NSEL forensic audit finds diversion of investor funds

A forensic audit of the scam-hit National Spot Exchange Ltd (NSEL) by consultancy firm Grant Thornton has found that the allegations of diversion of investor funds by the exchange are true.

The audit report points to diversion of client money by the then NSEL managing director Anjani Sinha, to repay a Rs236.5-crore overdraft from HDFC Bank in March-April 2012. The overdraft was repaid in two tranches of Rs160 crore and Rs76.5 crore, respectively.

The exchange withdrew Rs236.5 crore, on 28 March, from the settlement guarantee fund, according to the report.

The forensic audit has found that while the books of account showed the necessary balance in the settlement fund, the actual cash with NSEL was much lower.

The actual deficit varied from around Rs169 crore in April 2012 to Rs311 crore in March 2013, according to the report.

The deficit narrowed to Rs41 crore only after NSEL received some payment from NAFED in May 2013, it adds.

The NSEL investor forum had raised the issue of connivance of NSEL's statutory auditors in the diversion of margin money of clients and investors for the bourse's own businesses.

The forensic audit has now found that there was a running deficit in the client money and settlement fund balances from April 2012 to June 2013.

Investors had moved the disciplinary committee of ICAI against the statutory auditors of NSEL, SV Ghatalia and Associates as also the auditors of Financial Technologies, Deloitte Haskin and Sells, alleging that their audit reports have failed to highlight deficiencies and misappropriation of funds by the two entities.

NSEL promoter Financial Technologies had also raised concerns over the utilisation of the margin money by the bourse.

Another criminal complaint has been filed against Ernst and Young (EY) over its risk management report prepared on behalf of Geojit Comtrades on NSEL in September 2012.

Market regulations require the margin money deposited by clearing members from their constituent members and clients to be accounted for and maintained in separate accounts and used solely for the benefit of the respective members and clients.

Commodity markets regulator Forward Markets Commission (FMC) had appointed Grant Thornton to conduct the audit after it found irregularities in the functioning of the exchange.

The exchange had suspended trading from 1 August 2013 and has been defaulting consistently on the Rs5,600-crore settlement plan announced thereafter.

NSEL defaulted for the 12th straight time on Tuesday as it could pay only Rs11 crore to investors against a scheduled payment amount of Rs174.72 crore.

With Tuesday's pay-out, NSEL has settled about Rs220 crore against Rs5,600 crore dues to its 13,000 investors.