ANATOMY OFAFALL

India Today - - BUSINESS -

1. In­vestors bought com­modi­ties on NSEL plat­form from bor­row­ers, who were sup­posed to have those com­modi­ties in stock. 2. In­vestors were given let­ters by bor­row­ers stat­ing that the com­modi­ties were stocked in NSEL ware­houses. Bor­row­ers were sup­posed to have sub­mit­ted ware­house re­ceipts with NSEL. They had to re­turn the money af­ter 25 days to the in­vestors with re­turns on bor­rowed money and take those let­ters back. 3. The bor­row­ers paid re­turns to the in­vestors, and both struck new deals with the same money. 4. The trade cy­cle con­tin­ued on pa­per and the in­vestors kept get­ting the promised re­turns. No one ac­tu­ally bought or sold com­modi­ties. 5. The Gov­ern­ment found NSEL was not fol­low­ing the norms and stopped trad­ing. The bor­row­ers de­faulted on pay­ments to in­vestors be­cause there were no stocks in the ware­houses to be­gin with. The re­ceipts sub­mit­ted to NSEL were forged.

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