Those under scanner include many brokers, their HNI clients and some top officials of the National Spot Exchange Ltd (NSEL).
It is suspected that the necessary safety mechanism required to check money laundering activities could have been missing in their conduct, thus permitting large-scale movement of funds for illicit gains and the quantum of the money involved is feared to be at least a few billions dollars, sources said.
Although NSEL and its activities do not fall under Sebi's jurisdiction, the capital market regulator has been looking into the matter for possible violation of rules governing brokers, portfolio management activities, insider trading, listing agreement, fraudulent and unfair trade practices, and the norms for promoter entities for stock exchanges.
Initial investigations have suggested violations on the part of certain brokers, as also many of their clients, including high networth individuals and corporate bodies, who are active in different segments of capital markets, sources said.
Under Sebi regulations, brokers and other entities operating in the market are required to put in place strong checks against any money laundering activities, but these safeguards could have been either compromised or completely missing in this case, they added.
NSEL was promoted as a spot trading platform for agriculture and other commodities, but soon it is suspected to have begun providing trade in complex forward financial products.
Its promoter entity FTIL has also set up commodity exchange MCX, as also the country's newest stock exchange MCX-SX.
The group has two listed entities, FTIL and MCX. A possible collusion between the exchange officials, brokers and clients, including HNIs and politically connected entities, has already come to the fore in the NSEL matter that is being probed by multiple agencies and regulators.
Preliminary investigations conducted by Sebi and inputs from other regulators and government departments suggest that some brokers were offering structured financial products to their HNI clients under some portfolio investments schemes for high returns of 10-20 per cent.
The brokers are believed to have been working in close coordination with some top officials at NSEL, as also certain other group entities, while many of the clients could also have been in the loop about such structured products being in contravention of the extant norms, a senior official said.
While investigations are as yet in initial stages, further evidence in these directions could lead to formal proceedings against the suspected entities under regulations governing fraudulent and unfair trade practices, portfolio management schemes and rules governing code of conduct of market intermediaries, the official added.
Sources said NSEL fiasco is turning out to be a unique case where even the investors could be among the main culprits, as they were not the common people who usually get conned in ponzi schemes and other investment frauds.
In contrast, most of these so-called victims are rather well-heeled brokers or HNIs and some of them have been found to have close connections with certain politically active persons in Mumbai, he added.
Sebi is also ascertaining facts from FTIL on withdrawal of report by its auditor.
Deloitte had withdrawn its audit report certifying accounts of the company for 2012-13 fiscal in the wake of NSEL payment crisis.
The regulator had earlier sought details from various brokers about their direct and indirect exposure to the NSEL.
Besides, it had also sought to ascertain whether the brokerage firms and individual brokers have put in place effective 'Chinese-wall' like structure to ensure that the problems in spot commodity markets do not spill over to the equity and other segments.
Soon after a payment crisis involving Rs 5,600 crore emerged at NSEL late in July, a number of agencies began looking into the matter and these also included the Consumer Affairs Ministry, Finance Ministry, commodity regulator FMC and Corporate Affairs Ministry.
A panel was also formed under Economic Affairs Secretary Arvind Mayaram, under which two sub-groups were also formed with representations from various ministries, regulators and investigative agencies.
Both the sub-groups and the Mayaram panel have submitted their respective reports and further action based on their suggestions is likely soon.