also recommended a probe by the income tax authorities into NSEL’s erstwhile brokers, 148 in number. “In some cases, the brokers were found to be involved in unauthorised funding by clients by obtaining funds from their NBFC (non-bank finance corporation) subsidiaries. The member-client agreement between the traders and the brokers entitled the traders to claim money from the broker for the trades done by them through the respective broker on the NSEL exchange platform. However, none of the brokers provided such compensation or money to the clients,” goes the SFIO
Another allegation against the brokers is they made mis-representations, suiting the “greed” of clients by offering funding to the extent of 80-90 per cent, without being concerned with the income capacity.
Meanwhile, the board of directors of the Securities and Exchange Board of India approved action against 147 broking entities which traded on the erstwhile NSEL. These brokers have been accused of mis-selling the products to their clients.
The Rs 56-billion scam at NSEL, which came to light in July 2013, involved a little over a dozen commodity firms borrowing money on the platform after depositing commodities as collateral. Later, the borrowers defaulted when asked to settle their contracts. In many cases, the collateral was inadequate or simply missing.