My neighbor of many years had about 900 shares of xyz (pre split) so now he should be having 4500 shares. His portfolio was not too great, but this share somehow he listened to me and held on from 1980 onwards…so it had grown.

He had a very ambitious broker – and my genius neighbor opened a demat account there – and he had not asked me. He was a big broker – into a lots of related and unrelated business, so I am not naming them.

One day he came to me – a little agitated saying ‘My 100 shares of xyz are missing’ – even at that stage this meant about Rs. 70,000 and was not a small amount for a retired person. I said ‘Elucidate’.

He said..the manager working at the brokerage house said ‘I will buy and sell shares of xyz – and you will make some money.’ I said ‘You should have told me BEFORE, not after you sign some stupid Power of Attorney’ …he showed me some transactions – but all were squared off, and my neighbor should have had 900 shares – now he had 800.

I told my neighbor to go there on Monday morning….by Wednesday the shares were BACK in the statement.

I KNOW the broker had used these shares to do a pay in (either for himself or somebody else!)- when my neighbor threatened POLICE ACTION (this old man is good at screaming!) he was paid Rs. 20,000 to keep his MOUTH SHUT.

ha ha ha…

Why am I making you laugh?

Now there is a company called MF Global. Sorry there was a company called MF Global which used all its CUSTODIAL assets to make a margin payment, and then went bankrupt.

Long ago – sometime in the 1990s I lost a lot of money to a broker named Viswapriya Financial services (controlled by R Subramanian of Subhiksha fame) when they gave away CLIENT shares to the exchange and then defaulted.

Now if a company in many businesses decides to use the equity shares that it holds in the MUTUAL FUND business to pay for its MARGIN CALL what happens to your units?

Well like in case of MF Global you can:

a) twitch your thumb

b) suck your thumb

c) write letters to SEBI, PM’s office, IRDA, Ministry of Finance, PFRDA, ….etc.

d) thank your stars that they took only your shares and not your NPS account also

e) cry

Well, somebody had asked me ‘What if the mutual fund turns bankrupt’ well here up above is the answer.

In a classroom I am supposed to say: “Trustees are independent people who see every transaction – so that they are sure that the end unit holder is benefited in every transaction”

It is even easy to write that – everybody will be happy too. However what I have a sinister sense of joy writing about ‘worst case scenario’

this is an old 2011 article, but nothing changes. If your broker has your PoA and needs your share it is likely that he will ‘borrow’ – legally or illegaly and temporarily or permanently.