NSEL: The Heist Remains Unchecked

The Food Security Bill has been passed, the rupee is hitting a new nadir with every passing day, the US would probably attack Syria and the global markets are in turmoil. So much of noise all around is turning into an advantage for some people. These are a group of people who have swindled away tens of millions belonging to others using a platform that was supposed to be game changer for trading commodities. Yes, we are referring to the NSEL and the heist that is threatening to kill investors’ faith in the markets, particularly the commodity markets.

DSIJ has been closely monitoring the events as they unfold, and we have voiced our opinion loud and clear on what is lacking in the whole process of putting a logical end to this whole drama of loot and plunder. The Finance Ministry awaits the report of its special panel appointed to probe the issue, and the Forward Markets Commission (FMC) is dead silent about what it intends to do to settle the issue once and for all. All this while, hapless investors have been carrying out demonstrations against the exchange. This set of aggrieved persons who have organised themselves under the ‘NSEL Investors Forum’ are pinning their hopes on the high powered committee appointed under the chairmanship of Arvind Mayaram, Secretary, Economic Affairs, Ministry of Finance.

Among the many demands that are being made, one is to initiate action by the Serious Fraud Investigating Office (SFIO) at the earliest. “The investors are now highly educated and are seriously concerned about the safety of investments in Commodity and other Exchanges. If immediate action is not taken by SFIO, the investors’ money and confidence will be lost forever,” reads a statement released by the investors’ forum.

What is the NSEL upto in all this? Well, it scraped through with its second payout. In a press release that was circulated later, the exchange said it would be paying out Rs 177.23 crore to small investors and has appointed Grant Thornton as its forensic auditor. Now this is interesting. Why is no government agency appointing a proper auditor for the purpose of this forensic audit? Why is the FMC not involved in the appointment of the auditor? Why is the commission and the government machinery solely relying on the discretion of the NSEL management, which has already failed the test of being able to handle matters at its end?

Also, on the payout front, the bigger investors are voicing reservation about the NSEL changing its stance from making proportionate payments to all investors to servicing smaller investors first. On the face of it, this seems to be a good move by the exchange to make up some lost ground. Paying out the smaller investors probably gives it a socially responsible image. But after it has created such a mess, does this really matter? In fact, it bears mentioning here is that many of the investors who have lost money in this drama come from the HNI stable. There are barely any smaller or retail investors, so to say, who have faced the brunt of this ravaging.

The most important and brazen development is that the NSEL has managed to secure a bridge loan of Rs 177.23 crore from its promoters, i.e. Financial Technologies. This seems most amazing! Why should Financial Technologies bear the brunt of the misdeeds of the NSEL management? The shareholders of Financial Technologies surely have every right of asking these and many more questions in the days to come. Will they? We hope they do wake up to it before losing out their money invested.

We, at DSIJ, had first reported the entire drama and have been asking some very important questions to the people who matter, including the Forward Markets Commission. Let us remind you once again that we have categorically asked investors to sell out their holdings in MCX and FTIL, the two listed entities of the group, as this seems to be as good as a dead end for them.

The business of exchanges is a business of trust. Once broken, there is no way that investors and market intermediaries would repose their lost faith in these organisations again. Add to this the fact that some of the largest broking houses have burnt their fingers in this whole game (knowingly or unknowingly is a big question that we would certainly answer in the days to come), and we are sure they would not want to touch the exchange for reasons best known to them.

The Road Ahead Is Murkier

A sense of déjà vu surrounds the third payout which is due tomorrow (September 3). In its latest release, only Rs 5.97 crore has been collected so far. Rs 80 lakh was paid out on August 28, Rs 17 lakh on August 29 and Rs 5 crore on August 30.

Swiss firm SGS, which was appointed to audit the warehouses, is reportedly coming up with details of the missing stocks. This was, in any case, expected. The monumental proportion, which this whole development surrounding the NSEL is gaining, is not so simple to digest as is being made out to be. Why is the government not acting against the promoters yet is one of the questions that need to be answered at the earliest.

Meanwhile, reports (yet to be confirmed) coming in from various parts suggest of how the events are taking a messier turn. We will bring you some more details on this front as we go further into the day. Until then, we continue to reiterate our ‘sell’ call on the two counters (MCX and FTIL) for reasons which are now becoming clear – THE END IS NEAR.