A possible collusion between the exchange officials, brokers and clients, including high networth individuals and politically connected entities, has come to the fore in the NSEL matter being probed by multiple agencies and regulators.
Preliminary investigations conducted by capital markets regulator Securities and Exchange Board of India and inputs from other regulators and government departments suggest that some brokers were offering structured financial products to their HNI clients under some portfolio investments schemes for high returns of 10-20 per cent.
The brokers are believed to have been working in close coordination with some top officials at National Spot Exchange Limited, as also certain other group entities, while many of the clients could also have been in the loop about such structured products being in contravention of the extant norms, a senior official said.
While investigations are as yet in initial stages, further evidence in these directions could lead to formal proceedings against the suspected entities under regulations governing fraudulent and unfair trade practices, portfolio management schemes and rules governing code of conduct of market intermediaries, he added.
Sources said that the NSEL fiasco is turning out to be a unique case where even the investors could be among the main culprits, as they were not the common people who usually get conned in ponzi schemes and other investment frauds.
In contrast, most of these so-called victims are rather well-heeled brokers or high networth individuals and some of them have been found to have close connections with certain politically active persons in Mumbai, he added.
Sebi is also ascertaining facts from Financial Technologies on withdrawal of report by its auditor.
Deloitte Haskins & Sells had withdrawn its audit report certifying accounts of the company for FY'13 fiscal as Rs 5,500-crore (Rs 55-billion) payment crisis at its group company NSEL ballooned.
The regulator has already sought details from various brokers about their direct and indirect exposure to the NSEL.
Besides, it has also sought to ascertain whether the brokerage firms and individual brokers have put in place effective 'chinese-wall' like structure to ensure that the problems in spot commodity markets do not spill over to the equity and other segments.
NSEL, which offers an electronic platform for spot market trading in various farm commodities as also bullion contracts, has suspended trade in almost all its products.
A major crisis erupted at NSEL last month after it suspended most trades on its platform, prompting the government to order an enquiry by the commodity regulator FMC, while Sebi also began a separate probe.
Sebi is probing into the matter and is looking into potential violations of rules related to insider trading, fraudulent trade practices and possible payment defaults.
Besides, the Consumer Affairs Ministry, Finance Ministry, commodity regulator FMC and Corporate Affairs Ministry are also keeping a close watch on the situation.
Image: Jignesh Shah