EOW files case against 300 brokers in NSEL case on Sebi complaint

Sources say a case has been registered against these 300 NSEL trading members under local laws, not under Indian Penal Code

After receiving show cause notices from the Securities and Exchange Board of India (Sebi), 300 trading members of defunct National Spot Exchange who are brokers and intermediaries registered with the market regulator will now face the scrutiny and action from the Mumbai police’s Economic Offence Wing. 

Sebi has filed a complaint against them with EOW Mumbai, on the basis of which the latter has registered case under the Forward Contracts (Regulation) Act, 1952 (EOW Spl LAC No 10/2018).

Sources said that case has been registered against these 300 NSEL trading members under local laws, not under Indian Penal Code. The maximum punishment could be two years in jail.       

Sebi's assistant zonal manager Puneet Panchal has filed the complaint, it is learnt.

Those against whom the Sebi complaint has been registered by EOW include Anand Rathi Commodities, Geofin Comtrade, Motilal Oswal and Philip Capital. They have been charged with illegal trading in commodities on the NSEL platform between 2008 and 2013.  

When a spot trading exchange allows intra-day square off, it is regarded as forward trading. This rule was relaxed for trades on NSEL in June 2007, but members were not allowed to sell short. However. Sebi found that trading members had facilitated trading in paired contracts between September 2009 and August 2013. In many cases, such contracts exceeded 11 days in violation of regulations. Brokers were also found mis-selling NSEL products by offering fixed returns which again was not permitted.

Sebi had issued all these 300 members show cause notice recently and asked why action should not be taken against them. Hence, these entities will now face dual action -- one from Sebi, the other from EOW. 

THE NSEL had defaulted to the tune of Rs 56 billion to 13,000 investors in August 2013. EOW had in the past undertaken forensic audits of at least 200 entities while investigating the NSEL fraud.