NSEL scam: 2015 police report gives SEBI fresh ammo against brokers

A report of the Economic Offences Wing (EOW), Crime Branch, Mumbai Police, will be used by SEBI to corner brokers for their alleged role in the NSEL scam.

The report, seen by BusinessLine, lays bare the modus operandi of top brokerages in luring clients to trade on the NSEL platform by marketing spot commodity as a finance transaction. It shows that the volumes of three brokers — Anand Rathi, IIFL and Geofin Comtrade — were around ₹34,000 crore during three-four years on the exchange.

Nearly five years after the scam came to light, SEBI last week issued more show-cause notices to the arms of Anand Rathi, Motilal Oswal and IIFL among others for luring clients to trade on the NSEL in violation of norms. The NSEL and its promoters were declared not ‘fit and proper’ by the erstwhile commodity market regulator — the Forward Markets Commission(FMC) — given their role in the ₹5,600-crore scam, but the brokers escaped any action.

It has now come to light that Rajvardhan Sinha, the then Additional Commissioner of Police and chief of EOW, wrote to the FMC in 2015 and also shared a detailed investigation report specifically highlighting the role of brokers in the scam. The FMC did not take any action on the report.

Long list of charges

The investigation report found that to generate volumes, large brokers allegedly indulged in financing deals, traded without client permission, illegally changed unique client codes, engaged in market capturing activity, traded under the names of employees, had nexus with defaulters, re-routed funds through multiple accounts, enrolled and financed low income people as clients, misled submission to the EOW about clearing and forwarding services, gave false assurances to investors and were involved in short-sold selling.

The report further says that for brokers, higher volumes meant higher commissions and interest on financing deals, which were cut through their own NBFCs. Also, several client claims could not be established and were found to be bogus.

Top brokers named

“It is a mystery as to how such a vital police report was not acted upon,” said a former FMC official who moved to SEBI. The EOW’s second charge-sheet filed last week named as accused top brokers besides 63 moons, the promoter of NSEL.

Denying the charges, Anand Rathi told BusinessLine: “We are confident of defending such frivolous charges in the court. It is unfortunate that real culprits including NSEL, FTIL and borrowers who collectively defrauded investors and brokers are able to run such a false narrative.”

Motilal and IIFL did not respond to an email query. Geofin Comtrade said it will reply to SEBI as it has already replied to earlier notices and there was nothing new in the EOW charges.