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NSEL’s Insider Nexus, Gets Called For Fraud, Serious Media Attention

The 5,500 National Spot Exchange Scam now gets even more mainstream media attention. Here are some links.

Outlook comes out guns blazing, firing at Jignesh Shah and his political clout. And the way he got “officials” on his side.

Complicating matters is the fact that many SEBI and FMC officials now work in MCX; some MCX officials have also found their way into SEBI. In fact, Paul Joseph, who signed the 2007 order exempting NSEL from regulator’s purview, is now a principal advisor with MCX. There was also least interference from the ministry with officials rarely attending NSEL meetings, allowing Shah a free hand. For instance, he introduced practices like gold trading till midnight, which led to speculative practices and increased its turnover dramatically. It also increased NSEL’s exposure in metals and non-agro commodities. According to sources, 80 per cent of NSEL’s activity was in non-agricultural commodities.

Mobis Philipose at the Mint writes about how it is likely fraud:

Key stakeholders allege that the NSEL crisis isn’t merely a case of poor risk management, but involved fraud. “Based on all the information coming out on NSEL now, it is evident the exchange management and its promoters were misleading us from day one,” Oswal [of Motilal Oswal, a broker] says. “They misled us by showing auditor statements regarding the stocks. Their intention has clearly been fraudulent, and demonstrates that the organization was not built on any moral values or principles.”

(bold is my addition)

FE reports that the IT department believes that it was purely a financing scheme, and there were no commodity trades involved.

"The purpose was to raise long-term finance and there was never an intent of selling or buying the underlying commodity. Everyone within the system was aware of this. Entities also used fictitious papers (receipts) to take loans," said a person familiar with the IT investigations, adding that it will take at least a couple of months for the probe to be completed.

(I spoke of this on August 2: That NSEL seems like a Financing Scheme with “Dummy” stocks)

And then, I have my longest piece on NSEL ever, at Yahoo: The 5,500 crore scam no one wants to deal with. (Full post in a week on CM)

The problem really is: we have lost trust. The entire financial system is based on trust – for example, if everyone tried to withdraw his or her bank deposits at once, we’d have to shut everything down. Every attempt to undermine this trust must be dealt with heavily.

NSEL’s ‘getting away’ will leave us all with a deficit worse than a fiscal or current account one: the Deficit of Trust.

  • sanjay says:

    Hi deepak, I have been going through your Articles regarding NSEL.. Very good work to u and ur team .
    Why not put spotlight on IPO operators and fly by night stock operators .. they have been existing since a long time & continue to operate with impunity ?

  • sriram says:

    “They misled us by showing auditor statements regarding the stocks”
    If this is so, how can we now rely on their e-series stock audit report?

  • Ritesh Shah says:

    Hello deepak,
    ur all post are very informative, we are fighting against nsel scam.
    I am writing email to world exchanges approx 20 exchanges (total 60+ emails address), to spread our country’s scam.. will going to send tomorrow evening.
    I will be glad if can give us your comments /suggession on this ..
    also, would you like to represent if other foreign exchanges contact back??
    thanks & regards,
    following is the Draft.
    Dear Sir,
    we are group of investors, in this 8000 crore scam 18000 investors became victims.
    Why we are telling you this? ==>
    its not for help, but think, some Indians are really very smart.. (like Jignesh shah) they can fool big fish legally….. 18000 investors are fooled (if u count their family then 54000+)… & so this ministers are.
    we know you all foreign investors are very smart & wont fooled by this Indian ministers.. but think they love only money…. so just be prepared to lose… BECAUSE THIS TIME EXCHANGE HAS BEEN ROBBED BY THIS MINISTERS!!!!
    No wonder if they are running shrouded scam inside many A-group companies & inside NSE & BSE or even other indexes…without your knowledge..
    recently they did 64.60 lakhs crores scam.. links can be found at bottom… would u guess it can be possible without involvement of ministers.
    make move before this minister rob you as they robbed us!!!
    what government can do BUT JUST PASSING TIME TO EVADE CROOKS (as ministers are involved in it) ==>
    What are the end game strategies that can go in favor of investors:
    a. Money Trail – call back all the money paid out by exchange and give it to legitimate investors in full.
    b. Attach the exchange to FT and settle the dues.
    c. MCX – SX has a settlement guarantee fund (SGF) of Rs.1600 cr. It can be brought to pay the investing community in NSEL. Let MCX SX be suspended from trading till such time promoters shore up sufficient SGF.
    d. Similarly, MCX also has SGF, being a group company, SGF of MCX can also be used to pay the investors of NSEL.
    e. Shares of MCX can be sold to interested acquirer (if Kotak is interested let them take it, if Reliance is interested let them take it).
    f. Shares of FT or Reserves of FT be used to pay the investors.
    g. Overseas investment of Jignesh Shah can be auctioned.
    h. Auction the properties of defaulters.
    i. Auction whatever stock is available in the exchange warehouses.
    j. Govt can take control of the exchange and pay all investors.
    k. Govt can help out NSEL with a bailout package and ensure they collect the entire bailout package from NSEL over a period of time.
    l. Reverse Service Tax and other Statutory Duties members have paid for the last couple of years. This will bring down the dues of the exchange considerably.
    A rough work on how the money can be paid to retail investors.==>
    Amt in Rs.Crores
    MCX (26% of Gignesh Shaw’s share) 550 M.Cap
    FT (100% being promotor company) 500 M.Cap
    Settlement Guarantee Fund of MCX 232
    Settlement Guarantee Fund with MCX SX 1650
    Settlement Guarantee Fund with
    other exchanges (owned by FT) ??
    Recoveries from Stock Sale 500
    Money Trial 2500
    Liquidation of Defaulters
    (conservative estimate) 500
    Promoter’s personal properties 500
    Government (if it reverses the
    service tax component from the
    day one of scam) 200
    FT’s investment in other
    five international exchanges 500
    Total 7632
    Note: Settlement Guarantee Fund is a crisis fund and is earmarked for a specific purpose. When the promoters are going to be labeled as “unfit and improper” to hold the rights of running the exchange, then the exchange run by Mr. Gigjesh Shah (viz. MCX and MCX – SX along with five other international exchanges shall not function) in such a case why not shift the SGF available in other exchanges to NSEL and pay the retail investors. This is a proper thinking and no body can dispute it. Secondly if the exchange is to be sold to another party – be it Reliance or Kotak or anyone (let that party bring in funds to run the exchange with adequate SGF). Therefore, investors money can be paid back in full. Alternatively, Govt can do all what I have mentioned at their own sweet leisure and pay all the retail investors at once and in full. . Pls note the above is only my rough estimate based on the information available on public domain. The committee set up by Government (two committees with enormous powers) can make the picture much brighter for the investors. Let us keep the fingers crossed till 7th. Your view on this is most welcome.
    what Government & media is actually doing??? ==>
    Government is just passing time, to help in evading crooks, as this scam was done by indian minsters.
    Media is not even reporting our protest. at least 5 medias were at the time of protest in delhi, but hardly 3 min news came in just single news channel.!!!
    our facebook page dedicated to nsel victims.–>
    links in support of draft
    PIL & letters written to minsters>>>>
    Exchange it self on default >>>>
    proof that ministers are involved >>>>
    few imprtant post to reveal scam >>>
    The link is on complete story of NSEL and Mr. Jignesh Shah’s personal traits. It appeared on
    Live Mint (Wall Street Journal) yesterday.>>>>>
    Follow Satyam example to resolve crisis at NSEL >>>>
    recent scam of 64.60 lakh crores.