The Shah of Filibuster: Jignesh Shah of MCX

Endgame Jignesh Shah with his chosen few before the dramatic slide, Photo Courtesy:
Endgame Jignesh Shah with his chosen few before the dramatic slide, Photo Courtesy:

It seems the endgame has finally arrived for the market-man from Kalbadevi — the reference is to Jignesh Shah, 44, the one who cocked a snook at the regulators, but whose own irregularities have now resulted in a dramatic slide. This is also a time to rejoice for the market regulator Securities and Exchange Board of India’s (SEBI) former officials such as CB Bhave and KM Abraham, who were singled out for punitive action after they tried to unearth irregularities in Shah’s business transactions.

Shah’s dramatic story is an instructive manual on how to succeed in milking the system — albeit only to get outmanoeuvred in the end — by posing to be the proverbial cat’s whiskers. The man who converted his baby, the Multi Commodity Exchange of India Ltd (MCX), into the country’s first online commodities exchange in less than a decade and saw it become the world’s third largest entity in its genre now finds the Enforcement ­Directorate breathing down his neck, hoping to book him finally for his many perceived transgressions.

Shah is now in the line of fire because of a Rs 5,400-crore payment crisis at the National Spot Exchange Limited (NSEL), one of his many successful initiatives. None of his fabled contacts in high places seem to be in a position to bail out this once bright boy of the bourses.

Shah, an engineering graduate, successfully completed his first assignment as project in-charge of the Bombay Stock Exchange Limited’s (BSE) on-line trading platform bolt. He quit his first job to position his information technology firm, Financial Technologies India Ltd (FTIL), as the one that provided technical and software solutions for on-line trading. FTIL went on to become the market leader with 8.97 lakh installations across the country.

In 2003, Shah set up MCX, which set up the country’s first energy exchange. It also built exchanges across the globe in Dubai, Mauritius, Singapore, Bahrain and Botswana.

It was three years ago that Shah had a legal run-in with SEBI, which dragged on for more than 18 months and ended with his arrest and subsequent release on bail. Immediately thereafter, he came out with the initial public offering of MCX, the first listed exchange in the country.

MCX, which brings producers, users and consumers of various commodities to trade online, was a dream-come-true. “I never knew how the stock market functions in India before I was selected as an engineer with the BSE,” Shah once boasted in an interview five years ago, by which time he had become a billionaire and figured in the Forbes list of the richest Indians in 2010. With a fortune of $610 million, he was ranked 87th.

The success, however, was to be ephemeral as the share price of FTIL slumped to Rs 134 on 31 July 2013, from its earlier peak of Rs 547. MCX’s per share value declined to Rs 292 from Rs 690 in the same period.

The man, who according to a business journal could be spotted driving down with his family from his home in Mumbai’s Juhu locality to PVR Cinemas in a Mercedes Benz S-Class to watch the latest Hindi movie on offer, has thus seen a rags-to-riches-to-rags transformation, which may soon be converted into a potboiler by an intrepid filmmaker!

From being a software engineer, he became a manager at the BSE, took commodity trading online and went on to set up several exchanges all over the world. His dream was to become a billionaire by 40. He was just a year older — 41 — when he debuted on the Forbes list of billionaires in 2008.

The empire builder’s ignominious descent is in many ways a fitting denouement. He left a huge trail of irate investors in what can well be called a bigger scam than Harshad Mehta’s two decades ago, or Ketan Parekh’s a decade ago. The Economic Offences Wing (EOW) of the Mumbai Police has questioned Shah and frozen his bank accounts earlier this month. The EOW has also arrested NSEL CEO Anjani Kumar Sinha in the course of the probe.

A few days earlier, Shah had to quit from the board of MCX, apparently to pre-empt the Forward Markets Commission that had asked him to prove he was “fit and proper” to be on the board after the scam at NSEL. Tarred with the NSEL scam, this hero-turned-zero of Indian finance is now in a huddle with lawyers in Mumbai, looking for ways to ward off a volley of allegations.

Fraud upclose

The Rs 5,600 crore NSEL scam has been likened to a systematic and premeditated attempt to hoodwink regulators and investors alike

♦ After MCX defaulted on 31 July 2013, it was found that most of the underlying commodities and assets it claimed to possess did not exist and the buying and selling of commodities such as steel, paddy and sugar were being conducted on paper alone

♦ 15,000 investors and public sector entities such as the Metals and Minerals Trading Corporation (MMTC) were victims of the fraud that ranged from fabrication of the minutes of board meetings to the non-existence of the warehouses listed on the NSEL website

♦ As a specific example of the raw deal meted out to investors by Jignesh Shah, Rs 839 crore designated as settlement guarantee fund (SGF) simply evaporated on 29 July 2013

♦ According to the EOW of the Mumbai police, Shah and his trusted lieutenant Shreekant Javalgekar were believed to be the masterminds of the scam. The EOW claims to have found that Shah approached all the shady contacts himself. His role in money laundering is also being probed

The man who in 1995 launched an innovation that would transform trading in India now has his fortunes wiped out. Having once garnered a 70 percent share of the market, Shah had become a cult figure among traders in stock and commodity futures.

Thirteen years ago, his technology firm had applied for a licence for a commodity exchange — something unique in the financial world of Mumbai. What could a tech start-up do with a stock exchange? Plenty, it seemed. Some months after getting the licence, he set up MCX, which competed with the BSE. By offering investors online trading in commodities, MCX broke new financial ground. It created hordes of commodity investors across the country. It soon became India’s largest commodities exchange and continued to grow. In 2011, it became the world’s fifth largest commodity exchange, overtaking China’s Dalian Commodity Futures Exchange.

However, Shah’s fall was as dramatic as his rise. The wonderkid of the financial capital of India is now at a dead end, trying to prove his innocence, shorn of his ballast as thousands of the investors he allegedly duped cry foul. His prehensile eagerness to grow too big and too fast has done him in. As observers suggest, he has become a victim of the very animal spirits he unleashed in the Indian market. Insiders say he is not the confident and proud man he used to be. His story, according to some, is a cautionary tale for entrepreneurs, investors as well as regulators.

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