Why CBI should probe MCX data theft


After disgracefully covering-up the mega-market access scandal (known as Algo trading or co-location scam) at the National Stock Exchange (NSE) by calling it a mere procedural lapse, the Securities and Exchange Board of India (SEBI) is now preparing to pass the blatant criminal conspiracy of “data theft” at the Multi Commodity Exchange (MCX) too as a ‘meager’ lapse of procedures, PGurus has learnt. Also, data theft at MCX has the means, motive, and even a prima-facie case. But it dreadfully requires honesty of probe and uprightness, both of which are beyond SEBI when it comes to NSE and MCX.

There is a dire need for the Central Bureau of Investigation (CBI) to probe the scandal at MCX before stupidity and dishonesty overshadow the case. So far, the scandals at the two largest exchanges NSE and MCX are being looked in isolation but a thorough probe will show that they come a full circle. SEBI and any investigator worth his/ her salt should never forget that the scandals at both exchanges NSE and MCX involve common conspirators Ajay Shah, his wife Susan Thomas and their entire network. How can this be termed as a mere coincidence?

The auditors have reported that data shared was not required for the said project and the goals of the project were not even achieved. How are Ajay Shah and Susan Thomas getting away with this? Who is sheltering them?

SEBI will follow the same path and approach it took in the NSE case by scratching the surface and never get to the bottom of the scandal at MCX. It is a cruel joke to say that violations at NSE were not a scam but just a procedural lapse and ignore the scandalous nexus between Ajay Shah, top-notch NSE officials, their patronage and the business interest of Shah’s family and his network.

How “Data Theft” at MCX is a clear case under criminal procedure code

Is “stealing data” from an exchange, a marketplace where financial transactions worth thousands of crores of rupees take place daily, not a criminal act? If such “data theft” is not a criminal act, then what is a crime in this country? Like at the NSE, Ajay Shah managed to get crucial data out from the exchange on an informal basis for years together, his wife Susan Thomas and a close aide of theirs, Chirag Anand who is a Delhi based Algo software person, got “live” data from MCX without anybody knowing. This is clearly pointed out by the forensic audit report of TR Chaddha and Co[1].

When questioned by the auditor, Susan Thomas and former MCX Managing Director Mrugank Paranjape said that data sharing was done based on an agreement and a separate undertaking. PGurus has learnt that there were no agreements between MCX and Susan Thomas for sharing of data and whatever has been told to the forensic auditor about the agreements and the “private undertaking” is a blatant lie. How? Consider this: The audit report says that “live data” shared by MCX with Thomas and Chirag Anand was not part of the agreement entered into and between the exchange and IGIDR via Thomas. Also, the audit report says that the “live data” shared with Chirag Anand was based on “separate” and “private” undertaking between Thomas and MCX. Officials in the legal department at MCX have told the auditor that neither the “agreement” nor the “private undertaking” was presented to them for a review. What will any investigator make of this? Did the agreement and undertaking even exist or were they production of “backdated” mechanism? Indira Gandhi Institute of Developmental Research, where Thomas works, was not even aware of the “separate undertaking.” And what “special undertaking?” Who gave whom the right for this[2]? In common parlance, what does this mean? It is data theft for heaven’s sake! A grave criminal conspiracy and not a procedural lapse. SEBI, beware, the light is on you! Nobody knows the need for data sharing by MCX with Thomas in the first place. Who sanctioned it? The auditors have reported that data shared was not required for the said project and the goals of the project were not even achieved. How are Ajay Shah and Susan Thomas getting away with this? Who is sheltering them?

SEBI has already given an escape route to NSE by imposing a disgorgement amount of more than Rs1000 crores.

SEBI cannot investigate criminal matters, it requires the CBI

Now SEBI, based on recommendations of several MCX board members and its own highly acclaimed wisdom, is going to say that data shared was inconsequential and was not usable or was never used for trading. How does SEBI know this? Was any proper investigation done with this regard to arrive at such a conclusion?

The forensic audit report has clearly pointed out as to what constitutes “live data” and what is the consequence if it is shared. Did it take Susan Thomas or Chirag Anand in custody for questioning? The forensic audit report is enough to file a First Information Report (FIR) under the Criminal Procedural Code (CRPC) Section 420 (cheating) 120B (criminal conspiracy). Similarly, in the case of the NSE, SEBI in one instance has said that fraud was committed by Ajay Shah, so why not probe the full nexus and trail of how the fraud was committed? In the same NSE matter where it comes to faulty systems, SEBI says it was just “procedural lapse.” Can it not be a ‘system pre-designed for fraud or a deliberate lapse?’

There is compelling evidence to show that a ‘few’ derived benefits from this ‘systemic lapse.’ SEBI’s logic to consider ‘by-design systemic lapse as no fraud’ is a crude, distorted and ridiculous representation of the scam, which implies that ‘Murder by Decree’ is no crime. SEBI has completely ignored the criminal angle in the NSE matter despite the fact that Ajay Shah received sensitive data from NSE for years without anybody knowing and it was passed on to his family members and close aids like Chirag Anand for Algo software designing. The same modus-operandi was played at MCX by Susan Thomas. It is an open secret that Ajay Shah, bureaucrat K P Krishnan and top-notch NSE officials were shielded by the now jailed Chidambaram. Data theft at MCX has the means, the motive and even a prima-facie case. But it dreadfully requires honesty of probe and uprightness, both of which are beyond SEBI when it comes to NSE and MCX.

SEBI has already given an escape route to NSE by imposing a disgorgement amount of more than Rs1000 crores. In the court of law, the Doctrine of Disproportionality will come into play on NSE’s appeal as the exchange can argue that the fine it is being subjected to by SEBI is disproportionate as the regulator in the order has specially mentioned that there was no fraud and a mere coincidence of procedural lapse. With regard to MCX something similar is in the works at SEBI, sources have told PGurus. The same kind of punishment, if at all meted out to anybody at MCX could be way smaller. Interestingly, Paranjape has already told SEBI that he acted in good faith and the board of the exchange too, is largely supporting him. Of course, he acted in good faith, but in whose favour is the question that needs to be asked by the investigators.

Shah, Thomas and those in their network need some tough questioning too. May be somebody could turn an approver from their team, now that SEBI has enabled the provision and CBI already has it.

Continued…

[1] SEBI co-location verdict: Compelling evidence and travesty of justiceMay 26, 2019, PGurus.com

[2] MCX Data scandal: Tip of an iceberg or case closed for SEBI? May 15, 2019, PGurus.com

The post Why CBI should probe MCX data theft appeared first on PGurus.

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