NSEL brokers, investors battle it out on social media; accusations fly

MUMBAI: L'affaire National Spot Exchange Ltd (NSEL) has spilled over from courtrooms and Mumbai crime branch to the print and social media. After Financial Technologies (FTIL), the embattled promoter of the scam-hit bourse, challenged a government draft order of October last year to merge NSEL with itself as 'unconstitutional' and violating the limited liability concept, a war of words has been brewing between brokers and certain investor forums on the one hand, and NSEL, on the other.

The immediate trigger for the public posturing was a notice issued by NSEL in national and business dailies during the first half of last month to ascertain client claims on the bourse by February 25 "to comply with a Bombay High Court Committee Order" of January 22. Before that, NSEL had issued a circular in December asking members for similar details.

The notice irked the broking community no end as it posed 21 client related queries to NSEL brokers asking for clients' active bank accounts, whether tax was paid on transactions done on NSEL, source of funds to trade on NSEL, etc, to get a grip on the claimants. The client responses were to be provided on an affidavit.

Broker and investor forums reportedly argued before a Bombay High Court-constituted 3-man committee (HCC), to act as receiver, that NSEL had no mandate to elicit such information. Based on their submissions, HCC has formatted a questionnaire and submitted the same to the HC for its approval. The HC is likely to pass an order on the appropriateness of the questionnaire any day now.

However, despite these developments, the war in the media and on Twitter has intensified this month. On March 19, NSEL through advertisements in Business Standard and Mint questioned the 'genuineness' of the 13,000 investors asking "Where Are The 13000 Trading Clients." Citing the reluctance of the brokers in providing details on clients despite repeated reminders, NSEL says in the ad that "….it is necessary to investigate whether benami trade was undertaken using KYC lending and PAN lending."

To this, broker and a few investor forums issued an ad in The Economic Times on March 25. The advert header ran, "All 13000 trading clients are genuine investors." The advert asks, "Where has the Rs 5600 crore gone? Has a part of it found its way to Private Wealth in FTIL's balance sheet and remaining part being stashed away by hawala to overseas accounts by NSEL promoters, Mr Jignesh Shah and borrowers?" The ad carried a photograph of Shah.

This, in turn, evoked another ad by NSEL on Monday (March 30). It cites, among others, a complaint of an NSEL investor, Ketan Shah, against his broker Motilal Oswal in a special court, hearing matters related to the scam. It also cites part of a Bombay HC order of August 22 granting bail to Jignesh Shah, promoter of FTIL, which states, "…it is difficult to accept that brokers and/or their clients for whom they were working were ‘deceived' by NSEL…"


Interestingly, while it remains to be seen how brokers react to this one, an NSEL investor with a twitter handle @ashish0108sheth circulated a presentation, "Evolution of Electronic Spot Exchanges: Issues and Solutions" stated to be made by Jignesh Shah before the Department of Consumer Affairs on July 10, 2013. Not in public domain till now, the said presentation was made days before the scam surfaced.

In the presentation, Shah purportedly said that if notification was withdrawn from NSEL, "All 1.4 lac UCC (unique client code) clients and members will run for liquidating their stock or get their funds realised. This would be equivalent to all depositors running for their money to the bank at one time. Physical market users can consume such stock over a period of 1 to 1.5 years (should not be construed as absolute commitment), but cannot consume entire stock in one month."

Just a fortnight before the exchange defaulted, and investors sensed that commodity stocks were missing and NSEL's settlement guarantee fund had dwindled, Shah claimed that the "NSEL model is Indian version of London Metal Exchange (LME)". The NSEL scam resulted after 24 members on the bourse defaulted in paying back .`5,600 crore to 13,000 investors on it as stocks against which they raised the funds were virtually non-existent.