Justice Delayed Is Justice Avoided

In 1992, when the Harshad Mehta scam came to light, nobody would have imagined that a heist of those proportions could ever happen in the Indian financial markets. And why not, that was precisely the time when matters were just about looking up for the markets and investors, the former getting more organised and spreading their wingspan beyond the traditional communities. The rude shock that came with the unearthing of the Securities scam of 1992 sent shockwaves across the country’s financial ecosystem. Kitty parties to corporate boardrooms, which used to be abuzz with stories of unprecedented wealth creation, were cast into an eerie gloom of strange stories, most of them about a dream turning into a nightmare.

There is a strange similarity between the situation of 1992 and what is currently happening. The script seems to be the same, but is being played out in a different asset class, with a different cast of characters. The only difference probably is the set of aggrieved parties. While 1992 hit each and every investor worth his salt on D-Street, 2013 has touched a swish set of smart, savvy and moneyed investors. The coming down of the National Spot Exchange (NSEL) has once again brought to the fore the proverbial rot in the system, where greed often takes over rationality, resulting in the collapse of even the best systems and procedures.

I am sure that all that has transpired is well out into the open by now. From exchange officials to regulators and from ministries to investigating agencies, the entire system seems to be hand-in-glove. But the one nagging question that I am dying to ask is, where are the results? It is almost two months since the scam came to light. Investors have been running from pillar to post to seek justice. While recovering their monies is a far cry, what is more perplexing is the laxity of the law enforcers, regulators and the government as a whole in addressing the issue.

In fact, our team at DSIJ has been tracking the whole issue for every detail, and I must proudly point out that we have been among the first and the most aggressive media houses to have raised some serious questions around it. There have been talks of merging the Forward Markets Commission with the SEBI, and of special committees being appointed to look into the matter, but the speed at which matters are being taken up really cast a spell of doubt on the intent of the investigations. This delay is definitely creating enough time for destruction of evidence. Is there a hidden money trail somewhere?

It took the agencies almost two months to file FIRs in the case, which was so crystal clear right from the day it came to light. One is yet to hear a single word from the North Block of Raisina Hills spelling out the course it intends to take to bring the culprits to book. As we have pointed out earlier, the regulators too are not very clear on what their mandate in this case is. Above all, a flurry of complaints and counter-complaints are being filed from various quarters, without any concrete action from the law enforcers.

At stake is more than Rs 5000 crore belonging to a set of investors who claim to have been duped by a misleading exchange. More than the quantum of money, it is the dent to the institutional credibility of the Indian financial system which is more worrying. Indian Exchanges have demonstrated their ability to endure financial crises, natural disasters and well planned scams for more than a century now. National Spot Exchange Limited, which has been privileged to use "National", is now on the verge of destroying this credibility. The whole propaganda of providing a fair mechanism for price discovery through such an exchange to our poor farmers seems to have been a smoke screen. None of these investors in the limelight seem to have any link to real farming.

Without prejudice to the fact that any kind of fraud is worth punishment, I would also like to point to the fact that these investors have lost their fortunes chasing a mirage of wealth – a mirage sold to them by their own trusted brokers. Our brokers, who have been known to transact large sums of money based on pure trust, will now have to live with the stigma of suspicion from here on. All thanks to NSEL!

The whole story looks nothing different but a well engineered and planned Ponzi scheme which has been allowed to flourish under the hawk eyes of our regulators. The victims who invested seemed to have been lured by the above-normal and "deemed assured" returns. The investors’ risk seemed minimal as our system permitted a name that sounded quasi governmental, but ultimately the same system allowed the promoters of this exchange to leverage this nomenclature for their gains. Such loss of credibility of our financial institutions will only defeat the "financial inclusion" agenda of our government.

If recent updates are to be believed, justice could finally be on its way. The law enforcing agencies have begun the process and are on the job. But will it really help? There is every reason to doubt that. As of the time of penning this edit, it has been more than 48 hours since raids have been conducted on the premises of the promoters and management of NSEL, but there is still status quo on the issue as at the time of the first raids. Passionate appeals of innocence are probably being taken too much at face value. The inordinate delay in beginning a proper investigation had already generated a lot of scepticism, and slow action by the regulators is only adding to the same.

A bigger worry is the attitude of our government. It seems that the present government is becoming immune to such scams. I guess it may be because of the frequency of such scams, which they seem to be facing on a "near" everyday basis. I am praying very hard that this be the last scam during the tenure of the present government.

For the investors who have lost good money in NSEL, I can only wish them all luck.