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CBI Probes NSE Co-Location Scam, Seeks Help of Journalist Who Broke Story

"I am intrigued that questions are being raised by the media about the journalist who actually broke multiple scams over the years, including the colocation scam," Sucheta Dalal has said in a statement.

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New Delhi: Between 2012 and 2014, several Indian stock brokers received preferential access to servers used for high-frequency and algo trading at the National Stock Exchange (NSE).

This special access allowed certain brokers to game the system by placing trades ahead of their competition.

This ‘co-location’ scam – the technical term used for facilities that are dedicated spaces for high-frequency and algo trading – sent ripples throughout India’s financial system, leading to a probe by market regulator SEBI in 2016 and then eventually a case filed by the Central Bureau of Investigation in 2018.

The rot in the system was exposed due to a whistleblower’s complaint in which the entire modus operandi of the people profiting off the rigged system was laid out.

Details of the whistleblower complaint were first brought into the public spotlight when financial magazine Moneylife and its editor-in-chief Sucheta Dalal published two stories that examined the contours of the scam. Moneylife’s reportage was met with anger and frustration by the senior NSE management team, which chose to slap a Rs 100-crore defamation suit against the magazine – legal action that was struck down by the Bombay high court years later.

In the last five years, the market regulator has passed several orders in the co-location scam against NSE’s top officials, while imposing fines against NSE and former top officials Ravi Narain and Chitra Ramakrishna.

Now, four years after the CBI registered its FIR, Dalal has been called for questioning by the investigative agency. Her statement, presented in full below, shows that the CBI is not only interested in her sourcing for the original co-location scam story but is also curious about former Mumbai police commissioner Sanjay Pandey. The former top cop is currently involved in an offshoot case that involves the alleged phone-tapping of various NSE officials from 2009 to 2017.

Below is a statement issued by Sucheta Dalal about the CBI questioning her.

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I was called to New Delhi to record by statement on the colocation scam on 16th July 2022, because I was the person who had broken the story in June 2015. The colocation scam is being investigated by the Central Bureau of Investigation.

For the record, NSE had filed a Rs100 crore defamation case against me and Moneylife which they withdrew after paying Rs 50 lakh as ordered by the court. Subsequently, SEBI’s long drawn investigation has repeatedly proven wrong doing at the NSE after multiple investigations.

Even earlier, Mr Abhinav Khare, SP CBI, who is investigating the scam and Mr Pushpal Paul had contacted me to seek information.

Just before the New Delhi meeting, I was told that they wanted to record my statement before Mr Paul. On asking Mr Khare, he had told me that it was about ‘Ken Fong’. This is the name used by the whistle-blower, whose email to SEBI, copied to me, was first reported by Moneylife in 2015 and led to the investigation by SEBI and now by CBI.

Indeed, most of the questions asked by the CBI were about Ken Fong’s four letters. I had carried all the four letters posted by Ken Fong to me from two different countries and showed CBI copies of my emails to SEBI before publishing the first article. These are all part of official legal records in the Rs 100 crore defamation suit filed against me by the National Stock Exchange, which was subsequently withdrawn.

I was asked if I knew who Ken Fong was. I do not know who he is and I said so emphatically. I was also asked about the process which we followed before writing the article and the decision to publish it. And whether I had asked to visit the NSE before writing the article.

I pointed out that colocation trading happens in highly sophisticated computers and there would be nothing for me to see from the outside. The decision to publish it was entirely mine after following the usual journalistic process of trying to verify the truth.

Apart from this, I was asked if I knew Sanjay Pandey, former Commissioner of Police, whose firm, iSec Services Pvt Ltd is under the scanner. I answered that I did indeed know Sanjay Pandey since about 1994-95, when my junior at the Times of India, Somasekhar Sunderasan used to report extensively on the cobbler scam for the Business Times section when I was the Financial Editor. I have indeed known Mr Pandey since then, as have most journalists in Mumbai.

I categorically stated that I have nothing to do with Mr Pandey and his business deals, specifically his dealings with NSE under the management of Ravi Narain and Chitra Ramkrishna, under whom the colocation scam happened.

I was also asked if I knew Mr Ravi Narain, former Managing Director of the NSE. I responded that I knew him from the time NSE was started (which is around 1992) since I have been reporting extensively on the capital market for 35 years.

As a financial journalist covering the capital market is basic to my job to know heads of all stock exchanges.

I was asked if I had introduced Mr Pandey to Mr Narain. I told them I have no such recollection. I believe that Mr Narain has made this allegation.

I said that I did not see why NSE or Ravi Narain would need a recommendation from me, when the Securities and Exchange Board of India (SEBI) had asked Mr Pandey to investigate the National Securities Depository Ltd (NSDL) in 2005. NSDL is a subsidiary of NSE. Later NSE itself had asked him to be part of an investigation committee with regard to a trading glitch.

I am issuing this statement since one media house has written to ask me questions about the meeting with CBI. I am intrigued that questions are being raised by the media about the journalist who actually broke multiple scams over the years, including the colocation scam. I am always happy to cooperate with any investigation as I have done for all my decades as a journalist.