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Commentary

NSEL Scam Fallout: Top Brokers Arrested for Manipulating Client Codes

Top brokers have been arrested in the NSEL scam, according to Business Standard:

City police’s Economic Offences Wing tightened the noose on commodity brokers by arresting Anand Rathi Commodities Managing Director Amit Rathi, India InfoLine Commodities vice president Chintan Modi and Kochi-based Geojit Comtrade’s whole time director C P Krishnan for their alleged involvement in the scam, EOW sources said.

….

According to NSEL data, brokers were manipulating client codes to the tune of 3,00,000 times, after the trade was carried out on the exchange and then they transferred the same to other names.

It may be noted that in equities and commodities, changes in client codes are allowed only in a genuine case. But in this case, changes in client code were effected to transfer profit and loss to launder money.

This is good news. SEBI should probe such activities by brokers as well – they routinely do this, and too many times, in the equity markets too! Intraday trades are often “reallocated” to other customers on a need basis – since you have already squared off the position, all you have to do is say that this customer didn’t make this profit, that customer did. Or worse, transfer losses. Such activity needs to stop immediately.

Finding high profile brokers and ensuring they are investigated and punished sends a strong signal. Such activity is also a form of corruption and fraud, and needs serious enforcement.

  • Shaji says:

    Hi,
    This is interesting stuff. Can you do a post elaborating a little more on this ‘client code thingy’. Brokers and exchanges can manipulate that, seriously? Do exchanges/brokers in other developed markets resort to this practice?
    Thanks in advance

  • Anil says:

    Dear Sir,
    Why is NSEL asking for the outstanding details from individual investor? Is it safe and ok to furnish the information to them? I am talking for those- who have invested their hard earned money thinking NSEL to be another exchange like institution – and which gets reflected in IT returns.
    Regards