The aggrieved investors of National Spot Exchange (NSEL) have moved the Securities and Exchange Board of India (Sebi) against Financial Technologies (FTIL), the listed promoter.
The unlisted and loosely regulated NSEL is in the middle of a Rs 5,600-crore (Rs 56 billion) payment crisis that has hit nearly 13,000 investors.
A group of 24 borrowers have defaulted on payments, after the exchange was forced to shut (by government order) in July, triggering the crisis. Sebi is the regulator of listed firms and securities markets. It has a wider range of powers at its disposal when compared to the commodities market regulator, the Forward Markets Commission (FMC).
In a complaint addressed to Sebi chairman U K Sinha, the NSEL Investors Forum alleged they were victims of a massive fraud by the defaulting members, in collusion with the board of directors and management personnel of FTIL and NSEL.
The complaint has also sought a Sebi direction to ban the directors of FTIL from dealing in the securities market. An FTIL spokesperson did not respond to an email from Business Standard seeking comments.
The forum alleged “an elaborate criminal conspiracy to induce innocent investors to trade in the commodities contracts offered by NSEL despite there being no commodities of the stated quantity and quality in designated warehouses.” An FTIL spokesperson did not respond to email seeking comments.
Explaining how NSEL contributed bulk of profits of FTIL in FY13, the complainant alleged that FTIL promoted a separate platform for spot trading deliberately to exploit the loopholes in the regulatory framework. It pointed out that spot trading of commodities could have been performed in MCX itself, which was a market leader in the futures trading. It was the case of the forum that “intentional omission and acts of commission by the directors of FTIL
The forum has highlighted investigations and proceedings initiated by various government agencies such as Economic Offences Wing, FMC and Enforcement Directorate. “Given the involvement and action by several agencies, it is disconcerting that Sebi, an agency empowered under the Sebi Act and Sebi (Prevention of fraudulent and Unfair Trade Practices relating to Securities Market) regulations, 2003, to deal with fraudulent conduct, has not initiated any actions in the case,” the complaint said.
The complaint also pointed out that in the past when an alleged fraud was committed by promoters of Zenith Infotech, Sebi had come down strongly and passed exparte interim orders directing the board of directors to furnish a bank guarantee.
Investors sought a similar direction against FTIL too. “It is submitted that the present case is no different and we urge Sebi …to initiate action against promoters and directors of FTIL including directing of directors to submit a bank guarantee to cover the sum of amount payable to investors.”