E-Series Investors may get back their Money

NSEL e-series investors may now be able to recover investments

31/1/2014, Economic Times

source: http://articles.economictimes.indiatimes.com/2014-01-31/news/46870089_1_e-series-contracts-eseries-contracts-paired-contracts

More than 30,000 small and medium-sized investors who purchased gold and silver contracts of small denominations on defunct bourse National Spot Exchange (NSEL) might now be able to redeem metal worth a cumulative Rs 500-600 crore that’s stuck on the crisis-hit bourse.

Findings of a forensic audit – an accountancy exercise that determines the veracity and accuracy of financial statements — of the so-called e-series bullion contracts traded on NSEL has "broadly indicated" that the metals backing the contracts were intact and the funds used to purchase them did not belong to investors who pumped thousands of crores into paired contracts – contracts that involved a simultaneous purchase and sale of other commodities — said two persons aware of the development.

"The audit findings broadly indicate that money invested into the paired contracts was not used to purchase gold and silver backing the e-series contracts and importantly metal backing those contracts exists. These findings could, subject to legal decision, enable the exchange to complete settlement of the e-series contracts to small investors," one of the persons cited above said.

NSEL went bust in July last year after two dozen counterparties declared their inability to settle payments amounting to Rs 5,600 crore to more than 13,000 investors.

The exchange suspended the paired contracts but continued settlement of the e-series contracts. However, the settlement to e-series investors also was put on hold after two investors, who moved the Bombay High Court, alleged that money invested into paired contracts was used to purchase metal backing the e-series contracts. The HC in October last year suspended the settlement of the e-series and directed commodity market Forward Markets Commission to appoint a chartered accountancy firm to conduct a forensic audit of the contracts.

FMC selected Chokshi & Chokshi to conduct the audit. ET has learnt that the CA firm was due to submit the report to FMC on Thursday or Friday. While Mitil Chokshi, partner, Chokshi & Chokshi declined to confirm the submission date, FMC chairman Ramesh Abhishek was unavailable for comment.

Brokers said that any likely settlement of the eseries contracts could come as a major relief for investors of middle-class background who purchased small denominations of gold and silver on NSEL and whose deliveries were not affected after the NSEL crisis broke out.

"Most e-series investors are of middle and lower middle class background. It’s needless to say any settlement will come as a major relief for them," said Harish Galipelli, head of research JRG Wealth Management, who in his earlier stint with brokerage Karvy dealt with e-series investors.

Investors were able to purchase smaller denominations of gold and silver through the e-series contracts. Money invested by them was used by the bourse to purchase gold and silver from domestic bullion refiners, which they could hold in demat form with NSDL and CDSL. While intra-day trading wasallowed, outstanding positions at the end of the day resulted in delivery.

***

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