India Exchange Probe Widens as Police Seize $487 Million Assets

Investigators probing the biggest payment default in India’s commodity market seized assets and properties worth $487 million from exchange officials and defaulters that may be used to clear dues to investors.

The police seized 300 properties of defaulters of the National Spot Exchange Ltd., Rajvardhan Sinha, additional commissioner at the economic offenses wing of Mumbai police, said in an interview broadcast on Bloomberg TV India today. The assets also include “movable and immovable properties” of Jignesh Shah, chairman of the Financial Technologies (India) Ltd. (FTECH), which founded the now defunct exchange, he said.

The government ordered the National Spot Exchange to halt trading in July after it found the bourse broke rules by permitting the sale of goods traders didn’t keep in its warehouses, according to regulators. The police arrested the exchange’s former Chief Executive Officer Anjani Sinha and two other senior officials after an investors’ group complained the executives diverted funds and failed to settle about 56 billion rupees ($911 million) in dues to investors.

“We are at a very nascent stage of investigations and our primary focus is on finding out where this ill-gotten money was invested,” Sinha said. He declined to say if Shah would be arrested.

Properties seized by the police include Shah’s bungalow in suburban Mumbai, his shares in Financial Technologies and properties belonging to other directors, the Economic Times reported on Dec. 4. The assets may be liquidated to pay investors, the Mint newspaper reported yesterday.

Investment Plan

Suman Das Sarma, a spokesman for Financial Technologies, declined to comment on the seizure today. Shares of Financial Technologies advanced 0.2 percent to 159.8 rupees. The stock has dropped 70 percent since July 31, when NSEL suspended trading in most commodities.

The turmoil at the exchange began with the government seeking details on NSEL’s settlement cycle on July 14, and deepened with the suspension of most contracts on the NSEL on July 31. The NSEL has failed to meet most of the payment targets set under the supervision of the Forward Markets Commission, the commodities futures market regulator.

Spot trading in commodities was marketed by some brokers on NSEL as an investment plan and “a façade was created as if there are goods in godowns and it was all legal,” Sinha said.

The police on Oct. 22 arrested Nilesh Patel, the managing director of N.K. Proteins Ltd., the top defaulter on the NSEL, Sinha said that day. Paritosh Upadhyay, a spokesman for N.K. Proteins, wasn’t immediately available for comment.

“There was no collateral to back it up. Borrowers were told they can return money in four-five years and they invested the money in long term real estate assets and other businesses. When crisis came they had no liquid money.”

Shah also founded Multi Commodity Exchange of India Ltd., India’s biggest platform for commodities which counts NYSE Euronext and Fidelity International Ltd. as investors. Shares of MCX rose 0.3 percent to 452.60 rupees by 12:21 p.m. in Mumbai today, paring losses this year to 69 percent.

To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net

To contact the editor responsible for this story: Michael Patterson at mpatterson10@bloomberg.net

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