Ex-Mumbai Top Cop's Firm, SEBI Officials Get CBI Clean Chit in Audit Case

The CBI has given a clean chit to former Mumbai police commissioner Sanjay Pandey's company as well as officials from the market regulator and the stock exchange in a case of alleged irregularities in the audit of high-risk brokers. 

The agency had, in May 2022, registered a corruption and cheating case against iSec Services Pvt Ltd and officials from the Securities and Exchange Board of India (SEBI) and National Stock Exchange of India (NSE). They were accused of violating the rules while conducting audits of high-risk brokers M/s SMC Global Securities Ltd and M/s Shaastra Securities Trading Pvt Ltd between 2012 and 2019.

As per SEBI rules, traders using the controversial 'co-location' facility were categorised as high-risk traders since they were using algorithmic trading, and they were to be audited every six months. The rules stipulate that the security and system audit of the brokers must be done by different auditors, and an auditor can perform a maximum of three successive audits of a broker.

The CBI had alleged that Sanjay Pandey's firm, iSec Services, conspired with some officials of NSE and SEBI and audited both the high-risk brokers continuously for years, violating the rule of a maximum of three successive audits.

iSec Services audited M/s Shaastra Securities Trading Pvt Ltd from 2013 to 2019 and M/s SMC Global Securities Ltd from 2012 to 2015.

In some instances, iSec Services deployed employees "who are not qualified to carry out system audits" to audit these high-risk brokers and, on more than three occasions, audit reports were signed by people who never visited the premises of the stockbrokers, the CBI had alleged in 2022.

"After investigating the case for over a year, CBI has closed the case for want of evidence", a source told NDTV.

Mr Pandey, who retired as the Mumbai police commissioner on June 30, 2022,  was arrested by the Enforcement Directorate in July that year in a money laundering case involving iSec Services Pvt Ltd. 

M/s SMC Global Securities Ltd and M/s Shaastra Securities Trading Pvt Ltd are also under investigation in the 'co-location scam' being investigated by the CBI, ED and SEBI.

A Deloitte report, which formed the basis of investigation by the agencies, had alleged that the high-risk brokers - including these two stockbrokers - exploited NSE systems for early log-in advantage and made profits worth thousands of crores between 2010 and 2014. 

SEBI had also imposed a penalty of Rs 1,000 crore on NSE in the co-location case.