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NSEL: Show Cause Notices, Empty Warehouses and We-Want-That-Gold


The Forward Markets Commission (FMC) has issued a show-cause notice to Jignesh Shah and FT (Finantech), asking them to defend their “fit-and-proper” status as directors in MCX. They get two whole weeks to reply.

The charges are of lack of proper oversight (allowing defaulters to continue to operate), of insider trading (IBMA as an NSEL subsidiary was trading on the exchange) and others.

Additionally the Economic Offenses Wing (EOW) has issued a lookout notice for Shah and top management and board members of NSEL, including defaulters. This ensures they don’t leave the country – all airports/seaports will have to detain these people if they try to exit.

And then, the EOW finds that the warehouses are empty:

In a startling development, the Economic Offences Wing (EOW) of Mumbai police, probing the Rs 5,600-crore payment crisis at the NSEL, has found half of the warehouses it raided empty, while four storage building of commodities existed only on paper, a police official said.

Big surprise. The fraud came to light on August 1. They had two months to empty the warehouses, and obviously, they have.

Meanwhile, investors are now eyeing the e-series contracts. These were not speculative trades, paid for in full and gold or silver allocated against them. Such investors thought their money was safe, since they were not really part of this paid dual trade gimmick.

However, the “pair trade” investors think otherwise. They have argued in court that they should be paid pro-rata on any payouts made in the e-series settlement now, for which redemptions have been halted till Oct 7.

This sucks at multiple levels. The “pair trade” investors have no right over this money, as it is held in gold which belongs to those e-series investors. Courts should dismiss any other argument outright.

We are already seeing serious damage in the financial system, where an exchange fails to settle, evidence of fraud pours in, the owners of the exchange are allowed to continue without any arrests and now, courts are being told to sequester assets that were never even part of the same settlement. Imagine if you were told that your savings bank account would be charged Rs. 20,000 because the bank lost money in Kingfisher so they’ll take it from you. This is stupid and horrifying. We’ll all convert our money into cash or gold, if such things happen.

The NSEL drama is withering away from the front pages, but it is going to hurt us in the long run. Like everything else in this country nowadays, the wrong-doers are getting away scot-free. I can only hope the next government will be different.


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