NSEL Victims' last Plea to Shri Modiji

वस्त्र हर रहे  नित्य पाँचाली के,  अब भी क्या  केशव  ना आयेंगे   

लूट रही लाज भरी सभामें क्या गोविन्द ना उसे बचाएंगे?

भ्रष्ट्राचार मुक्त भारत के वचन क्या वो आज नहीं निभाएंगे
अट्टहास कर रहे कौरव सभी,कब नारायण पांचजन्य बजायेंगे ?

NSEL की द्यूत जाल से फंसे निरपराधी पांडवोको कब कृष्ण छुडाएंगे

निर्लज्ज शकुनि  के कुटिल षड्यंत्रो का अंत कभी तो वह कराएंगे ?

घात लगाये बेठा है दूर्योधन क्या पांडव लाक्षाग्रह मे ही जल जायेंगे  

लगी है बाजी जानकी आज क्या हरी अधर्म से धर्म को नहीं बचायेंगे? 

सामने दुश्मनोकी अक्षहौणी सेना खडी पार्थको विजय कैसे दिलवायेंगे 

13000 निवेशकोके जीवनसे योगेश्वर तमस और तिमिर कैसे हटायेंगे? 

धर्म क्षेत्र कुरुक्षेत्र मे धनंजय की ज़ुकी ग्रीवा कब दामोदर उठाएंगे 

चक्रव्यूह मे घिरे हे पांडव क्या दुर्योधन के पतित हाथो ही मर जायेंगे?

छल कपट के हस्त सत्य की हार जगन्नाथ कितने दिन सह पायेंगे 

17 महीने की विषम वेदना का अंत मधुसूदन  कभी तो करवायेंगे   

अपमानित   सैरन्ध्री के खुले  केश को मुरारी  शोणित   कभी  पिलवायेंगे?

दिशाहीन पांडवो के सारथी बनकर गोपाल गंतव्य पार कब ले जायेंगे ?

मंत्री संत्री और अखबार बिक गये अब और कौन कौन बिक जायेंगे?

सर्वनाश होगा धर्म -सत्यका अगर अब भी माधव मौन रह पायेंगे

सुनो द्रौपदी कर जोड़ करो प्राथना पार्थसारथी आज नहीं तो कल  आयेंगे

प्रजावत्सल   प्रधान  सेवक  भारत  के व्यथा तुम्हारी  निश्चित सभी  हटायेंगे !!

This is a  poetic answer to following tweet showing apprehension that Modiji will never help NSEL victims.(excuse my  bad Hind/ typos/grammar) 

NSEL scam for dummies - a synopsis

NSEL scam presentation Synopsis

Tax-paying NSEL Investor's Frustration

Where in the land of the crooked  it is folly to be wise
In the country of the corrupt honesty has no prize

Where big  money talks  bullshit does walk a mile
Babus Cops and  lawyers all do oblige with a  smile


Where the  honest and upright get punished for no crime
The crooks with their pelf easily  do buy a good time

Where  fairness truth and rectitude are burnt to a cinder
and orders and favours are sold to the highest bidder

Where an honest crusader is often driven to suicide
His money,  rights and justice are badly  denied

Where an Indian tax-payer is taken for a jolly ride
Why doesn't the government just stand by his side?

Where the ace crook is free and cocks a snook at me
I know I'm in the wrong country where I should not be
 
If this is the cesspit we wanted our nation  to be
What is the damn point of calling this country 'free'?

NSEL Investors Hanged Drawn and Quartered

 To be hanged, drawn and quartered was a  penalty in England  where convicts were fastened to a hurdle, or wooden panel, and drawn by a horse to the place of execution, where they were hanged (almost to the point of death), emasculated, disemboweled, beheaded and quartered (chopped into four pieces).

The more I see the plight of NSEL investors, the more I can relate to this English phrase.Though this penalty in England was reserved only for high treason, in India it seems to be the fate of people who invested (on strong recommendation of  national level brokers-wealth managers)  their  tax paid legitimate money at 13% in NSEL -an exchange semi regulated by the Forward markets Commission and promoted by FTIL who also promoted MCX.

NSEL investors  may be ridiculed for being greedy and reckless, called stupid for investing in an 'unregulated exchange' , found deserving of this fate for being 'speculators' and now even be branded 'bogus traders' .  If expectation of a meager 13% pre tax ( 9% post tax in an economy where food prices rise by 20% every year) return on investment is greed what would you call the stock market investors-punters who expect a daily upper circuit in the scrip they've invested? This same very greed-expectation on return on capital (which just about beats inflation) keeps the capital markets of the world and the economy ticking.

Innocent investors of NSEL seem to be a fair game for every Tom Dick and Harry (who love to take potshots at 'em)  in India as they neither have the numbers nor the political vote bank clout  to warrant attention or help. I have never been a big fan of P. Chidambaram but my disgust for him reached a new nadir when he said 'NSEL investors are no babes in the woods and they knowingly invested'.  My respect for Sucheta Dalal also nosedived the day she highlighted NSEL investors coming out of costly cars rather than focusing on her core specialty of exposing scamsters. My respect for judiciary also came down a notch when the Mumbai HC order 2 days back on Jignesh Shah's bail called me 'bogus trader' who knowingly invested in NSEL.  

Nothing can me more shocking, convoluted and  illogical.Which investor in this world would knowingly invest his tax-paid money in a fraudulent exchange sans any stocks. You need to be seriously hating your money or need to be a 'loony bin case' in order to do that. Does my money burn a hole in my pocket?  Hell No!!  Now the 'bogus'  investors in NSEL include 2 large public sector units  MMTC - PEC , an ex PM's family and an ex MP's family not to mention widows, students and middle class investors who have lost their life time savings. The criminal investigation wing of Mumbai Income Tax has already verified the authenticity of investments and account books of most NSEL investors and not found anything amiss at all.

As for we not being 'investors', here is the Oxford English dictionary definition- 'Investor': One who puts money into financial schemes, shares, property, or a commercial venture with the expectation of achieving a profit:' Do you need to be a brain surgeon or a rocket scientist to figure out such a simple term? Is Greed to generate return on your investment bad? Ask Gordon Gekko of the movie Wall Street and this is what he would say-

"Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures, the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge, has marked the upward surge of mankind and greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the U.S.A"

There is another English phrase which comes to my mind thinking of Jignesh Shah's journey so far- 'Money talks and bullshit walks'. Bigger the money , bigger bullshit it can make walk !  Mr. Jignesh Prakash Shah the mastermind and biggest beneficiary of the NSEL scam seems to be cocking a snook and having a big laugh at all of us investors of NSEL.  Mr. Jignesh Prakash Shah listen carefully- the mills of the gods may grind slow but usually they grind exceedingly fine. There is only so much bullshit you can make walk with your ill-gotten pelf and somewhere your luck will run out.The game has now changed a little in last 3 months, Your zealous  protectors and benefactors at Delhi have gone and a new brand of  upright politicians are now in the seat. We investors might have lost a battle but the war will still rage on.

Jigneshbhai ,You can also tell your sidekick Joseph Massey who claims to be a devout Christian that the bread not earned by the sweat of ones' brow is no good and 'better is a poor man who walks in his integrity than a rich man who is crooked in his ways' : Bible Proverbs 28:6

Why did I live in India?- an ode to NSEL

The agony of living in INDIA

I was born in India and chose it as the country of my living
A democracy with robust legal systems I was led into believing

I worked hard ,made money and paid my taxes with a smile
Thought  there was a system backup should things ever turn hostile

There was wily shyster from Mumbai with crazy greed for pelf
Ace crook with knack of greasing  palms and so full of himself

He created exchanges by the ton and flaunted them with pride
Bureaucrats,media and politicians all in his deep pocket did reside

Rules, regulations, controls and caution all went for a big toss
Ministries, SEBI, FMC all conceded  the crook was the real boss

He started novel trading schemes and every statute  he defied
With starting of NSEL , fairness  truth and honesty all died

NSEL  and greedy brokers had designs on investors' wealth
They dangled a carrot and extracted investors' monies with stealth

In July some FMC babu abruptly put a spoke in Jiggy's wheel
He wrote a letter which was not a part of Jignery pokery deal

The financial merry-go-around of NSEL came to a screeching halt
On July 31st the shit hit the fan and gullible investors got a rude jolt

Steel, Paddy, Castor and Sugar  they traded only existed on paper
The hard earned money of investors vanished like a whiff of vapour

Shah, Anjani and brokers pulled a real fast one on investors lame
The brazen con played could've even put  Harshad Mehta to shame

The Shah and his pals are free even after heinous criminal acts
After 3 yrs of scam they are still busy burying evidence and facts 

Hard earned money looted and Government doesn't give a damn
The Shah is surely getting away in spite of  this brazen scam

Why did I live in India with systems so damn corrupt and lax
If there was never any protection why did I pay crores in tax?

The Rs 5,500-crore scam no one wants to deal with

What exactly happened in the NSEL scam? How did Rs 5,500 crore disappear? And why is there still no sign of an investigation?

An innocuous-looking notification from the Forward Markets Commission (FMC) came in on July 12, 2013. And in the offices of the National Spot Exchange Limited (NSEL), a commodities exchange promoted by the Jignesh Shah-led Financial Technologies (FinTech), things began to change. 

The notification restricted NSEL from making fresh contracts available as they were likely in contravention of the Forwards Contracts Regulation Act. NSEL first changed its contract duration to comply, and then when it found customers leaving in droves, threw up its arms and shut down the exchange. 

More than Rs 5,500 crore was due, and over the next few days it became evident that there was neither the money nor the underlying ‘spot’ goods to settle trades by over 15,000 investors. Since then, the story has unravelled, slowly. 

The scale of this default dwarfs the last big exchange crisis, the Rs 600 crore settlement problem at the Calcutta Stock Exchange in 2001.

What is a Spot Exchange?

Commodity spot trading is about buying and selling a commodity, paying cash for and receiving your goods on the ‘spot’. Which signifies that the buyer and seller agree on a price and ‘deliver’ their side of the contract immediately. 

NSEL was a spot exchange designed to help this activity, with the added feature of being electronic (so buyers and sellers can be in different locations) and anonymous (the buyer and seller don’t know who the other side is). 

The important feature of any such exchange is that the exchange has to stand guarantee to either party that it will ensure the contract is settled. If the buyer can’t bring in the money for any reason, the exchange should then sell the goods to someone else and recover the money (and make up the difference). And a similar exercise if the seller defaults.

Now, when the seller and buyer are far away from each other, how does the exchange guarantee delivery? The idea is that the seller must come to an exchange-designated warehouse and give his goods, which are then tested and verified for quality and weight. He then gets a warehouse receipt (WR) that is used for electronic trading. When he sells on the exchange, the warehouse receipt is transferred to the buyer; this receipt entitles the buyer to take the goods out of the warehouse, or if he chooses, to retain the goods there (to sell them later) by paying the warehouse rental charges.

There are rules governing commodity trading, which is regulated firmly by the Forward Market Commission (FMC). Under the Forward Contracts Regulation Act, any contract that is called “spot” must be settled within 11 days – that is, both delivery of goods and transfer of money must happen within 11 days (called “T+11”). The 11 days give the buyer and seller time to complete the contract. Thus, this would then not become a “forward” contract. 

Spot contracts, by their nature, were deemed to be out of FMC regulation by a small notification in 2007 by the Department of Consumer Affairs. This exemption was given specifically for one-day duration contracts – or, technically those contracts that complete both delivery of goods and transfer of money within two days, called “T+2”.

What NSEL Really Did

Instead of just making T+2 contracts, the spot exchange designed multiple contracts. Some of them were T+2 settled, making them ‘spot’ in nature. Others were the same product but settled after 25 to 35 days, called T+25, or T+36 contracts. This was illegal – such contracts are forward contracts and NSEL was not authorized to execute these, but it did. And no one stopped it. 

And the concept got worse. NSEL sold what seemed to be ‘arbitrage’. You could ‘buy’ the T+2 contract and ‘sell’ the T+25 contract and the difference in prices gave you nearly 15 percent per year, annualized. Effectively, you would be the owner of half a ton of sugar or castor seeds or such commodities, for a period of about a month, which would get sold when you ‘exited’.

The exchange practically removed all constraints from investors during this period – the goods would lie in the same warehouse and be sold from there, and the price difference included a 15 percent net return after storage charges, VAT, etc. 

This arbitrage was almost ‘guaranteed’. NSEL as an exchange stood guarantee, or so investors thought. 

Brokers peddled this product to their customers for over two years. The number of customers ballooned to over 15,000, each of whom put in at least Rs 2 lakh to get their ‘superior’ returns. 

What Was the Problem?

Who was on the other side? That’s the question that no one seems to be asking. 

Was the arbitrage genuine? It appears not. The contracts were always sold in pairs. Brokers have reported that no one was allowed by the exchange to just take one side of any contract – you always had to have a ‘buy’ on the near contract and a ‘sell’ on the far side.

A quick look at the Kadi contract for castor seeds, sold in pairs of T+3 and T+36, shows identical volumes and interest for both contracts in January 2013, and that’s the case with every commodity that had a near and far contract. This is hardly possible in a real market, so it points to the fact that these contracts were always executed in pairs.

The Ponzi Scheme

It turns out now that those on the other side were just 24 members of the exchange, called Planters or Processors or Borrowers. These members owned plants that processed commodities – or, at least, they said they did. For instance, NK Proteins owned a plant to process castor seeds in Kadi, Gujarat. The contract – the Kadi Castor Seeds contract – was settled at an NSEL warehouse located inside the Kadi plant of NK Proteins.

Processors like NK Proteins (and there were 23 other such members) were on the other side of the trade. They would sell at T+2 and buy back at T+23, offering huge returns.

The fact that the contracts were executed in pairs indicates a financing program. Something is placed as collateral to borrow money for a short period of time. This used to be commonly known as “badla financing” in the pre-2000 stock exchanges, where shares were collateral. (Badla is banned now; the financing has moved to the futures market.)

Let’s say I am a plant owner, and I can’t get a loan from a bank. I can effectively borrow from you at 15-18 percent – much cheaper than I can borrow from banks. And if I’m smart, I know that the goods I sell you will remain at a warehouse inside my premises, so why not cheat a little and tell you that yes, I’ve added more goods to your warehouse, and you, on the other end of the phone agree.

In this situation I can invent stock that doesn’t exist and borrow against it for 15 days; for the interest, I might pay some out, but immediately get it back in a new contract when I add even more imaginary stock. This was the Ponzi nature of the game.

Indeed, it turned out that some of these companies had poor balance sheets incapable of handling such large loans – loans of the size of Rs 900 crore. And the exchange did nothing.

Most ‘investors’ rolled over their contracts. That is, when the contract was unwound after T+35, they would enter a fresh round of T+2 (buy) and T+35 (Sell). Meaning, the interest received was also ploughed back into further purchases; a ‘borrower’, on the other hand, was pretending to pay interest, but was simply creating warehouse receipts for the interest and trading them on the exchange, while rolling over the contract forever.

The End of the Game

All this had to stop sometime, and the circular from FMC stopped it. 

First, on 16th July the contracts were cut to T+10. But that would involve too many pair trades – from one a month to three a month, each of which had higher transaction costs. 

Next, some investors smelt a rat and didn’t roll over their contracts.

The lack of a rollover shuttered the exchange. When the ‘borrowers’ were told that they had to pay back all the money, they simply could not (or didn’t want to). And it turns out they don’t seem to have the goods to back it up either.

On July 31, NSEL issued a circular saying all future contracts would be stopped. And because there was a settlement problem, they would have to delay payouts for a while.

Remember, some investors had bought goods on a T+2 contract, paying upfront. Now they expected that after their 25-35 days, the other contract would kick in and they would be paid back money at the higher rate on that contract.  

At this point, the exchange should have stood guarantee. That’s the role of an exchange. But because it didn’t get paid from the borrowers, it didn’t have the capacity to pay. 

Lies, Deceit and an Incestuous Web

The exchange started to lie. The CEO, Anjani Sinha said on August 1st that they had a ‘Settlement Guarantee Fund’ of over Rs 800 crore plus they had all the stocks in the NSEL warehouses. In a few days they changed that position, stating they had only Rs 60 crore in cash and the rest of the ‘guarantee fund’ was in stock. All entities were supposed to put a tiny amount – up to 5 percent – as margin until trade completion. This, too, was unavailable for some reason.

And then, after telling everyone that they would get their money back, the NSEL management said they had to auction stock to get the money. Soon, even that avenue was gone as there wasn’t any stock.

Jignesh Shah, the founder of FinTech, which promoted the exchange, said in a press conference that they would have a high-powered committee, including an ex-SEBI chief, a senior police officer and the like, to ensure settlements happen. As it turns out, the committee was useless in actually enforcing the contracts.

NSEL next created a complex settlement program. After a few days, NSEL management offered a ‘settlement calendar’ stretching 30 weeks where people would be paid back Rs 174 crore per week for 20 weeks, Rs 86 crore a week after that, and a big balloon payment at the end.

NSEL couldn’t even make the first week’s payments properly – it paid up just half. In the second week, to fend off investor aggression, FinTech dipped into its resources and paid Rs 177 crore to those with less than Rs 10 lakh outstanding. There have been three payments till now – of Rs 92 crore, Rs 190 crore (including small investor payouts) and then, this week on Tuesday, 3rd September, Rs 15 crore. But in the settlement program, NSEL had promised to pay Rs 174 crore on each of these three Tuesdays.

In the middle of all of this, it turned out that many of NSEL’s 24 Processor members were related to each other. One of the biggest borrowers, NK Proteins, is owned by the son-in-law of NSEL’s chairman Shankarlal Guru. Then there was Indian Bullion Market Association, owned primarily by NSEL, which participated as a member, allowing parties in the bullion space to buy through them.
 
The whole thing began to stink.

N Sundaresha Subramanian of Business Standard visited many of the defaulting members and found strange results. There was a mall in the place where 2 lakh tons of sugar was supposed to have been stored, at the address of a NSEL borrower called Mangla Shree Properties. In Ludhiana, where ARK Imports was supposed to have 12,000 tons of raw wool, there was apparently nothing. One borrower had vacated its premises months back, while another refused to admit they owed anything.

NSEL’s investors involved clients from nearly every major broker in the country. Even the Sahara Group, which is under RBI and SEBI fire, was found to have invested more than Rs 200 crore. Some NSEL board members were close to political bigwigs like Union Agriculture Minister Sharad Pawar. CEO Anjani Sinha had earlier in his career overseen defaults in two exchanges in Magadh and Ahmedabad. 

Belling this cat will not be an easy task.

Where are the Regulators?

The FMC was supposed to control regulation of all forward contracts. Although NSEL had received an exemption, it was only for the T+2 contracts and definitely not the T+35 contracts. The new FMC Chief, Ramesh Abhishek followed this up since 2012, but what about those before him?

The Department of Consumer Affairs was the de facto regulator when no one else was. It had been made aware of the situation over a year ago and should have taken action, and it didn’t. 

Even after the scam was unearthed, and the scale of the borrowing discovered, regulators remain tight-lipped about action. SEBI has barred some of the 24 ‘borrowers’ from trading on the stock exchange, and FMC has ring-fenced MCX (a commodities futures exchange which shares the same promoter, FinTech, with NSEL) from helping the beleaguered NSEL with its cash. However, any other actions have yet to come through.

Where is the RBI? Banks have lent to operations that involve stocks in warehouses. In fact, some photos of NSEL warehouses explicitly state that goods are pledged to certain banks. Are these goods there? Has the RBI asked banks to initiate a probe? Not yet.

If FinTech is the promoter of NSEL, and NSEL has seen a huge default, the obvious next step is to declare that FinTech is not ‘fit and proper’ to run any other exchange, including MCX. This has not yet happened.

Given this is a huge fraud, it remains astounding that agencies like the CBI, the Economic Offenses Wing or others have not been brought in to investigate. The failure of regulation could be because there are too many agencies involved.

Were Brokers to Blame?

Brokers might have known something was wrong. After all, you don’t get an exchange everyday where you have to coordinate between a buy and a sell on the phone. 

Many, though, fell prey to the machinations themselves. 

They promised investors a return of, say, 12 percent, and then took that money to NSEL and decided to make the 3 percent extra that NSEL promised. 

Now, when NSEL has defaulted, brokers want to put the blame on the exchange – but just like the exchange, they promised the money, which they have to pay. SEBI must act and ensure these brokers pay. 

Also, brokers are expected to be fiduciary agents of their customers – should they have exercised more caution before recommending such an investment? 

Where is the Money?

The short answer is: we don’t know. 

The Enforcement Directorate and a Mumbai Police Special Investigations Team (SIT) are trying to find the money. It’s gone abroad through hawala, says the SIT. Others claim it has gone to fund real estate, where there is no swift liquidity. Yet others claim the money was used to prop up FinTech and MCX shares in the stock market – so when those stocks fall, the amount of money that can be recovered reduces. It is also believed the money was siphoned for political interests or for personal gains of the personalities involved.

Jignesh Shah, the ambitious promoter of FinTech, started out as an engineer on the BOLT system for the Bombay Stock Exchange in 1989. After learning the ropes, he set up FinTech in 1995 and established a presence in brokerage back-office and terminal software across India. Then he set up MCX and a slew of other exchanges in India and abroad.

Shah won a battle against SEBI in 2012 about a circumvention of regulation in their new MCX-SX stock exchange. He had aggressively taken away market share from other exchanges. He had sued people who wrote against him and kept media as a friend with a big advertising budget. NSEL’s exemption from the Department of Consumer Affairs was attributed to Shah’s influence. But it is now apparent that everything is not clean in the FinTech empire. 

It would be a surprise if someone with Shah’s business sense let all this happen without knowing where the money has gone. 

What Happens to MCX and FinTech?

FinTech, at Rs 111 per share, is down over 70 percent from its 31st July price of Rs 540. It derived a large portion of its profits from NSEL – the trades resulted in outsized earnings through exchange fees. But the sudden lack of profit is not its only problem. If it is declared unfit to run exchanges – and it has about nine of them – that would destroy the enterprise. Apart from this, there are potential fraud charges if more dirt is discovered.

MCX is a well-regulated commodities futures exchange. The volumes in it haven’t come down quite as much as one would suppose. Its share price fell 60 percent after NSEL’s shutdown announcement on July 31 but has now recovered to a mere 40 percent fall. The expectation is that regardless of what happens to its promoter FinTech, MCX will be sold – and there are willing buyers.

The Future?

The NSEL crisis shows the investment community one thing: we do not have adequate regulation or enforcement. That if there is a crisis, the ‘agreement’ will not be sacrosanct; it will be secondary to the interests of the parties who have better political and business connections.

This default will trigger other issues, and in a country already branded as crony capitalist, the lack of will to enforce laws and put people in jail for fraud will hamper future investment. Decisive action is required, but the window for action is fast shrinking. There is a political fallout to this crisis, but the details on that are sketchy at best.

The problem really is: we have lost trust. The entire financial system is based on trust – for example, if everyone tried to withdraw his or her bank deposits at once, we’d have to shut everything down. Every attempt to undermine this trust must be dealt with heavily. 

NSEL’s ‘getting away’ will leave us all with a deficit worse than a fiscal or current account one: the Deficit of Trust.

Deepak Shenoy is a founder at Capital Mind (http://www.capitalmind.in), a financial data, commentary and analytics site and lives in Bangalore with his family. You can reach him at deepakshenoy@capitalmind.in and follow him at https://twitter.com/deepakshenoy

Further Letter to Ramesh Abhishek and all FMC directors

Dear Mr. Abhishek and all at FMC

Further to my several mails in the past as an NSEL investor , there is no response from you. I have in the past email clearly written to you how the selective payment to investors with exposure up to Rs 10L was bad in law and divisive in nature. It was a clever trick on the part of Jignesh Shah to knock out 50% investors by paying just about 3% of the total outstanding. It is surprising that FMC was aware of this but did nothing to stop this illegal act.

I request you immediately to ensure that going forward FT/NSEL don't make any extra payment selectively to investors of any particular financial slab and any payment they want to make must come to the escrow account with Axis bank and distributed pro-rata only. As you are supervising settlement/payouts of NSEL it is your legal duty to ensure that legal/financial rights of all investors are equally protected.if you fail to do so,we investors shall be forced to move court for a stay/injuction  against FT/NSEL/Jignesh paying investors selectively.

We also expect to know what is happening with your following directives to NSEL

1) To furnish stock positions in all warehouses assessed by SGS (I believe only few warehouses are assessed)

2) To initiate default proceedings against borrowers and auction commodity stock/assets/properties of borrowers.

While NSEL is holding PDCs worth Rs 4900 crores (confirmed on their website) from borrowers why are they not deposited and criminal proceedings initiated against all borrowers ?  We investors are also shocked that after a month of the breaking out of this scam there is no punitive action from FMC/GOI against Jignesh Shah/FT/NSEL in spite of their lies and criminal acts which are now publicly confirmed.

I would appreciate if you can put up on your website answers to such common questions which thousands of NSEL investors are asking but have no reply to.

Thanks 

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.

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

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.