 "Sebi showcause notice to 5 brokers in NSEL scam")
The SCNs ask why their certificate of registration in the securities market should not be cancelled. The five are Anand Rathi Commodities, Geofin Comtrade, IIFL Commodities, Phillip Capital Commodities and Motilal Oswal Commodities. They were to reply within 21 days.
The SCNs allege several irregularities/violations, including false assurances to investors, wrong and misleading statements, arbitrage products sold with assured returns and as risk-free products, mis-selling in terms of risk suitability for clients, funding of clients and client code modification for those trading on NSEL.
The scam came to light in July 2013. It involves 13,000 trading members as investors and 24 defaulters, with alleged siphoning of funds worth Rs 5,600 crore. The then regulator, the Forward Markets Commission (FMC), had already declared NSEL's promoter entity, Financial Technologies (FTIL), since renamed '63 moons technologies') its vice-chairman, Jignesh Shah, and other former board members of NSEL, including Joseph Massey and Shrikant Javalgekar, as not meeting the 'fit and proper' requirement for the capital markets.
The FMC had then said that the brokers were outside its jurisdiction. FTIL was ordered to divest its stake in Multi Commodity Exchange of India (MCX, which it had promoted), as well as other exchanges abroad. FMC was merged into Sebi from September 2015 and the latter has initiated action on brokers.
“For grant of certificate of registration, the application has to be a fit and proper person in terms of regulation of the Stock Brokers Regulations, read with Schedule II of the Sebi (Intermediaries) Regulations, 2008. Further, the conditions stipulate that the stock broker shall at all times abide by the rules, regulation, byelaws of the stock exchange and code of conduct as specified in Schedule II of the stock exchange regulations...it is alleged that your continuance as a market intermediary in the securities market is detrimental to the interest of this market,” goes the SCN wording. “Therefore, it is alleged that you are no longer a ‘fit and proper' person for holding the certificate of registration in the securities market.”
In response to a query from this newspaper, Ajay Menon, chief executive officer (retail broking & distribution), Motilal Oswal Group, said, “We refute and deny the entire allegations against us...more than 500 brokers were registered members on the platform of NSEL (and) the SCN is issued only to a very few members...all members were acting as per the exchange guidelines...”
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Menon further states that Motilal Oswal Commodities Broker Pvt Ltd (MOCBPL) had not induced any investors to invest in NSEL on the basis of assured returns. “In fact, one of the group companies of MOCBPL, Motilal Oswal Securities, had also invested in NSEL and was our biggest investor on the NSEL platform. Hence, on the one hand, we are also victims of the scam at NSEL. All the trades on NSEL were executed as per the explicit instructions from the respective clients..the allegations regarding false and misleading representations, offering inducement and deliberately making wrongful assertions, etc, are not tenable,” he added.
“We are in the process of replying to Sebi” he said.
A spokesperson of IIFL Commodities said, “We received the notice. The allegations are factually incorrect (and) we would appropriately clarify to Sebi.”
Anand Rathi, chairman of Anand Rathi Group, said he was travelling and would not be able to respond immediately. The other broker entities preferred not to respond to the Business Standard query.