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Journalism of Courage
8216;8216;We are desperate. How can such a fraud go unnoticed and unpunished? I hope you can help us,8217;8217; wrote Amrutha Radhakrishnan. The anguish stems from an eight-month battle with Indiabulls Securities the firm that attracts international attention. Amrutha8217;s husband S. Radhakrishnan opened a demat account with Indiabulls at Chennai in May 2001 and signed a Power of Attorney allowing the broker to issue instructions on his behalf. Although he lost some money earlier, his real problems began only in 2004 after depositing 16,104 HCL Tech shares received as ESOPs into his account. Soon after, he swapped 16,000 HCL Tech shares for 4,000 shares of Infosys. A little later he discovered that his Internet-based demat account viewing facility was inaccessible. In January 2005, after informal warnings by an insider, he went to Indiabulls and was shocked to discover that instead of the expected balance of over a Rs one crore, his account had just Rs 300. Radhakrishnan claims not to have received any detailed statement of transactions even today and is convinced that he is the victim of a major fraud. They are running from pillar to post, speaking to Indiabulls, the Police at Chennai, the National Stock Exchange NSE and the Securities and Exchange Board of India Sebi to get justice. He has even filed two FIRs with the police. Responding to our query, Indiabulls says, 8216;8216;The client has lost money in speculation in the markets. It has been over one year, the client has willingly not initiated a lawful process to address his greviances sic8217;8217;. Indiabulls wants an arbitration process to decide this issue. But other investors have had similar problems with the firm too and a more astonishing story begins here.
Mystery shopper
Pooling accounts
The joint inspection by NSE and NSDL in September revealed muddled audit trails in several transactions at Indiabulls. Bhave says that once shares were credited into a broker pool account under Sebi rules, Indiabulls moves them to two other pool accounts it has created. In one account it credits investments of those clients who operate margin trading accounts funded by a sister finance firm and in the other it credits investments of those clients who have not availed of a margin trading facility from Indiabulls. These two accounts are separate and distinct from the broker pool account mandated by Sebi. Indiabulls says that it is no different from other brokers and that it keeps audit trails of every transaction. More importantly, it says, 8216;8216;share movements of random clients is verified by NSDL in their surprise inspections. There have been never sic a single instance at Indiabulls where shares of some other client has been delivered for someone else8217;s obligations8217;8217;. This is contrary to what the NSDL Chairman tells us. In fact, Bhave says that the issue is not about the software or its vendors but about blurring audit trails by routing transactions through the second-stage pool accounts. NSDL is not alone in questioning Indiabulls8217; methods. NSE8217;s deputy managing director Chitra Ramakrishna says, 8216;8216;The exchange has already issued a show cause notice to the member Indiabulls and the disciplinary process is underway8217;8217;. Senior SEBI executives tell us that the regulator has also conducted its own investigation of Indiabulls and appropriate action will follow.
Investor Beware
In September, we warned investors about the practice followed by many large brokerage firms of getting investors to sign POAs giving themselves sweeping rights over investors8217; shares and money. The POA is often slipped into the account opening forms. The example mentioned above shows how dangerous this is. The broker remains in the driver8217;s seat as the exchange and Indiabulls try to push the investor into a tedious arbitration process, when he believes it is a criminal matter. Sebi needs to ensure that investors are forced into a lengthy arbitration only after a serious attempt to settle cases involving individual investors through persuasion, otherwise they are always at a disadvantage.
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