NSE Rot Runs Much Deeper

It is much deeper and goes way beyond the former managing director of National Stock Exchange of India Limited (NSE) and the Himalayan Yogi.

The yogi's blessings were running the world's largest derivatives exchange as per Chitra Ramkrishna, its former managing director.

Securities and Exchange Board of India (SEBI) has documented a 190-page order released on 11th February. She was communicating with the Himalayan Yogi through her e-mail.

A Paramahansa who resides in the Himalayan ranges whom she met in holy places. No locational co-ordinates are given. These baffling details made NSE the laughing stock of the world.

The Central Bureau of Investigation (CBI) is investigating this case and has arrested the Himalayan Yogi, Anand Subramanian. He was appointed by Ramakrishna in violation of all rules, got astronomical perks, promotions and increments, violating established processes.

More arrests are likely, for the co-location scam at the NSE which happened between 2010 and 2014. A few brokers with unauthorised and preferential access to NSE's co-location servers earned huge profits.

NSE is a high-technology platform having near monopoly control over India's capital market.

How has it become a hotbed of scams and scandals? The million dollar question which all in our community are asking.

Behind the enormous commercial success, NSE is a symbol of absolute power. It has a history of bending rules to suit its ambitions and suppress competition. Its founders Ravi Narain and Ramkrishna used its monopoly power for regulatory capture.

SEBI allowed NSE to expand into new businesses, ignoring conflicts of interest, make illegal appointments to top posts, and work ruthlessly to destroy any competition.

But the MD communicating with a yogi for guidance on running the exchange is still a surprise.

How did NSE, operating in a sensitive and highly regulated sector, overseen by a high-profile board, SEBI, and the finance ministry, acquire such enormous power and abuse it with exemption from any punishment for so long? It is with the help of the same people responsible for its oversight.

Who Wields Power at NSE

Over 15 years, Narain and Ramakrishna ensured that NSE's board members were selected to ensure dedicated and unconditional support after having delegated far-reaching powers to the MD.

Hence, when SEBI asked NSE about the algo scam, the board's first reaction was there were no irregularities.

This was no surprise as the same board had irregularly appointed Ramkrishna as MD in 2013.

The NSE board constituted a selection committee of Ravi Narain, S H Khan (former chairman of NSE and IDBI), S Venkiteswaran (former NSE director and senior advocate), and Deepak Satwalekar (public interest director) on November 6, 2012.

The committee met soon to strongly recommend an internal candidate and Ramkrishna was appointed for five years.

SEBI's mandatory approval was not sought.

None was considered for the post, but the committee's mandate was to shortlist candidates from within NSE, from other exchanges, from the financial sector and exchanges globally.

For the kind of money NSE was paying it would have attracted the best from exchanges globally.

The much smaller Bombay Stock Exchange (BSE) had put together a crack team of professionals who had worked at the New York Stock Exchange and Chicago Mercantile Exchange.

While recommending Ramkrishna as MD, the committee also created a brand new designation of non-executive vice-chairman for Ravi Narain, ignoring the fact that NSE could not possibly have both, chairman and vice-chairman, in non-executive posts.

It was as if NSE was a personal kingdom of people from the founding team and when one of them stepped down, the next would automatically step in while the former was accommodated in another capacity.

The board saw nothing strange in Ramkrishna appointing Subramanian immediately after becoming MD without any discussion with the Nominations and Recruitment committee (NRC) and bypassing all SEBI rules.

It apparently remained silent when he was promoted to Group Operating Officer, again bypassing the NRC as well as stringent regulatory compliances and clearances.

Surprise. Surprise. He was even kept out of the list of key management personnel, while enjoying the second highest remuneration and perks and being appointed to the boards of all NSE subsidiaries.

Key Managerial Personnel ("KMP") refers to the whole-time employees of the company who are vested with the most important roles and responsibilities. They are the first point of contact between the company and its stakeholders and are responsible for the formulation of strategies and their implementation.

He had absolutely no experience of capital markets or technology to run a large and complex exchange.

The NSE ecosystem of influence is so strong that even after Ramkrishna left under a cloud, it did not bother to find someone within India or abroad with specific skills and qualifications to run it.

Instead, it chose a successor who had no experience of running an exchange, a real-time trading technology platform or capital market regulations.

The NSE scam and its abuse of power happened under the watchful eyes of three successive SEBI chairmen, the worst happening under C B Bhave and U K Sinha.

So the NSE rot goes far deeper and way beyond the MD and the yogi.

The dignitaries who have been in the NSE's successive boards over the past two decades, the bigwigs at SEBI and key officials in the finance ministry and reportedly a powerful politician have all helped.

If the government is keen on a clean-up, these eminent people must be made answerable.

To be continued

Kolkata Police arrest middleman Govind Agarwal

In a massive breakthrough, the Kolkata Police on Sunday arrested dubious accountant Govind Agarwal in a case related to setting up hundreds of shell companies to launder the alleged "ill-gotten" wealth of multiple senior revenue officials (both current and retired), based on long-running investigations against Agarwal by multiple central agencies.

Interestingly, Agarwal had been accused by the Central Bureau of Investigation in the Rose Valley Chit Fund case and by the Enforcement Directorate in a money-laundering case related to controversial IRS officer Neeraj Singh.

Significantly, the Kolkata Police have arrested Agarwal in the 2017 case where Singh has also been named as an accused. Based on seizures from raids at premises used by Agarwal in Kolkata, the police had recovered hordes of sensitive and confidential documents belonging to the Income Tax Department, CBI, Financial Intelligence Unit, Directorate of Revenue Intelligence and others, leading to questions of how a low-profile accounts manager had access to such documents.

Sources aware of the investigations against Agarwal told Millennium Post that once central agencies had taken over the Kolkata Police FIR and examined Agarwal multiple times and raided multiple locations in connection with the money-laundering case, a large part of the findings was shared with the city police, who then took the probe forward.

The Kolkata Police was then made aware that Agarwal was handling the finances of at least 10 senior central agency officials, which included a former Chief Vigilance Commissioner, a former member (Investigation) CBDT, an Ex-DG (Investigation) posted in Kolkata and at least five other Commissioners/Chief Commissioners of Income Tax.

Furthermore, before Agarwal's arrest, the Kolkata Police had also raided premises of three chartered accountants namely Santosh Chaudhury, Pradeep Agarwal and Naresh Agarwal, based on which sources say police believe the racket could go into the hundreds of crores, involving alleged kickbacks received by the government officials.

Agarwal — a 12th fail — had such clout in bureaucratic circles that he had entered restricted sections of the Netaji Subhas Chandra Bose International Airport more than 100 times using a daily permit issued by the Air Intelligence Unit of the I-T Department under his name.

Agarwal's job in the racket was simple — if tax officials conducted raids or started any serious investigation, the accountant would broker a deal to settle the case and accept kickbacks on behalf of the concerned public official, which he would then launder through his web of paper companies. One senior official said such payments to the civil servants were part of the racket and were laundered with extreme care to avoid detection, with complex layers of structuring that veiled the money-trail.

Officials with direct knowledge of the matter said several private entities that were under the scanner of probe agencies would pool their resources, earmarked for pay-offs in a host of shell companies — run and operated by the likes of Agarwal. The accountant would then bounce the money across the paper concerns through fictitious transactions to finally reach the end benefactors — in this case, senior revenue officials.

The ED has already attached assets worth Rs 3.88 crore belonging to a now-suspended Neeraj Singh and alleged that these were part of kickbacks received by him from HM Diwan Jewellers through Agarwal. HM Diwan was also raided by central agencies.

According to the initial probe by the Kolkata Police's Anti Fraud Section, which set the ball rolling, seizures from Agarwal's "official" premises in North Kolkata had shown he was operating at least 98 shell companies with rubber stamps and other documents recovered. In fact, further probe by Millennium Post had found many companies registered to Agarwal or linked to him had the same address - the same room, on the same floor, of the same building. When asked about these companies, some of which include Lilac Suppliers, Tobu Engineering and Essencia Beverages, security guards in the building told investigators from the I-T department that they knew of no such companies operating from the building.

What is interesting is that the investigation involving these senior revenue officials, Agarwal, Neeraj Singh and others, is to a large extent, being conducted by central probe agencies who later shared the evidence with local police here, following which the probe was carried ahead by the Kolkata Police.