NSE snoopgate: ED arrest former Mumbai police commissioner Sanjay Pandey

The Enforcement Directorate (ED) Tuesday arrested former Mumbai police commissioner, Sanjay Pandey in a money laundering case pertaining to the alleged phone tapping of primary rate interface (PRI) lines used by the NSE employees.
According to sources, Pandey was placed under arrest after he refused to ‘co-operate’ during the investigation.

ED’s case is based on the predicate case registered by the Central Bureau of Investigation ( CBI) which has booked Pandey, iSsc Services, a firm linked to his family members and former NSE chiefs, Chitra Ramkrishna and Ravi Narain.

According to the CBI, NSE hired iSec Services Pvt., a firm floated by former Mumbai police commissioner Sanjay Pandey, for conducting “periodic study of cyber vulnerabilities” at the bourse under a Rs 4.45 crore contract. However, the purpose was to snoop on employees, the agency said. Another contract of around Rs 8 crores was awarded to carry out system audits of the brokages including two who had availed the NSE co-location facility and have been accused of preferential access, thereby causing windfall lost to NSE.

Four PRI lines, each with a capacity of 30 telephone connections by MTNL that originated from the telecom operator and terminated at the NSE office, were illegally intercepted without permission from a competent authority and without the consent of the employees between March 2009 and February 2017, they said.

“The numbers were identified by Ramkrishna and conveyed to Ravi Varanasi, the then vice president of the NSE, who provided the same to Mahesh Haldipur, the then head (premises) at the exchange, who gave it to iSec Services, the firm that carried out the tapping,” sources in the known told ET.

Another contract of around Rs 8 crore was awarded to carry out system audits of the brokerages, including two who had availed of NSE’s co-location facility and have been accused of preferential access, thereby causing significant losses to the stock exchange.

iSec Services and the NSE did not respond to ET’s emails till press time Monday.

Meanwhile, the CBI has registered a third case against Ramkrishna, Narain, Pandey and two brokerage houses - SMC Global Securities Ltd and Shaastra Securities Trading Pvt Ltd - along with certain unknown officials at NSE and the Securities and Exchange Board of India (Sebi).

According to the complaint, the two brokerages that availed the controversial co-location facility had violated Sebi audit rules.

Despite the Sebi’s 2013 guidelines on audit process mandating that traders using co-location facility categorized as high-risk brokers should undergo systems audit every six months and the same auditor can perform only three successive audits, in the case of Shaastra, iSec carried out the audits between April 2013 and March 2019 and in the case of SMC Global, it carried out audits between October 2012 and September 2015.

“To overcome the restrictions imposed by Sebi, iSec Services got the reports for the intervening period signed by another small-time brokerage firm for Rs 5,000. For all purposes, the audit was carried out by iSec Services, and it simply got the reports signed by the other auditor who never visited the premises of the stock broker for the purpose of carrying out the systems audit,” according to the FIR, a copy of which ET has reviewed.

The probe has found that while iSec Services carried out the audits in the name of other auditors, the actual audits were carried out by an employee of iSec who wasn’t a certified professional.

While the audit work was contracted to another firm or professional, bills were raised by iSec Services, and it also received the payments.

“The probe has also found instances where the auditor has issued the audit certificate on a date which was prior to the site visit by the employees of iSec. This raises doubts on the merits and genuineness of the audit report,” the official said. “Systems audit is necessary, especially to understand the nature and extent of preferential access given to these brokers. However, since the audit was compromised, no red flags were ever raised,” the official added.