NSEL scam: Sebi starts probing brokers for mis-selling products

Market regulator Sebi has launched a probe against some brokers for alleged mis-selling of products with promise of assured returns in connection with the Rs 5,600-crore NSEL payment fiasco. Details are being sought from five to six leading brokers, having high exposure to NSEL, sources said.

Further, more brokers can be also be subjected to the probe, they added. Various aspects of the case, which broke out in 2013 at the National Spot Exchange Ltd (NSEL), are being probed by the Securities and Exchange Board of India (Sebi). The accounts of brokers that sold NSEL schemes are also being probed. It is alleged that these brokers sold products of NSEL with promise of assured returns. They are also suspected to have routed black money by sister concerns and associates of these brokers who had traded on the platform of the spot exchange. Apart from Sebi, a high-level committee constituted by the Bombay High Court and other probe agencies are also investigating the matter. In an interim order, the committee has also favoured further investigation into source of funds of the brokers and various investors, many of whom are suspected to have been sister concerns or associated of the same brokers.

Sources said the committee as also other regulators and investigative agencies have found major discrepancies in the data and details submitted by various investors as part of their claims, as against the data submitted by NSEL. These discrepancies include submission of wrong PANs (Permanent Account Numbers), raising doubt about source of funds, while authorisation letters and trade execution documents submitted by brokers have also been questioned.

A senior regulatory official said the NSEL case is very unique as such because brokers themselves appear to be the real investors. There are also complaints against some brokers that they created fake ledger accounts in the name of their clients without their knowledge, sources said. Complaints against brokers include false assurances, inducement and misrepresentation by brokers, trading without appropriate authority from clients, misuse or unauthorised modification of unique client code, funding by NBFCs related to the broker and non-receipt of payouts by clients. "It has also been alleged that funds of sister concerns of brokers, which could have been derived from illegal sources, were used to trade on the NSEL platform with an intent to legitimise the said funds, which amounts to money laundering," a senior official had said.