An organization based by Mumbai’s former police commissioner Sanjay Pandey had allegedly violated SEBI norms in auditing two NSE inventory brokers who have been utilizing the scam-tainted co-location facility, officers mentioned Monday.

An FIR registered on Might 19 in opposition to the corporate, iSec Companies, on a reference from the Enforcement Directorate, redflags a number of violations of SEBI round by the agency in conducting system audit of inventory brokers concerned in algorithmic buying and selling utilizing the co-location facility, which is beneath the CBI scanner now.

The FIR was made public on Monday.

The CBI has alleged that iSec companies had carried out audit of two “excessive danger brokers” — SMC World Securities Ltd and Shaastra Securities Buying and selling Non-public Restricted — in a fraudulent method when the co-location “rip-off” was happening.

The CBI had arrested former MD and CEO of NSE Chitra Ramkrishna in co-location rip-off case, they mentioned.

The SEBI had categorised brokers into low, medium and excessive danger based mostly on their buying and selling modes and prescribed totally different norms of conducting system audits in accordance with their danger profiles by numerous circulars issued once in a while.

These brokers got here within the class of excessive danger, as per SEBI tips, for utilizing co-location amenities to hold out altgorithmic buying and selling within the NSE, they mentioned.

The excessive danger brokers required system audit of their algorithmic buying and selling system each six months with an auditor solely allowed to conduct three successive audits.

The corporate iSec Companies Non-public Ltd, which was based by Pandey after he resigned from Police Service in March 2001, had audited these merchants throughout 2013-19 repeatedly, breaking the permissible restrict of solely three consecutive audits, in accordance with the FIR.

Shaastra Securities was audited throughout the interval April 2013-March 19 and SMC World Securities from October 2012 to September 2015 by iSEC Companies in breach of SEBI round dated November 6, 2013, it alleged

It’s alleged that for the reason that firm was not eligible to conduct the audit it used companies one Prabhpreet Singh of S Dhawan and Associates on a fee of Rs 5000 every for 3 audit stories signed by him– November 14, 2017 and October 14, 2015 for Shaastra Securities and October 14, 2015 for SMC World.

“…the place the invoice for such audit was raised by iSec Companies on the buying and selling members and funds for a similar have been additionally made to iSEC Companies by the buying and selling members,” the FIR alleged.

“It seems that to beat the restriction imposed by SEBI tips, iSEC companies…had acquired the report(s) for the intervening interval signed by Prabhpreet Singh whereas factually the premises have been visited by Naman Chaturved, an worker of iSEC,” it alleged.

The CBI has alleged that for all functions, the audit was carried out by iSEC Companies and it merely acquired the stories signed from Singh who by no means visited the premises of the inventory brokers.

“It’s clear that iSEC companies had fraudulently issued or acquired issued safety and system audit certificates with out finishing up precise audit on the enter of an individual who was not authorised to hold out such audit,” the FIR alleged.

The company has alleged that stories submitted to NSE by iSec have been signed by licensed specialists the place the audit have been carried out by Chaturvedi who was not certified to hold out the system audit.

Pandey who had based the corporate in 2001 had give up as its director in Might 2006. His son and mom later took cost of the corporate.

The police officer had studied at IIT-Kanpur and Harvard College, is known to have established the corporate after he resigned from service.

His resignation was not accepted by the state authorities and he rejoined however was not instantly given a posting.

He was made Commissioner of Mumbai Police throughout Uddhav Thackeray led MVA authorities and retired on June 30.

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