The 47-year-old entrepreneur, who had taken on institutional forces such as the National Stock Exchange with his commodity exchanges, became a victim of his own break-neck ambition, say close associates. This is his story, one year after the irregularity at NSEL was uncovered
Incarcerated, maligned and painted in every shade of grey: This is not how Jignesh Shah had envisaged his endgame as he plotted his rise and rise in the Indian markets over 15 years, touting the mantra “everything is fair in love and war, and that applies to business as well” to his closest associates with a determined frequency. The scrappy entrepreneur soared and fell by this ambition: In his pursuit of profit, a business associate says, “Jignesh did not see what was for the good of the shareholders and what was good for him. He could not rise to that level.”
The David who took on Goliaths such as the National Stock Exchange (NSE) started to come undone as serious irregularities at one of his two commodity exchanges—National Spot Exchange Limited (NSEL)—emerged over a year ago. Contracts sold, without the necessary collateral being in place, resulted in defaults and consequent losses of Rs 5,689.95 crore for investors. This led to his arrest on May 7, 2014. With that, Shah ceased to be the textbook iconic entrepreneur who had built an enviable empire and revolutionised commodities trading by taking it online. Instead, he started to make front-page headlines for all the wrong reasons.
Shah, 47, who set up Financial Technologies India Limited (FTIL) in 1988, launched a series of stock exchanges under its aegis in the previous decade, including MCX, a multi-commodity bourse which has become India’s only listed exchange. (It was set up in 2002 and listed on the Bombay Stock Exchange, or BSE, in 2012.)
As FTIL—the holding company which also provides financial markets software to brokers and other market participants—became successful, Shah’s ambitions took him beyond Indian shores. In the space of a few years, he set up exchanges in Singapore, Bahrain, Dubai (UAE), Mauritius and Botswana as well as a financial market content provider, TickerPlant.
“There was everything—the right space, the right vision, technological excellence. And you had Jignesh at the top, driving the group with his characteristic grit and determination,” says Ravi Sheth, managing director at GreatShip India, which has a small stake in FTIL.
The fall, in this context, came even harder. After months of interrogation by the Mumbai Police’s Economic Offences Wing (EOW)—based on criminal complaints filed by investors—Shah was arrested for “not cooperating” with the authorities in the investigation into the events at NSEL in July-August last year.
One year on, just over six percent of the Rs 5,689.95 crore owed to investors has been recovered from the defaulters. At least six different court cases, including a class action suit, have been filed in High Courts of Mumbai and Ahmedabad. And though there is hope that many of the 13,000 investors would get paid in the coming years, there is a strong possibility that the money trail might just go cold.
Either way, the Jignesh Shah story is likely to enter management books as a case study in ambition and potential gone horribly wrong. Repeated efforts—emails, phone calls, text messages—to reach the current management at FTIL and MCX met with no response, but many of Shah’s associates—brokers, friends, colleagues, former staffers—over the last decade-and-a-half spoke to Forbes India, saying that much like his success, his unravelling too was, perhaps, inevitable.
Where He Went Wrong: NSEL
Ironically, and maybe fittingly, among all of Shah’s successes, NSEL, India’s first electronic spot exchange for commodities which started trading in 2008, was foremost. It was a wholly-owned subsidiary of FTIL, whose entire income would be reflected in the parent firm’s consolidated earnings.
In FY13, according to a statement made by NSEL’s former CEO Anjani Sinha to the EOW in October 2013, over 50 percent of FTIL’s profits came from NSEL. The other 50 percent was accounted for by 14 other ventures floated by FTIL.
Shah liked to wear this triumph unabashedly on his sleeve.
In July 2013, a large private equity firm wanted to invest in MCX-SX, an equity exchange started by Shah in 2008, which was being touted as the next big thing in the Indian markets. Many believed it would do better than the BSE, the oldest stock exchange in Asia. It had started attracting investors, one of whom approached a consultant who knew Shah, for the possibility of a stake purchase in the exchange. But Shah was not interested in diluting his stake; instead, he was keen on discussing NSEL.
The long road to recovery
(This story appears in the 05 September, 2014 issue of Forbes India. To visit our Archives, click here.)