JOIN USAs the NSEL crisis deepens, the role of at least 32 brokerage firms has come under the scanner for allegedly charging high transaction charges and providing portfolio management and margin funding services to their clients in violation of regulations.
These brokers were apparently working as Carrying and Forward (C&F) agents as well for National Spot Exchange Ltd (NSEL) without checking the veracity of commodities lying in the warehouses, and kept investors in the dark about non-availability of commodities on which their clients were taking positions.
Margin funding is when brokers arrange to finance investors' purchases and charge money for such loans.
According to sources, various regulators including Sebi and FMC are looking into the role of these brokers, who were registered in both stocks and commodities markets.
Among the 32 brokers, 14 are from Gujarat, seven from Rajasthan and others are from states like Maharashtra, Delhi, Andhra Pradesh and Punjab.
These brokers, with a large outstanding on NSEL, were charging Rs 25 per lakh of transaction from their clients.
The regulators have received complaints that margin funding happened with the broking firms and their associates financing 80-90 per cent of exposure on NSEL, while balance was paid by high networth clients (HNIs), sources said. The brokers were apparently charging Rs 100 per lakh as brokerage and additional commission for providing margin funding.
These stock brokers have come under regulatory scanner for inducing HNIs and other investors to trade on the spot market commodity exchange with promise of high returns.
They allegedly mis-sold the commodities forward contracts on NSEL to to their investors as lucrative investment products garnering fully secure returns of up to 18 per cent under portfolio management services.
The spot commodity bourse, promoted by Jignesh Shah-led Financial Technologies (FTIL), has been facing problems in settling Rs 5,600 crore dues of 148 member brokers, representing 13,000 investor clients, after it suspended trading on July 31 after government directions.
Jignesh Shah’s properties attached
Besides Shah, properties of Joseph Massey, also a director at the now defunct spot Exchange, and two others were attached by Mumbai Police's Economic Offences Wing (EOW) which is investigating the scam that came to light in late July. As a fallout of the Rs 5,600-crore payout scam at the National Spot Exchange Ltd, police had on Tuesday attached properties of its Director Jignesh Shah and three others, all named as accused in the case.
Police promise speedy liquidation
A day after Mumbai police attached the properties of National Spot Exchange Ltd's director Jignesh Shah, about 50 investors of the spot exchange met the Mumbai Crime Branch chief on Wednesday, who assured that attached assets would be liquidated at the earliest and proceedings will be distributed on pro-rata basis.
The investors demanded stern action against board of directors and sought immediate arrest of former MD of spot commodity bourse MCX Shreekant Javalgekar, claiming that he was aware of all the happenings along with Shah.
Joint Police Commissioner (Crime Branch) Himanshu Roy said, "As per the law we will do everything to liquidate attached assets at the earliest and consider the option of distributing money on a pro-rata basis (to investors)."
Indicating that more arrests would take place in the case soon, Roy, who is supervising the probe, said, "We are making a watertight case."