remanded Shah in ED's custody till July 18.

How the money was made
ED investigations have revealed that 15 defaulting members had obtained huge funds from NSEL by trading against fictitious stocks of commodities like sugar, rice, TMT bars, chrome, castor oil, cotton and wool. Fake receipts of the goods/commodities (being deposited in NSEL godowns) were generated. Such non-existent goods were then sold on the exchange and the funds derived from such fraudulent sales were siphoned off.

The defaulting members admitted in their statements before the ED to having launched contracts on the NSEL portal without having stocks of their respective commodities and collected huge funds with the connivance of NSEL employees. ED found that NSEL directors, management personnel and other employees helped these members to launder the money.

The nexus
During their investigation, ED officials noticed certain irregularities in transactions between Indian Bullions Marker Association (IBMA), a stepdown subsidiary of FTIL, and certain defaulters of NSEL. The agency believes that dubious entries were made to siphon off money from the NSEL platform.

The ED also found many suspicious interconnected transactions between FTIL, NBHC (National Bulk Handling Corporation - a subsidiary of FTIL) and NSEL.

In his statement, the CFO of FTIL, Devendra Agarwal, told the ED the amounts transferred were loans from FTIL to NBHC, and payments from NBHC to NSEL were the advance for procurement of commodities. But, the ED didn't buy this claim of advance of loan and repayment made in just two days.

ED's financial investigation reveal that R84.39 crore flowed from NSEL to FTIL during 2009-2010 and 2014-2015 for various purposes. The transactions on the NSEL platform have been proved to be bogus and artificially exaggerated. Investigation points to a nexus among the defaulters, the NSEL, IBMA and NBHC.

IBMA allegedly transacted crores of rupees with NSEL defaulters without any business or transfer of goods. The ED also found transactions between NSEL and FTIL under a bogus separate ‘software charges' category.