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9/17/13

NSEL Fiasco Looks Like Another Satyam Scam

Publication: The Economic Times Mumbai;Date: Sep 17, 2013;Section: Markets & Finance;Page: 10

Guest Column
NSEL Fiasco Looks Like Another Satyam Scam
After more than 45 days since the NSEL scam broke, and with hundreds of media articles explaining how the scam was perpetrated, it is now proven that this scam of . 5,500 crore is much larger than the earlier two scams in the Indian financial markets. While the FMC (Forwards Market Commission) and the finance ministry have acted to bring out the truth with the intention of punishing the wrongdoers, there seems to be no end to investor worries. The 13,000 investors, many of whom invested their entire life-time savings, along with two PSUs and 175 brokers, are running from pillar to post and still unsure how can they recover their hard-earned money. Jignesh Shah, with all his might, has been able to recover only . 140 crore out of total . 5,500 crore in more than 45 days, which is a shame considering his track record. The management has failed in its duties towards the investors. False statements are made out, misleading schedules are being given, so-called complaints are being filed against defaulters and the exchange officials, but to our surprise, nothing concrete has happened to the exchange and its directors so far. Poor managers are being made the scapegoat. Look at the facts: NSEL was the biggest contributor to the profits of Financial Technology (FT) group with about Rs 130 crore, or about 60%, of the total groups profits. So how come the holding companys board escapes its risk and compliance responsibilities. As per law, any major subsidiarys account is screened by the main auditors. Every board meeting is supposed to hear the internal as well as external auditors. The son-in-law of NSELs chairman was the biggest borrower from NSEL this cant just be a coincidence. Stocks, the primary collateral, are missing and complete warehouse and issuance of warehouse receipts are fake. All audit certificates are also bogus. The big four CA firm is replaced by a small CA firm that is related to the promoters. Anjani Sinhas (CEO) affidavit brings out some startling facts: He accepted there were problems since 2011. As per him, the defaults were happening for more than two years. Incidentally, in the same year, auditors were changed and, with the permission of the board, replaced with a firm run by people related to promoters. NSEL entered into a profit trade of . 200 crore in May with one of the borrowers Mohan India for NSEL SGF and received the first installment of . 10 crore. IBMA, an FT group entity, did trades with NSEL, MCX and MCX-SX, which are owned by the group. (Were these companies also managed by Anjani? What risk and compliance norms were being followed by these exchanges? Surely, the promoters and the board of those companies knew all about it.) IBMA received . 20 crore from borrower LOIL as a profit entry. As per Anjani, auditors refused to sign it. This means the board and the audit committee knew about it. NSEL/IBMA received . 21 crore as profit entries from one of the borrowers NK, run by a relative of NSELs chairman. All this proves the FT group was the biggest beneficiary of all the fraudulent transactions. Since the books are consolidated at the FT group level, what it means is that the consolidated books have shown much higher profits than the actual profit for the FT group. One needs to investigate the reasons for all such manipulations. It looks like a Satyam case. The possibility of such fake transactions in other group companies cant be ruled out. I, along with a few investors and brokers, met Jignesh Shah 5-6 times to arrive at a solution. He says he is committed to honour all the obligations. He first asked how much hair cut investors are willing to take. He said he is willing to pay . 1,000 crore out of FT books as the total liability. In the last meeting, he agreed that after recovering money from borrowers, if there is any loss, then FT will take 50% of the loss. I hope he keeps his promises. At the end of the day, we must accept the fact that this was an exchange recognised by the ministry of consumer affairs. It was managed by a group that operates nine exchanges in different parts of the world. The word exchange connotes trust. The government was collecting various taxes VAT, stamp duty, income-tax. I hope investor interests are taken care of. If not, along with the investors, the government would also be a big loser. If money is not recovered, than there is a business loss to all investors that is allowable for tax purpose. The government may lose tax of about . 1,650 crore (30% of . 5,500 crore). I hope authorities will make sure that the poor investors get their money back soon.

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9/17/13

NSEL Fiasco Looks Like Another Satyam Scam

(Several clients of Motilal Oswal have invested on the NSEL platform)

Motilal Oswal Chairman & Managing Director, Motilal Oswal Financial Services

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