Algo Scam: NSE Gave 'Special Treatment' to Ajay Shah While Providing Confidential and Sensitive Data, Reveals Lok Sabha Reply Based on SEBI Inputs
Ajay Shah of the National Institute of Public Finance and Policy (NIPFP) was given 'special treatment' by the National Stock Exchange (NSE) in gaining access to confidential and sensitive data without a formal agreement and data use contract, reveals a reply in the Lok Sabha which is based on inputs from the market regulator.
Pon Radhakrishnan, the minister of state for finance said this in response to a question by Dr Kirit Somaiya. He said, "Securities & Exchange Board of India (SEBI) examination, inter alia, observed that the professor had employed a device/ scheme/ artifice, wherein the confidential and sensitive data provided by NSE was misused in fraudulent manner, which resulted in compromising the integrity of the securities market."
After completing its investigation, the market regulator had initiated enforcement proceedings against various entities and persons including Mr Shah, the reply says. Ironically, the finance ministry has been working closely with Prof Shah and the NIPFP. 
He has also been involved with several key committees to frame market regulation including Financial Legislative Reforms Commission (FSLRC). He was also member of the internal working group of ministry of finance on internal debt management, task force on implementation of Goods and Service Tax of the 13th Finance Commission. Between 2001 and 2005, he was consultant in the department of economic affairs in the finance ministry. 
Mr Shah was also member or SEBI' risk management group, secondary markets advisory committee and LC Gupta committee on policy for derivatives. During the past decade, he was extensively involved in the policy process in the reforms of the equity market and the New Pension System (NPS).
The minister, however, refused to divulge information on action taken by income tax department against all persons involved in the scam.  
Mr Shah and his wife Susan Thomas were the only academics with deep access into the NSE. They received trading data from the NSE, first, in their personal capacity and, later, as academics associated with Indira Gandhi Institute of Development Research (IGIDR). 
IGIDR also obtained substantial funding from the NSE. Mr Shah’s testimony reveals that he and Ms Thomas had full discretion on the use of funds (although they did not receive direct payment). 
Mr Shah further admits, in his sworn testimony, that IGIDR often sub-contracted work to Infotech Financials, recommended its services and also shared data with it. 
The technical advisory committee (TAC) appointed by SEBI had also nailed wrongdoing in the NSE, which were mentioned by Ernst & Young (E&Y) in its revised report. The Committee also rapped E&Y for the forensic firm’s failure to draw conclusions from its obvious findings. 
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    Was the Minister given Incomplete Information Relating to PwC?
    Recently the Punjab and Haryana High Court has issued a notice to a retired state information commissioner who allegedly sat over a judgement for more than three years. The matter pertained to an appeal seeking information under the Right to Information Act (RTI Act) from Chaudhary Devi Lal University at Sirsa.
    This is not a one-off case. Information sought under the RTI Act is invariably delayed on one pretext or the other, often, in blatant violation of the RTI Act. 
    Sometimes, a denial could expose something far more critical: that the information provided even to the highest functionaries in the government is not thoroughly scrutinised.
    Proceedings in the Lok Sabha
    Poonam Mahajan and Tej Pratap Singh Yadav, members of Parliament (MP) had in 2017, raised certain questions in the Lok Sabha. One specific query of the MPs was “whether the Government has taken cognizance of several instances of violations by auditors PricewaterhouseCoopers (PwC) and its partner firms over the last ten years that pose serious threats to public interest and national security.”
    Arjun Meghwal, minister of state, ministry of corporate affairs (MCA), answered the question in the Lok Sabha on 11 August 2017 and stated “Prosecutions under the provisions of the Companies Act, 1956, have been filed against the partners of PricewaterhouseCoopers (PwC) in nine companies.”
    The minister did not name the nine companies. An RTI query, dated 17 April  2018 by this author sought, from the central public information officer (CPIO), MCA, details of the companies involved, names of the partners involved, amount of violations, Sections of Companies Act, 1956, and any other laws that were violated.
    Expectedly, no reply was received even after the expiry of 30 days, the maximum time allowed for disposal of request under Section 7 of the RTI Act. Two e-mails, dated 30th May and 5 June 2018, sent to the under secretary, MCA, to expedite the information, failed to elicit any response.
    The applicant (author) then filed the first appeal, on 14 June 2018, under the RTI Act. The reply dated 12 July 2018 was even more callous:
    It directed the applicant (author) to make applications to different registrars of companies who had filed the prosecutions against PwC.
    Section 6(3) of the RTI Act, 2005, has in such cases put the onus on the public authority to transfer, under intimation to the applicant, the application or appropriate part of it to the concerned public authority within a period of five days from the date of receipt of the application.  
    Besides being in blatant violation of this provision, the response of the CPIO raised a more fundamental question.
    Was the Minister Fed Insufficient Information?
    The above-mentioned responses suggest, rather alarmingly, that the MCA and, therefore, the CPIO did not have complete, correct and relevant details when the minister gave the reply in the Lok Sabha. That too in respect of the information originating from their own ministry! This could have far-reaching consequences. It is also highly unlikely that the minister would have taken the information at face value. Searching questions must have been asked by him. 
    This, therefore, exposes one of the worst kept secrets: Information is available, but is not provided, in blatant violation of the RTI Act. 
    Famous Nine, Should Have Been Ten At Least
    While complete information is still to be received, further prodding has revealed the names of the nine companies with respect to which prosecution has been launched against the partners of PricewaterhouseCoopers (PwC). These are:
    Graphite India, Karam Chand Thapar & Bros, Kesoram Industries Ltd,  Usha Martin Ltd, Tractors and Farm Equipment Ltd, Satyam Computer Services Ltd, Global Trust Bank, Xerox India Ltd and Religare Finvest Ltd.
    Surprisingly DSQ Software, one the first companies to be investigated by the serious frauds investigation office (SFIO) does not figure in this list!  Lovelock & Lewes, network firm of PwC, was the auditor of DSQ Software.  
    SFIO had found DSQ guilty of manipulating share prices and falsification of accounts. The Securities Exchange Board of India (SEBI) had barred DSQ and its promoters for seven years.  Did the MCA not find enough grounds to launch prosecution against PwC in this case, despite SEBI’s and SFIO’s findings? Is this yet another case where MCA does not take SFIO seriously?
    RTI Act in Danger
    Multiple attempts are being made to weaken the RTI Act. The least that can be done is to ruthlessly enforce the existing provisions. The order of the Punjab & Haryana High Court referred to above has come as a shot in the arm. Delinquent officers must be taken to task and heavy monetary penalties should be imposed on them.
    Getting information under the RTI Act is just the beginning of a meaningful exercise. Unnecessary delays can derail the whole objective.
    (Sarvesh Mathur is a senior financial professional, who has earlier worked as CFO of Tata Telecom Ltd and PricewaterhouseCoopers.
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    A. Pereira

    2 years ago

    RTI was the result of extreme hard work by activists in the first decade of this Millennium. It was perhaps reluctantly agreed to be passed as law by the then Manmohan Singh govt. As we are seeing in the later law of Lokpal, which MMS govt reluctantly passed, and the current Modi govt is showing no will to implement it (appointment of the Lokpal is pending for all these years, despite all the drama enacted by all political parties, including the congress and the BJP, in parliament, with some ministers even shedding crocodile tears for Anna Hazare). All these political parties (barring one in power in the smallest state but most important UT) have no desire to expose their sins to the public, so until the public do not wake up, the loot will continue. Till then, for the common man, once in the hot oil, once into the fire. Switching between the same parties does not solve any problems as both elements prove being two faces of the same coin.


    Manoj Kapur

    In Reply to A. Pereira 2 years ago

    I agree with you completely. Both parties have weekened the efforts towards transparency in every possible way. The rot is deep and requires disruption in form and substance

    Tata Sons cannot force Cyrus Mistry to sell his shares: NCLAT
    In a partial relief to Cyrus Mistry, the National Company Law Appellate Tribunal (NCLAT) on Friday stated that Tata Sons cannot force him to sell his shares.
    However, the two-judge bench headed by Justice S.J. Mukhopadhyaya, declined Mistry's appeal to stay the conversion of Tata Sons into a private company.
    The court said it will decide on conversion of Tata Sons into a private company after the final hearing on September 24.
    Further, NCLAT has admitted Mistry's appeal against his removal from the post of Tata Sons' Chairman in 2016. The appeal was against the order of the NCLT, Mumbai bench.
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.


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