 "It is clear NSEL, FT used their influence on UPA: Kirit Somaiya")
Kirit Somaiya, national secretary of the Bharatiya Janata Party (BJP) and president of the Investors’ Grievances Forum (IGF), is leading the fight of small National Spot Exchange Ltd (NSEL) investors whose money is stuck due to the payment crisis at the exchange.
Somaiya, who registered a complaint against NSEL, its promoters and the Central Vigilance Commission (CVC) with the economic offenses wing (EOW) of the Mumbai police, is seeking a Serious Fraud Investigation Office (SFIO) probe into the crisis. In an interview with Dev Chatterjee, he says IGF will move the Bombay High Court to get to the bottom of the crisis. Edited excerpts:
Despite your complaints, the government, as well as investigative agencies, is quiet on the NSEL payment crisis. What other steps would you take?
We want a special audit and visit by independent auditors reporting to court, the inspection of godowns and relief to small farmers through investors selling MCX, FT and NSEL assets. We also want action against the big brokers who sold wrong products to small investors by promising high returns.
Considering the sharp fall in FT and MCX share prices, do you think NSEL and FT failed to retain investors’ faith?
The entire commodities market and small farmers and investors are feeling cheated. They have lost confidence and faith in NSEL, its promoter Jignesh Shah and associates companies, the Forward Markets Commission (FMC) and the ministry.
What was the modus operandi of the NSEL scam? What are the lessons for small investors?
Now, it is clear NSEL and FT used their influence on the United Progressive Alliance government to secure exemption to launch forward products in spite of being a ‘spot’ exchange.
They created fraudulent products, based their trades on bogus stocks, started an illegal badla (forward) system and used NSEL to get money at 16 per cent interest. The money was used for speculation and other business activities and ultimately, they siphoned off Rs 3,000 crore.
Small farmers and investors were carried away by the business tactics of FT and NSEL; they were misled by top broking firms such as Motilal Oswal, Anand Rathi, IIFL and Asit Mehta. Small investors want their money back, as well as severe punishment to the scamsters. These are our demands and we are filing our petition at the Bombay High Court on Monday.
This arrangement was going on for the last three years. How did it come to light?
This is a scam of massive proportions and similar to the Harshad Mehta scam of 1992-93. Jignesh Shah and his group companies adopted the model of fraud by using the forged bank receipt system.
This was the same method used by Harshad Mehta and the artificial market created by Ketan Parekh. In this case, the Manmohan Singh government gave its permission by exempting NSEL for forward trading in 2007. The execution of the scam’s master design started in 2010. NSEL and group companies started the illegal vyaj badla system in 2010, and so far, this generated Rs 8,000 crore of cash.
Bogus warehouse receipts and artificial market turnover was used to create bogus liquidity. Through this manipulative system, dozens of NSEL and FT associates used Rs 6,000 crore for their own purposes. According to our information, the spot exchange was used for siphoning off Rs 3,000 crore.
Who is responsible for this mess? FMC regulates this market.
The consumer affairs ministry knowingly allowed the abuse of the system. FMC remained quiet, despite knowing about the scam for the last one year. Both the ministry and FMC merely exchanged a few letters and allowed Jignesh Shah and his group to generate and use liquidity of Rs 8,000 crore.
Actually the government and the FMC were informed in 2011. And, the reports were confirmed by February 2012. But political and corporate pressure allowed the scam to continue till August 2013, till the amount rose to Rs 8,000 crore.
What action do you expect the government and FMC to take to restore faith?
First, the government should register a criminal case against NSEL, Jignesh Shah and the dirty dozen who siphoned off the money. They should seize their bank accounts, property, passports and recover the cash and bank balances. The government should take charge of MCX and MCX-SX. Until that is done, I doubt small investors will get back their money.
What are the chances of investors getting back their money?
Very slim. Investors should be happy if they get back even half their money.
Somaiya, who registered a complaint against NSEL, its promoters and the Central Vigilance Commission (CVC) with the economic offenses wing (EOW) of the Mumbai police, is seeking a Serious Fraud Investigation Office (SFIO) probe into the crisis. In an interview with Dev Chatterjee, he says IGF will move the Bombay High Court to get to the bottom of the crisis. Edited excerpts:
Despite your complaints, the government, as well as investigative agencies, is quiet on the NSEL payment crisis. What other steps would you take?
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We are moving the Bombay High Court on Monday, seeking economic crime action against NSEL, Financial Technologies (NSEL’s promoter) and its board of directors. We want a court-monitored investigation, such as that into the 2G telecom spectrum scam, as well as seizing and freezing of all NSEL assets and that of its promoters.
We want a special audit and visit by independent auditors reporting to court, the inspection of godowns and relief to small farmers through investors selling MCX, FT and NSEL assets. We also want action against the big brokers who sold wrong products to small investors by promising high returns.
Considering the sharp fall in FT and MCX share prices, do you think NSEL and FT failed to retain investors’ faith?
The entire commodities market and small farmers and investors are feeling cheated. They have lost confidence and faith in NSEL, its promoter Jignesh Shah and associates companies, the Forward Markets Commission (FMC) and the ministry.
What was the modus operandi of the NSEL scam? What are the lessons for small investors?
Now, it is clear NSEL and FT used their influence on the United Progressive Alliance government to secure exemption to launch forward products in spite of being a ‘spot’ exchange.
They created fraudulent products, based their trades on bogus stocks, started an illegal badla (forward) system and used NSEL to get money at 16 per cent interest. The money was used for speculation and other business activities and ultimately, they siphoned off Rs 3,000 crore.
Small farmers and investors were carried away by the business tactics of FT and NSEL; they were misled by top broking firms such as Motilal Oswal, Anand Rathi, IIFL and Asit Mehta. Small investors want their money back, as well as severe punishment to the scamsters. These are our demands and we are filing our petition at the Bombay High Court on Monday.
This arrangement was going on for the last three years. How did it come to light?
This is a scam of massive proportions and similar to the Harshad Mehta scam of 1992-93. Jignesh Shah and his group companies adopted the model of fraud by using the forged bank receipt system.
This was the same method used by Harshad Mehta and the artificial market created by Ketan Parekh. In this case, the Manmohan Singh government gave its permission by exempting NSEL for forward trading in 2007. The execution of the scam’s master design started in 2010. NSEL and group companies started the illegal vyaj badla system in 2010, and so far, this generated Rs 8,000 crore of cash.
Bogus warehouse receipts and artificial market turnover was used to create bogus liquidity. Through this manipulative system, dozens of NSEL and FT associates used Rs 6,000 crore for their own purposes. According to our information, the spot exchange was used for siphoning off Rs 3,000 crore.
Who is responsible for this mess? FMC regulates this market.
The consumer affairs ministry knowingly allowed the abuse of the system. FMC remained quiet, despite knowing about the scam for the last one year. Both the ministry and FMC merely exchanged a few letters and allowed Jignesh Shah and his group to generate and use liquidity of Rs 8,000 crore.
Actually the government and the FMC were informed in 2011. And, the reports were confirmed by February 2012. But political and corporate pressure allowed the scam to continue till August 2013, till the amount rose to Rs 8,000 crore.
What action do you expect the government and FMC to take to restore faith?
First, the government should register a criminal case against NSEL, Jignesh Shah and the dirty dozen who siphoned off the money. They should seize their bank accounts, property, passports and recover the cash and bank balances. The government should take charge of MCX and MCX-SX. Until that is done, I doubt small investors will get back their money.
What are the chances of investors getting back their money?
Very slim. Investors should be happy if they get back even half their money.