Nine months after the National Spot Exchange Ltd. (NSEL) scam surfaced, the law has finally caught up with Jignesh Shah, its former director and promoter. He was arrested by the Economic Offences Wing of the Mumbai police on Thursday after he was evasive and failed to cooperate during interrogation, according to the police. An FIR was filed by an investor against the directors and key functionaries of the NSEL last September alleging cheating, forgery and criminal breach of trust following which the exchange’s CEO Anjani Sinha and a couple of top executives were arrested in October; they were released on bail on Friday. The charge against Mr. Shah is that he was the mastermind of the scam and engaged in a criminal conspiracy to turn the NSEL into a non-banking financing institution. Serious as these charges are, it is intriguing that he was untouched all these months even as investors have not got back a single rupee from the exchange. If indeed Mr. Shah was the mastermind, why was he not subject to interrogation to get to the bottom of the scam and trace the money trail? Equally, if the police know the identities of the brokers and borrowers from the exchange who have failed to return the money causing the payments crisis, why have they not been taken into custody for interrogation yet?

These questions are relevant because investors, innocent of the fraud committed by a cartel of brokers and operators, have collectively lost as much as Rs.5,600 crore. Though the NSEL proposed a payout plan to return the money, it has neither been able to stick to the schedule nor has it repaid any substantial money to investors. It is in this context that the delay in investigation becomes important. The regulator, Forward Markets Commission (FMC), cannot escape responsibility because the fraud was perpetrated under its watch. Here was an exchange freely allowing forward contracts when it was supposed to deal only in spot trades. Worse, contracts were being made on the basis of forged warehouse receipts which means that there were no underlying assets (commodities) to the trades. The exchange was turned into a platform for short-term financing where buyers of contracts were the financiers and the sellers were the borrowers and this activity went on unregulated. This was certainly not the business that the NSEL was supposed to be in and it is difficult to believe that the regulators were not aware of what was going on. Having finally arrested Mr. Shah, the police should at least now get to the bottom of this scam, investigate the brokers and operators involved in the fraud and recover at least a part of the money lost. While punishing the perpetrators is important, it is imperative that the money of innocent investors is traced and returned to them.

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