The Enforcement Directorate (ED) on Tuesday arrested former Mumbai Police commissioner Sanjay Pandey in connection with a money laundering case linked to the alleged illegal phone tapping of NSE employees, officials said.
The retired 1986-batch Indian Police Service (IPS) officer was taken into custody by the federal probe agency after more than seven hours of questioning in the case.
Pandey, wearing a white shirt, was seen walking into the ED headquarters here around 11:30 AM for the second consecutive day of his questioning. He met Maharashtra Chief Minister Eknath Shinde, who is in Delhi, before that.
He has earlier been questioned by the agency in another case booked by it to probe alleged co-location scam at the NSE and at that time (July 5) Pandey was seen carrying a bag on his shoulders as he went inside the agency’s office from the back gate.
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The ED had last week arrested former NSE MD and CEO Chitra Ramkrishna in the case and had recently told the court that the ”snooping of phone calls” at the NSE was being done from 1997. Pandey’s company under scanner in this case was set up in March, 2001.
Transaction of funds worth about Rs 12 crore allegedly to Pandey and his company are under the scanner of the agency.
Pandey, who studied at the IIT Kanpur and Harvard University, is expected to be confronted with Ramkrishna after it obtains his custodial remand from a special PMLA court on Wednesday.
The top cop retired from service, while holding the post of Mumbai’s Commissioner of Police, on June 30, a charge he held for four-months. He was appointed to the post by the MVA government headed by former Maharashtra chief minister Uddhav Thackeray.
Pandey briefly served as the acting Maharashtra director general of police or the head of the state police force.
The retired top cop is facing two ED and CBI FIRs — the alleged phone tapping case and violation of Securities and Exchange Board of India guidelines in conducting NSE’s system audit.
While the ED case (in the alleged phone tapping instance) is based on the CBI FIR, it was the ED that first detected the alleged snooping of phone lines at the bourse while probing the co-location instance and it informed the Ministry of Home Affairs (MHA) which asked the CBI to study ED findings and probe further.
As the ED cannot file a criminal complaint under the PMLA on its own, the CBI case became a scheduled offence enabling it to file a money laundering case.
The retired IPS officer’s role is being probed in connection with a company founded by him, which the CBI and ED allege, has violated SEBI norms in auditing two NSE stock brokers who were using the scam-tainted co-location facility.
The CBI FIR registered on May 19 against Pandey’s company, iSec Services, redflags several violations of SEBI circular by the firm in conducting system audit of stock brokers involved in algorithmic trading using the co-location facility.
The CBI has alleged that iSec services had conducted audits of two ”high risk brokers” — SMC Global Securities Ltd and Shaastra Securities Trading Private Limited — in a fraudulent manner when the co-location ”scam” was going on.
The CBI and ED had arrested Chitra Ramkrishna in the co-location scam case probe too. The SEBI had categorised brokers into low, medium and high risk based on their trading modes and prescribed different norms of conducting system audits according to their risk profiles through various circulars issued from time to time.
These brokers came in the category of high risk, as per SEBI guidelines, for using co-location facilities to carry out algorithmic trading in the NSE, they said.
The high risk brokers required a system audit of their algorithmic trading system every six months with an auditor only allowed to conduct three successive audits, the CBI said.
The company iSec Services Private Ltd, which was founded by Pandey after he resigned from Police Service in March 2001, had audited these traders during 2013-19 continuously, breaking the permissible limit of only three consecutive audits, according to the FIR.
Shaastra Securities was audited during the period April 2013-March 19 and SMC Global Securities from October 2012 to September 2015 by iSEC Services in breach of SEBI circular dated November 6, 2013, it alleged.
It is alleged that since the company was not eligible to conduct the audit it used services one Prabhpreet Singh of S Dhawan and Associates on a payment of Rs 5,000 each for three audit reports signed by him– November 14, 2017 and October 14, 2015 for Shaastra Securities and October 14, 2015 for SMC Global.
”… Where the bill for such audit was raised by iSec Services on the trading members and payments for the same were also made to iSEC Services by the trading members,” the CBI FIR alleged.
”It appears that to overcome the restriction imposed by SEBI guidelines, iSEC services… had got the report(s) for the intervening period signed by Prabhpreet Singh whereas factually the premises were visited by Naman Chaturvedi, an employee of iSEC,” it alleged.
The CBI has alleged that for all purposes, the audit was carried out by iSEC Services and it simply got the reports signed from Singh who never visited the premises of the stock brokers.
”It is clear that iSEC services had fraudulently issued or got issued security and system audit certificates without carrying out actual audit on the input of a person who was not authorised to carry out such audit,” the FIR alleged.
The agency has alleged that reports submitted to NSE by iSec were signed by certified experts where the audits were conducted by Chaturvedi who was not qualified to carry out the system audit.
Pandey had quit as the director of the company in May, 2006. His son and mother later took charge of the company.