MC EXCLUSIVE Surat prop trading scam spreads nationwide, losses may top Rs 150 crore

Surat prop trading scam spreads nationwide, losses may top Rs 150 crore

The prop trading scam that first surfaced in Surat earlier this year has now widened beyond state borders and is rapidly turning into one of the biggest unregulated prop funding blow-ups in recent times. The crash of Green Wall Enterprises, also known as Greenvol Enterprises, an alleged agent of Jainam Stock Broking, is now impacting traders and leveraged investors in several other cities.

As per market sources, a Greater Noida-based firm iTrade Associates, run by Darshan Joshi alias DJ was closely linked with Green Wall has also collapsed, leading to nearly Rs 40 crore of investor funds being stuck. The figure of Rs 40 crore could not be independently verified by Moneycontrol. But as per the victim’s complaint filed by DJ’s firm iTrade Associates to Surat Police, the firm has claimed the amount of Rs 22.06 crore. Market sources say many times funds are given through other channels which are not documented but are purely on mutual trust basis so these numbers do not reflect in formal complaints.

DJ, sources say, had exposure and clients across Delhi NCR, Jaipur, Ranchi, Kolhapur and a few other pockets. Green Wall Enterprises was operating allegedly like an agent of Jainam Stock Broking for providing limits for prop-trading. Though regulations do not allow any other structure other than authorised person or AP earlier called sub-broker.

In August, the sudden disappearance of Green Wall’s key persons stunned everyone. People doing business through Green Wall believed it was a Jainam’s branch as the names and hoardings of Jainam were used.

But Jainam, in an email response to Moneycontrol, denied any links with Green Wall Enterprises. Jainam stated, “Green Wall Enterprises was not our agent. Green wall is not associated with us in any manner and no transaction is done with Green Wall Enterprises. Since there is no relationship between Green Wall and Jainam Broking Ltd, as stated above, Jainam Broking Ltd is not responsible for any transaction done with Green Wall, iTrade Associates or Darshan Joshi”.

Moneycontrol reached out to Darshan Joshi alias DJ, of iTrade Associates and iTrade Capital, DJ claimed that he himself is a victim in the case. DJ said, “I am completely with everyone whose money is stuck. I am communicating with them regularly, making every effort to recover the money, have requested others to join this fight with me. Have filed complaint with Surat police and a case has been registered there. I am also filing complaint for FIR with Noida Police. Making all the genuine efforts in the case”.

But one of the victims of this prop trading episode who came forward and agreed to speak to Moneycontrol Krishan Yadav, a former merchant navy captain, explains a strange model through things were operated. The trading terminal for F&O trades was arranged by iTrade Associates, who used to take margin money on behalf of Green Wall and claimed the Green Wall was depositing the money through DB Wealth and Ashapura Commodities to Jainam Stock Broking but Jainam had denied any links with Green Wall Enterprises. Krishan says, iTrade Associates tried to manage the situation for few weeks by arranging trading limits from other sources and assured them to pay the dues by liquidating his portfolio but everything stopped.

Krishan Yadav says, “I invested all my life savings there, but now not only my capital evaporated, but trading-dependent income stream is also gone”.

The wider impact

Originally, this scam was thought to be around Rs 5 crore. But now industry insiders indicate the real amount may be closer to Rs 150 crore, because many investors and agents who handed over funds informally (cash / personal transfers / in kind) are either scared to file cases or are expecting Jainam Broking to quietly settle the losses. According to some market participants, few victims have already been quietly compensated by the broking firm, though this has not been officially admitted by Jainam. They say this is usual practice of doing business in many cities and everyone is happy until something goes wrong.

On August 14, after collapse of Green Wall Enterprises, trading terminals were abruptly disabled and traders were blocked from executing or squaring off positions. The two key individuals behind the Green Wall, Nimit Shah and Hiren Jadav, had absconded. Following multiple complaints from victims, FIRs were filed. One of them, Hiren Jadav, has been arrested. The case is currently under investigation by the Economic Offences Wing (EOW) of Surat Police. But Nimit Shah is still absconding.

The questions that arise are are if such business models are being run because of any grey area in regulations  or is it complete ignorance and disrespect for securities market laws? From time to time SEBI and exchanges have been doing inspections of brokers and punishing too, but such incidents suggest that the people find some loopholes and device to defeat the law.

This is first part of the coverage on such scams and we will come up with few more stories to uncover how the business in the name of prop trading is flourishing and other kinds of violations are being done.

Also read: SEBI initiates active deliberation on ways to deepen the cash market segment