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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.


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