Stop guessing why FMC is going slow on Jignesh Shah NSEL

Ever wondered how Jignesh Shah remains 'fit and proper' in the eyes of FMC and SEBI  even after saying 'eff off' to all the departmental directives? No that has nothing to do with his 2 liposuction procedures. The mantra of his 'fit and proper' status  in spite of brazen violation of norms is his team hand-picked from retired babus-from the very departments that govern him and his businesses.  Here is a list (courtesy  Financial Times)


Venkat R Chary

Positions held in FT group: Chairman/independent director, MCX

Brief Profile: IAS Retired, Former chairman Forward Markets Commission, Former secretary, chief minister of Maharashtra

G N Bajpai

Positions held: Chairman, Advisory Board, Financial Technologies (2007-2010), Advisory board member, MCX Stock Exchange

Brief profile: former chairman, Securities and Exchange Board of India (Sebi).

S Narayan

Positions held: Member advisory board, Financial Technologies; independent director, MCX

Profile: Former Economic Advisor to Prime Minister of India. Retd IAS was in Government of India as Finance & Economic Affairs Secretary, Secretary in the Departments of Revenue, Petroleum, Industrial Development and Coal since 1997.

Ashok Jha

Positions held: Chairman, MCX Stock Exchange

Profile: IAS (Retd.) – Former Finance Secretary; Former Secretary, Dept. of Economic Affairs and Dept. of Industrial Policy & Promotion

P R Ramesh

Positions held: Chief compliance officer, Bahrain Financial Exchange, Officer on Special Duty, NSEL

Profile: Former Sebi executive director,

Paul Joseph

Positions held: Principal Advisor, MCX Stock Exchange

Profile: Former Indian Economic Service officer, held several positions such as Joint Director/Director (Stock Exchanges), Joint Secretary, Department of Agriculture and Cooperation, Ministry of Agriculture, Senior Economic Adviser, Department of Consumer Affairs and Principal Adviser, Planning Commission.

Sucheta Dalal and her derision of NSEL investors

Sucheta Dalal- The name rings a bell? For all those who are 40+ and follow capital markets the name would mean someone who helped unearth Harshad Mehta scam. Not many would know what she did post that scam but this one trick pony or one scam wonder thinks she's a champion of investors' cause.  Her bio clearly shows she's for 'investor protection' , but hang on, by investors she means only  poor investors.If you own a Pajero you don't qualify to be in the list of investors whose cause she would champion.

She also thinks if you're rich you need no sympathy and you should fight your own battle. Socialistic investor protection shall we say?

The least these champagne socialists could do is stop masquerading as 'investor protectors'. Her derision and condescension knows no bounds. She also expects you to follow her on Twitter before she can even think of taking your cause.

 I request all NSEL investors not to beg her for help, together we can fight the crooks who've walked away with our money and this would be with Sucheta Dalal, without Sucheta Dalal or in spite of Sucheta Dalal.

NSEL lodges EOW complaint against defaulters.- Can't get more farcical

In spite of the grave crisis facing NSEL and investors , it seems NSEL guys haven't lost their sense of humour. National Spot Exchange Ltd (NSEL) has now lodged complaints against five defaulters, including N K Proteins, with the Economic Offences Wing as they have failed to meet Forward Markets Commission's (FMC) norms on adequate stocks in warehouses.  http://profit.ndtv.com/news/market/article-nsel-files-complaints-against-5-defaulting-members-326304

Now it is NSEL's warehouse where the stock is inadequate or missing not the borrower's. Lending thousands of crores to dodgy companies without ensuring adequate stocks was NSEL's  fault. One must give it to brazen NSEL bosses that even after criminal complicity of its promoters and shady borrowers the  NSEL still has the audacity to file an EOW complaint.! There was no need to chase borrowers if the stocks were there and it was freaking exchange's responsibility to ensure quality and quantity of stocks. Besides, there is no explanation how the chairman's son-in-law was given about 970 crores without any commodity or how the SGF shrunk form 850 crores to 5 crores ! I bet the jugglery and great vanishing tricks of NSEL can even put Harry Houdini to shame.

After gross regulatory and compliance issue violation and hatching a criminal conspiracy to defraud gullible investors, the bosses at NSEL and wily borrowers prepared fake warehouse receipts and robbed 5600 crores of 15000 investors. Somebody needs to take these crooked bastards to task for this.  It may be noteworthy that it was FTIL's baby NBHC (National Bulk Handling Corporation Ltd)which was in charge of the warehouses. Talk about clash of interest here!

I am at my wit's end why the NSEL investor's forum is not lodging a criminal complaint against Jignesh and NSEL board now that it is official that there is hardly any stock. Investor's patience is running thin and I won't be surprised if there are investor suicides in near future as a lot of investors have borrowed/leveraged and invested their lifetime earnings in this fraud called NSEL

A criminal act has to be proven to lift Jignesh's corporate veil and hold him personally liable for this fraud and attach his assets/properties to pay off investors who are being given a pittance by NSEL jokers every week.

NSEL Scam press release by AAP Maharashtra

Aam Aadmi Party Maharashtra

2 hours ago

21st August 2013
AAP-Maharashtra Press Release


AAP decries 5700Cr NSEL Scam - NSEL still being protected by powerful politicians

5700 Crore default by commodities exchange NSEL
National Spot Exchange Limited (NSEL) is defaulting on payments to investors. It owes the market 5700 crores. It is a huge scam that is being carefully downplayed by the media because when the cookie crumbles, big names will tumble.

False Warehouse Receipts
NSEL is a commodity exchange, one assumes that all trading is backed up by stocks of equivalent value. So they should be no cause for panic. But the shocking truth is that the stocks don’t exist! Warehouse Receipts are all that exists. The status of most ware houses is:

a. The warehouse doesn’t exist
b. In some cases the supposed Warehouses companies are totally fake with peons as directors!
c. If they exist they do not have any goods
d. Some warehouses exist but they take no cognizance of the receipts claiming they are fake

Illegal Forward Trading thrived at NSEL
No Regulatory Control - blessed by Sharad Pawar?
How did this happen? The common man sleeps sound assuming that there are checks and balances for the share market and there would be even more stringent checks and balances of commodity exchanges - especially those dealing in agricultural produce. But the shocking truth is the from the time NSEL began trading in 2008 end till around 2012 there was absolutely no check on its operations, not even any monitoring.

NSEL was India’s foremost agricultural trading exchange, promoted by Jignesh Shah whose impeccable credentials seem hollow now, and supported by the government (through NAFED), whose complicity in the whole fraud is laid bare.

The crux of the matter is that in agricultural commodities “forward trading” is improbable because you are actually buying/selling goods which are meant for timely consumption. When NSEL, began a buyer was supposed to sell within two days “T+1” formula. But between 2009 and 2011 NSEL traded in T+25 and T+36 periods without any questions! It is interesting that the Ministry of Consumer Affairs (MCA) which is the only body to which NSEL reported, was led by Sharad Pawar during that period. It is only in 2012 that the Department of Consumer Affairs (DCA) began questioning NSEL. NSEL kept skirting DCA for almost a year until the scam came to light in July 2013

Illegal Hoarding of essential commodities - Exchange fuelled Inflation?
There is no sanction for such forward trading in agricultural commodities - in fact it amounts to illegal hoarding of essential commodities! World over queries are being raised whether commodities exchanges are fueling inflation. Experts and activists have strongly advocated against speculation on agricultural commodities:

“The FAO has already reported that enhanced speculation in futures of agricultural produce has led to at least 30 per cent rise in food prices globally. How the spot market could be prevented from the overwhelming sway of the capital in futures trading could be judged from the following facts: India produces mentha oil worth $250 million odd but futures trade in this commodity generally goes up to $2,500 million. The case of guar is most interesting; its production in India was around 1.6 million tone last year while its quantity traded on the futures market reached 169 million tone- around 1700 times more.” Jaspal Siddhu, senior agriculture journalist.
The Economic Survey (2007-08) of Indian Government clearly underlined that "Direct participation of farmers in the commodity futures market is somewhat difficult at this stage as the large lot size, daily margins, high membership fees etc work as deterrent to farmers participation in these markets. Farmers can directly benefit from the futures market if institutions are allowed to act as aggregators on behalf of the farmers".
If we look at following graph the rise of prices of commodities like Rice, Sugar and Wheat we see a obvious spike in 2008 - the same time NSEL began operations.
Background
2003
Jignesh Shah of Financial Technologies (India) Limited began MCX, India’s first commodities exchange that traded in metal, bullion and energy.

2004
Sharad Pawar became Agricultural Minister

November 2004
MCX signed MOU with FTIL and NAFED to start an agricultural commodities spot exchange

May 2005
FTIL & NAFED launches NSEL

2007
MCA gives sanctions to NSEL to do one day trading in agricultural commodities. Interestingly NSEL is exempted from regulation from The Forward Contract (Regulation) Act (1954), FCRA*.

October 2008
NSEL began trading. Interestingly its initial work was conducting E-auctions for NAFED, FCI, MMTC, PEC, and Hindustan Copper, all public sector organizations.

2009
NSEL starts trading in T+25 and T+36 formats without any approval. Here we need to understand the nature of trading

NSEL did not give warehouse receipts of T+1 transactions to the investors but kept with the warehouse receipts on behalf of the customers. It was treated as early pay-ins for T+25 transactions and thus encouraged traders for futures trading. So traders never got warehouse receipts, the only tangible proof of their commodities. NSEL seems to have benefitted in two ways from this - they did not have to furnish the actual proof of the commodity and they blatantly forced double transactions on the traders.

The unsuspecting traders went with NSEL’s assurance that goods are under the custody & control of the exchange so there is no risk. And that NSEL will release the receipts to the final buyer on getting full payment. Since NSEL is counter party for all settlements of trade, people did not mind. NSEL gave assurance in writing guaranteeing the quality, quantity and weight of the goods. Most important, all goods were allegedly covered by insurance.

The Woes

February 2012
The Consumer Affairs Ministry issued an notification appointing Forward Markets Commission (FMC) as the designated agency to which all information or returns relating to the trade shall be provided by NSEL.

April 2012 to April 2013
NSEL received letters from DCA but did not disclose the content. When brokers questioned the contents of the letter NSEL claimed they were some queries which had been adequately responded too.

July - August 2013
However, in July 2013 when the brokers became jittery of the going ons, there was a meeting between Secretary of Company Affairs Pankaj Agarwal and NSEL where it became clear DCA was not allowing forward trading in the T+25 and T+36. NSEL reduced the forward trading to T+10.

But by now the investor confidence was shaken and trading volumes fell, causing what seemed like a liquidity crunch at NSEL. The situation reached a peak when NSEL failed to meet 31st July pay outs.

NSEL assured brokers that all payouts will be made. They said they would merge the payouts and share a revised calendar. The brokers demanded to know if there were any serious defaults. But there was no disclosure made. Instead NSEL assured them saying they had 6200 crores worth of goods and a settlement guarantee fund of 840 crores.

On 4th August there was a meeting of FMC, NSEL, Brokers, and Borrowers. NSEL assured they will pay 5% of outstanding on a every week over 30 weeks. They also assured that they would pay ___% interest if there were delays.

By now the brokers had begun independent searches into the wareshouse and were alarmed to discover that there were goods!

As per the settlement calendar the first payment was due on 20th August of 174.72 crores. NSEL has only been able to pay 92.12 crores.




THE SCAM

1. Investors cheated: The promoters, directors, and shareholders of NSEL have deliberately tricked investors 13000 investors await payment of 5700 crores.

2. Inflation: The forward trading has led to serious price hikes in the price of commodities. The hoarding in warehouses would have led to shortages and now, the disappearance of the stock itself will lead to further shortages.

3. Insider information: NSEL has been running an exchange without any regulatory controls simply because those close to the Minsiter for Agriculture are on its Board.
a. Chairman Shankarlal Guru is a leading expert on who the Government of India relies to make policy decision regarding trading of agricultural commodities. He has served as Chairman of a high powered committees on agricultural marketing set up by GoI. In fact the Guru Committee Report recommended scrapping of Essential Commodities Act (1955) and review of other 27 legislations to make them facilitative towards free trade. (Exhibit Guru Committee Recommendations). Undoubtedly there is a conflict of interest wherein a GoI Advisor is a Chairman of an exchange - his recommendations will be skewed to protect the exchange.
b. Chairman Shankarlal Guru and Director B D Pawar are also directors in Center For International Trade In Agriculture & Agro - Based Industries (CITA) wherein Supriya Sule, daughter of Sharad Pawar is a director. “CITA is a non - profit organization founded by Great Visionary Shri. Sharad Pawar committed for services to farmers and rural population. Our mission is to guide the farmers, stakeholders, policy makers and other related organizations..... in particular to encourage farmers to sell their products profitably in domestic and export markets.” There is a direct conflict of interest here - the Chairman and Director of NSEL are directors of CITA which influences policy and farmers. CITA has always been led by Sharad Pawar’s close coterie - Anuradha Desai, Vijay Mallya, KD Goenka.

4. Loot: NSEL intially tried to protect the names of the defaulters. Out of the defaulters NK Proteins Ltd which has defaulted payment of 952 crore belongs to the ChaiRman’s son in law!

Name of borrower Outstanding amount
Mohan India Pvt Ltd/ Tavishi Enterprise Rs 952 cr
N K Proteins Pvt Ltd Rs 930 cr
Ark Imports Pvt Ltd Rs 730 cr
Loil Health Foods Ltd / Loil Overseas Foods Rs 690 cr
P D Agroprocessors Pvt Ltd Rs 618 cr
Yathuri Associates Rs 460 cr
Lotus Refineries Rs 247 cr
Aastha Minmet India Pvt Ltd Rs 236 cr
Other defaulters are NCS Sugars Ltd, Spin Cot Textiles Pvt Ltd, and Vimladevi Agrotech Ltd.

AAP Demands

1. All forward trading in agricultural commodities should be stopped.

2. In order to pay the investors the following must be done:
a. Sell all goods and realize their value
b. Utilize the alleged settlement guarantee fund
c. Freeze all assets of defaulters and realize the dues
d. All goods have allegedly been insured - the goods are missing so make the insurance companies liable to pay.
e. GoI have been claiming VAT on each transaction at NSEL. (Surprising in the first place since same goods are being traded without any value add) Since all these transactions were null and void, GoI should refund the VAT and use it to pay the investors.
f. Freeze assets of all directors, promoters, shareholders of NSEL as well as FTIL and MCX should be frozen till the investors are paid off.

3. There is a need to investigate those in GoI who allowed the creation of NSEL and allowed it to run without any regulation and make them accountable for it. FMC has been asking for some years to have spot exchanges and warehouses under its jurisdiction, in addition to its existing responsibility. This hadn’t been conceded. The Warehousing Development and Regulatory Authority (WDRA) had put a set of proposals on its website on regulations for spot exchanges. This, too, wasn’t taken forward by the DCA.

Kirit Somaiya's letter to PM on NSEL Scam -a must read

NSEL fraud and my second letter to FMC /KV Thomas

To: kvthomas@asia.com, chairman.fmc@nic.in, nselinvforum@nselinvforum.com

Cc: secyca@fca.delhi.nic.in, jsrt-ca@msc.in, ecy-food@nic.in, nutanraj.fmc@nic.in, usha.suresh@nic.in, dir1.fmc@nic.in, usha.pol@nic.in, dharmarajan7fmc@gmail.com, dir2.fmc@nic.in, supriya.d@nic.in, dir.enforcement.fmc@nic.in, atul.verma17@nic.in, s.punglia@nic.in, sk.mohanty91@nic.in, dirit.mum.fmc@nic.in, khullarrk@yahoo.com, jsrev@nic.in, mo@motilaloswal.com, info@nationalspotexchange.com

Dear Shri Thomas and other FMC officers involved with NSEL settlement


This refers to FMC's letter No.7/3A/2010-MD-I Dated   21st August, 2013 to the board of NSEL wherein you have directed NSEL to auction the commodities lying in NSEL warehouses and to  proceed to liquidate all realizable assets of the defaulter member/s to meet  their pay-in obligations. You have also directed NSEL to bring to the notice of NSEL any  deficiency being found in quality and quantity of stock lying with NSEL.

As an investor I would like to know what is the current status of this directive and has NSEL complied with your directions. In case of non-compliance please let the investors know what is your next plan of action. We would also please like to know what is the action that is being initiated against promoters/management of NSEL.

The default of NSEL to pay out weekly installments promised as per settlement plan has become a joke and not only NSEL but India's enforcement /regulatory agencies are being subjected to worldwide ridicule.

Please be kind enough to answer.

regards

Ketan

A letter to KV thomas and FMC

Dear Shri Thomas and other FMC officers involved with NSEL settlement

I am a Mumbai based investor and have invested more than half of my life's earning / tax-paid capital in NSEL. This product was offered to me by my brokers (Motilal Oswal and Philip Capital) as a legitimate arbitrage income product (On which I again paid tax). Before investing my money I checked out the website of NSEL which claimed the exchange being jointly promoted by FT and NAFED (an organization under ministry of Agriculture , GOI) which generated enough confidence in me to invest. I am sure your ministry was aware of this claim of NAFED being a co-promoter. I was also told it is a govt. recognized exchange and it offers counter party guarantee, there were also a host of govt. companies shown as using this platform.( http://www.nationalspotexchange.com/%5CNSELuploads%5CResourceCentre%5CNSEL_Presentation.pdf) 

I now learn that about a year back GOI had problems with products/business model being offered by NSEL. I wonder why it was allowed to function in the first place if the shortcomings were already known to your ministry even back then. Also it is amusing that the issue of regulation and governance of a public commodity exchange of India NSEL was being passed between ministries like a shuttlecock. 

When the shit hit the fan on 31st July we were jolted to learn the suspension of trading and merging of settlement cycles. Mr. Anjani Sinha claimed that there was a Settlement Guarantee Fund of Rs.850 crores plus there was extra 'margin' and there was no problem at all.  The FMC also gave a statement on 2nd August that there is no 'immediate risk of  NSEL default'. http://in.reuters.com/article/2013/08/02/india-nsel-regulator-ftil-idINDEE97102R20130802 .

On 3rd August there was a meeting at Trident Mumbai between NSEL, FMC and borrowers where some borrowers claimed that they had no problem paying (about 40% of borrowers) and rest of them could pay in installments. On 5th August Mr. Jignesh Shah  came on TV and gave commitment that there will be a financial closure and investors will be fully paid in 5 months (claiming a majority of borrowers were even ready to pay upfront) .The delay he promised would be remunerated by 16% interest (incentive to pay early) . A committee of 4 including   Mr Sharad Upasani, Justice Kochar,Mr Bajpai, IPS Mr Sivanandan was announced which would oversee the settlement and strict action would be taken against those who don't pay. You can view these jokes  here http://www.youtube.com/watch?v=xPR3Clw5IFs  http://www.youtube.com/watch?v=PCn3qkv-4oE  http://www.youtube.com/watch?v=OL7BK5J5grg and laugh today.  (Mr. Sivanandan's experience from police will come very strongly ,we will see no one dare not pay!! )

After a long wait and much heartburn on 14th August NSEL finally announced a protracted payout calendar where 39-40% upfront promised payment surprisingly vanished and smaller tranches were assured. They (NSEL) also thanked FMC and GOI for 'support' in their press release. On the promised payout day of 20th August , NSEL shamefully defaulted on the very first tranche cocking a snook at FMC , Investors and also GOI.

On 20th August the board of NSEL was sacked by management as a part of 'disciplinary action' and  Mr. P.R. Ramesh was appointed as 'OSD'. This was another whitewash (like appointing that committee of 4) as Mr. P.R. Ramesh is known to be a Jignesh henchman. On 21st August  the investors got only half the money promised and perhaps first time in the history of free India a government recognized and regulated exchanged defaulted. Some key questions that every investor in NSEL wants to know are:

1) Why was NSEL permitted to function when MCA/FMC were aware of its shortcomings

2) What sort of mickey mouse exchange was being licenced to run with about 15000 investors on one side of the exchange and a twenty odd looters on the other?

3) Why FMC consented to financial closure in early August without ensuring the wherewithal of NSEL /Borrowers to do so  

4) Even after knowing fully well that NSEL management/promoters have been inveterate liars (confirmed by FMC in various circulars) and suspecting that books are being cooked why is the exchange not being taken over by FMC/GOI?

5) What happened to that Settlement Guarantee Fund?

6) Why is this letter game being played by NSEL charlatans and FMC babus ? This is costing us investors dear. please don;t mock us investors with this facetious game as some of us might be driven to suicide in despair.  

7) Why haven't you/FMC frozen/seized assets of borrowers who have not been paying?

8) Why the delay in verifying stocks in warehouses? Why the stock or whatever was lying in exchange warehouse was not auctioned in these 20 days?

9) Above all Why Shankar Guru (after Giving 1000 odd crores to his son-in-law of NK Proteins) and Jignesh Shah (after criminally hoodwinking all of us) are free men?

The action plan I humbly suggest :

a) Immediately take over functioning of NSEL, rather than directing NSEL to do things your way (which they don't listen to) why not you do it your way!

b) Sell present stocks and generate whatever money it can to distribute quickly among investors

c) Go after Jignesh  and his crooked associates hammer and tongs, seize their assets, immediately take over MCX, FT and merge it all with NSEL (from revenues most of the NSEL deficit can be made up)

d) Arrest all the dodgy borrowers along with their facilitators in NSEL for criminal conspiracy to defraud gullible investors of India and falsifying records (Jignesh has himself on record stated now that he doubts quality and quantity of stocks). Lift the corporate veil and seize all the personal assets of promoters under criminal proceedings.

e) Check the money trail, involve finance ministry/ IT /ED /SEBI and find out if the money has gone out of the country.

f) Do not let Jignesh Shah distance himself from NSEL and allow him pin it all on the management. It is an insult to our intelligence (and yours) if we are forced to believe that a paid manager can siphon thousands of crores without the knowledge of promoters/bosses.

Please stop taking this issue lightly and go after the crooks all guns blazing. Enough is enough as not only our lives but the reputation of India and Indian markets/bourses will depend on your actions in coming days.

All the very best.