NSEL: Unearthing or Protecting?

Too many committees and official statements, but little real action

In all the 66 years after independence, whenever a scam was unearthed, government actions have followed a certain pattern. There is a prima facie investigation; the case is quickly handed over to the Central Bureau of Investigation (CBI) and, after a big show of searches, raids and arrests, it dwindles into never-ending litigation. As the case drags on, key documents go missing; the CBI is unable to prove any of the tall claims that were made to back their initial arrests; and the evidence that is put out at trial is weak and inadequate. But the Rs5,300-crore National Spot Exchange Limited (NSEL) scam seems to be following a new pattern of inaction. Indeed, the enormity of the NSEL scam has unravelled slowly—first with the revelation that the bourse has no regulator; then, the trade guarantee fund of a few hundred crores of rupees suddenly dwindled into lakhs; and, finally, it transpired that there were no commodities in its warehouses across the country. Instead, all the data was fudged, as the bourse was running a simple funding operation offering high returns and no collateral.

Initially, the lack of action suggested a new maturity on the part of government. After all, in the previous scams, actions like arrests and remand hindered actual recovery of money. It appeared that, this time, the focus was on recovery. However, one now begins to wonder whether the so-called investigation and committee reports are just a sham to hoodwink NSEL’s rich investors who, many believe, can afford to lose the money (remember, some of the small investors have already received their money).

Consider this. New regulators are being asked to examine the scam and NSEL’s activities every few days, in a clear attempt to buy more time. Until now, these include the Reserve Bank of India, which declared that it has found only ‘minor systemic problems’ with NSEL, and the Enforcement Directorate, known to bully and arrest honest businessmen, set up a working group which found violation of the money laundering and foreign exchange management statutes. Strangely, it has done nothing. The Central Bureau of Investigation (CBI), probably for the first time, is only ‘verifying facts’, when it usually rushes into action first and then attempts to understand issues, mainly in the form of confessions by officials and brokers. Then, there is a committee headed by the economic affairs secretary, Arvind Mayaram, which is conducting its own leisurely investigation. Among the last to wake up are the auditors of Financial Technologies (FT)-MCX group companies, who suddenly announced that they are withdrawing their audit reports as unreliable. On 22nd September, all these agencies and the government knew that only 60% of the money lost is likely to be recovered in the form of assets seized from defaulters.

Yet, Jignesh Shah and his team continue to be in charge, conduct covert negotiations with leading brokers asking them to accept a 20% haircut, while investors remain in the dark. The Securities & Exchange Board of India (SEBI) has now got into the act of looking into the FT-MCX group companies, but is making no attempt to take action on the ‘fit and proper’ person issue. It is no longer about whether or not FT-MCX is being protected, but how many ministries are working at protecting FT-MCX group.

naveen bachu
1 decade ago
FM shamelessly blaming investors for a govt regulatory lapse.
Replied to naveen bachu comment 1 decade ago
You are 100% right.

If investors were to finally take the hit, why the hell government swung into action. Government has deployed too many agencies like never before, is it to finally say investors were well aware of the fact that it was not a regulated exchange and the risk involved. If investors were so cleaver, then why should government involve so many agencies to find out unearth the wrong doing. How can any body expect any individual investor do the job of several expert investigating agencies!

If government is not able to decipher it crime even after one and half months of working with multiple agencies, how can Chidambaram say investors are aware of the risk involved, when he himself does not know anything,till such time reports were submitted to him. Taking into account his position as Finance Minister, he should have known the risk involved even before investors. Therefore as a responsible person he should have stopped the crime before it has happened. But our honourable FM is found inagurating MCX-SX (a group company of FT). My question is, if investors know the risk involved, did FM did not know the risk of inaugurating MCX-SX.

Surprisingly, in this case the action of government was very fast from the beginning of the scam breakout - Never did they do a similar feat before. And finally they are blaming the investors' foresight. All this clearly proves involvement of government itself in the scam.

Investors therefore have to be paid by the government, no matter whether the borrower repays or otherwise. Our government has funds for this purpose and let them use it. Think it over.
naveen bachu
Replied to Shiva comment 1 decade ago
Govt has to pay for this lapse , Fm and jignesh are friends and CHIDDU is the brand of MCX-SX,
We need the best of advocates to take up the case, may take 3-5 years but lets hope justice with interest
1 decade ago
it is looking like you are working and supporting jignesh shah by saying investors every time HNI's and all small investors recd the money. where all the small investors recd the money? how can you conclude all the investors are HNI's? pls stop writing all the nonsense without knowing proper information about the innocent investros.
Replied to sunj comment 1 decade ago
Yes you are right. We should not discriminate between big, small and HNI in this case. All the investors are tax paying citizens and their money has to be repaid in full no matter whether they are big or small.
varun kumar
Replied to Shiva comment 1 decade ago
Hey Shiva, I am a fresher in Stock market who bought 391 shares of MCX @468.. I invested my entire shaving on MCX last month .. Don't have much idea about NSEL crises but just suggest me.. I should keep shares with me or somthing gonna big with MCX too..
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