In a strongly-worded letter to Finance Minister Arun Jaitley, a forum formed by victims of the National Spot Exchange Ltd (NSEL) scam has accused the Forward Markets Commission (FMC) of delaying taking action on the exchange even when early signs of troubles arose, and has called upon the government to merge it with its parent Financial Technologies (FTIL) to quicken the recovery of funds.
In the letter written on August 23, Sharad Kumar Saraf, chairman of NSEL Investors Forum, said the FMC waited for 15 months to take action against the troubled spot exchange even as the Ministry of Corporate Affairs had issued a show-cause notice to it raising questions over why short-selling was allowed on the bourse and expressing doubts over whether it held adequate underlying stock for trades it was facilitating.
NSEL, owned by Jignesh Shah's FTIL, defaulted on payments of about Rs 5,600 crore in August 2013, impacting about 13,000 investors, after investigations showed that money from these investors was funneled out by borrowers.
The case is being investigated by the Economic Offences Wing as well as the Central Bureau of Investigation.
Even as Shah, who was later arrested and recently released on bail by the Bombay High Court, has claimed he was unaware of the goings-on at the exchange, the forum says his company FTIL was complicit in the scam.
"NSEL conducted a Ponzi scheme-like activity and most defaulting borrowers were given term loans under the garb of commodity trade," it said, adding that the borrowing companies were dubious and formed only with the intention of siphoning out money from NSEL.
"A subsidiary of NSEL, the Indian Bullion Market Association, carried out wash-trades in NSEL thereby inflating the volumes. IBMA had common directors with FTIL. Hence FTIL was well aware about NSEL fraud," it claimed.
A forensic report had pointed out to questionable trades being carried out by IBMA, something that the bullion association has contested.
The forum called upon the FM to appoint a fast-track court and amend the Prevention of Money Laundering Act (PMLA) to allow disbursal of investors' fund and said FTIL should be merged with NSEL and its reserves should used to pay back investors who have lost money in the scam.
The FMC too had suggested merging NSEL with FTIL, even though experts had said such a move would be difficult to undertake given that FTIL was a publicly-listed company and such a move may be opposed by minority shareholders.
Meanwhile, the Bombay High Court recently appointed a three-member committee to audit NSEL and liquidate assets of its defaulting borrowers to facilitate a refund of investors' money.
Authorities claim they have attached properties worth about Rs 5,000 crore of the defaulting borrowers.
Financial Tech stock price
On September 04, 2014, at 11:12 hrs Financial Technologies was quoting at Rs 254.45, up Rs 3.90, or 1.56 percent. The 52-week high of the share was Rs 403.60 and the 52-week low was Rs 109.00.
The latest book value of the company is Rs 522.91 per share. At current value, the price-to-book value of the company was 0.49.
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