MUMBAI: The Indian capital markets regulator has issued supplementary show cause notices to five brokers on now defunct National Spot Exchange (NSEL) after a detailed investigation report by Serious Fraud Investigation Office.The notices, based on report titled NSEL and others, have been issued to Anand Rathi Commodities, IIFL Commodities, Motilal Oswal Commodities, Geofin Comtrade and Phillip Commodities.ET confirmed that at least one of five entities had received supplementary notice, while another brokerage official said that establishment was yet to receive notice.
Three other firms were not immediately available for their comments.A Sebi official also could not be reached for his comments.Sources said Sebi has given brokers three weeks to respond.
It will conduct personal hearings by end of month.In April last year, Sebi had issued notices to five brokers on their alleged role in scam and its bearing on their status to function as market intermediaries.
After final hearings around October, Sebi was expected to pass a final order on five brokers.However, since SFIO forwarded its report after final hearings, supplementary notices have been issued to five again.
Apart from these five brokers, Sebi has already issued notices to 295 other brokers on NSEL.The SFIO has suggested government initiate winding up proceedings against 148 brokers for allegedly mis-selling paired contracts on NSEL to their clients, rampantly modifying client codes and laundering black money through their NBFC arms.Sebi noted in its supplementary notices to one of brokers that after its reading of report, certain observations and recommendations made by SFIO were considered relevant to current proceedings against brokers.
It added that transactions facilitated through paired contracts were in nature of borrowing and lending, rather than trading in commodities.Clients of about 300 brokers lost Rs 5,600 crore after NSEL scam surfaced in July 2013.
Two dozen counterparties raised money from 13,000 investors through paired contracts that are at heart of scam.In first leg, client, through his broker, purchased a contract ostensibly backed by a commodity on a trade plus two basis, and sold it back to one of two dozen counterparties at a higher amount on a T+25 or T+35 basis.The scam broke as commodities backing these contracts were non-existent.The NSEL, its parent 63 moons, Anand Rathi Commodities, IIFL Commodities, Geofin Comtrade and 22 defaulters, among others, have been chargesheeted by Economic Offences Wing of Mumbai police, which is probing scam along with other agencies.