In your interest.
Online Personal Finance Magazine
No beating about the bush.
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.