The situation of phone-tapping

According to a person with knowledge of the situation, Business Standard stated on September 16 that insider trading is reflected in the Enforcement Directorate’s complaint there in National Stock Exchange’s (NSE) non-legalized phone-tapping case.

Insider trading allegedly took place while Chitra Ramkrishna & Ravi Narain were holding the post of managing director & chief executive officer of an index, respectively, according to the concerned authority.

The report said that Narain, who was arrested just a few days before when the charge sheet was submitted, had planned with iSec with a tapped incident from the start. According to sources cited by Business Standard, the Securities and Exchange Board of India (SEBI) will shortly receive the information from ED for the further process.

Furthermore, according to the study, Narain & Ramkrishna were the “main conspirators” who helped iSec Services earn Rs 24 crore for transferring important information.

Last Monday, the ED submitted its complaint for prosecution in the related situation. A Delhi court rejected Chitra Ramkrishna’s appeal for the cause discussed, alleged illegal wiretapping and spying on NSE personnel.

The CBI detained Chitra Ramkrishna on March 6 in connection with the co-location fraud lawsuit that was reportedly filed in May 2018. On July 14, the ED detained her in the tapping case. In 2009, Ramkrishna had been selected for the post of Joint MD, and he held the position until March 31, 2013. The first of April 2013 saw promotion to the post of MD and CEO.

Know the terms related to phone-tapping and insider trading

Insider Trading refers to buying or selling of security made in violation of fiduciary responsibility or even other relation of confidence and trust and based on substantial, non-public knowledge about the security is referred to as illegal insider trading. Additionally, “tipping” such information, trading in securities by the person “tipped,” and dealing in securities by those who improperly obtain such information are all examples of insider trading crimes.

The largest stock market in India is called the National Stock Exchange of India Limited (NSE), and it is in Mumbai, Maharashtra. According to statistics compiled by the derivatives trade organization Futures Industry Association (FIA), it will be the largest derivatives exchange in the world in 2021 based on the volume of contracts exchanged.

According to statistics collected by the World Federation of Exchanges (WFE) for the calendar year 2021, the NSE is rated fourth globally in terms of the volume of trades in cash equities. Some of the top banks, insurance corporations, and financial institutions own it. [4] As the nation’s first dematerialized electronic exchange, NSE was founded in 1992.

The NSE became the first in the world in channeling it with a cutting-edge, fully automated display electronic stock system that provided simple trading options to investors spread across the world market. The Chief Executive Officer and Managing Director of NSE are Ashish Kumar Chauhan.

The Securities and Exchange Board of India (SEBI), which is owned by the Indian government’s ministry of finance, oversees the country’s securities and commodity markets. It was founded on 12 April 1988 with an idea of an executive body, and on 30 January 1992, the SEBI Act, 1992, granted it legislative authority.

To control the securities market, the Securities and Exchange Board of India (SEBI) was made a non-statutory entity in 1988. With the passage of such SEBI Act 1992 by the Indian Parliament, it was given statutory powers and became an independent company on January 30, 1992. SEBI is headquartered in Mumbai’s Bandra Kurla Complex, with field headquarters in different places in its northern, eastern, southern, and western regions. In the 2013–2014 fiscal year, it established other outlets in Jaipur, Bangalore, Guwahati, Bhubaneshwar, Patna, Kochi, and Chandigarh.

The Securities and Exchange Board of India’s sole duty is “…to protect the interests of security investors and encourage the growth of, and to regulate the securities market, with issues related around incidental and thereto,” according to the Preamble of the S&EB.

Three groups make up the market, and SEBI must respond to their needs:

• investors
• market intermediaries, and
• securities issuers

The SEC has made the discovery and punishment of insider trading breaches a top enforcement priority because it erodes investor trust in the integrity and fairness of the securities markets.

• Insider trading refers to the purchasing or selling of shares in a publicly traded corporation by a person who has access to substantial, non-public information about that stock.
• This type of market manipulation is prohibited and carries severe repercussions, including possible jail time and fines.
• Insider trading is legal as it complies with SEC’s regulations.

The following are situations, where insider trading lawsuits the SEC has filed:

• officers, directors, and staff members of the corporation who traded its stocks after being informed of material, non-public corporate developments;
• Friends, co-workers, relatives, as well as other “tippers” of these officers, directors, and staff who sold the securities after learning of this knowledge;
• Those who worked for law, banking, brokerage, or printing companies and traded using information they learned while doing services for the company whose stocks they traded;
• employees of the government who traded using secret information they received while working for the government;

In India, authorized law enforcement agencies (LEAs) may legally intercept communications in line under Section 5(2) of said Indian Telegraph Act, 1885, read in conjunction with Rule 419A of the Indian Telegraph (Amendment) Rules, 2007. Only order from the Secretary to   Government of India in the Ministry of Home Affairs, or the Secretary to a State Government in charge of the Home Department, in governmental cases, may be used to direct the interception of any message or class of texts under sub-section (2) of Section 5 of the Indian Telegraph Act, 1885.

To automate the process of legal telecommunications monitoring and interception, the government created a Centralized Monitoring System (CMS). To achieve a balance between national security, online privacy, and free speech, the Indian government stated in a response to Parliament Question No. 595 on December 2, 2015, that legitimately eavesdropping and monitoring are governed by Section 5(2) of the Indian Telegraph Act, 1885, read with Rule 419A of the Indian Telegraph (Amendment) Rules, 2007, wherein an oversight mechanism exists in the form of revisions. The government is also permitted to monitor messages that pertain to public emergencies or public safety under Section 5(2).

Previous instances of phone-tapping

A two-room, drab office is tucked away just on the top floor of commercial space in Mumbai’s Jogeshwari neighborhood. Under a flickering tube light, four people are seated inside, busy scanning over data on their computers.

The office door has no lock on the outside, so one must strain to open it. The four persons present are too preoccupied to tolerate much disruption. One of them says, “We do background checks,” when asked about their job. He closes the door, reluctance to share additional information. He continues, “I can’t disclose more.”

The latter location is the rented-out home of a retired Military major general. The current resident told The Print when he went to the address this week that iSec had formerly used it and that he had lived there for the previous six years.

On the iSec site, the company’s incorporation date is listed as 2001.

However, the NSE leadership is accused by an Enforcement Directorate (ED) of ordering iSec and Sanjay Pandey to illegally intercept MTNL lines just at NSE between 2009 and 2017 and record the calls of more than 100 workers and brokers.

In March of this year, the CBI detained Chitra Ramkrishna, who held the position of NSE chief executive from 2013 to 2016. The ED claims that Ramkrishna gave a person she referred to as a “Himalayan yogi” important and private information about the NSE.

A case was filed against iSec Offerings, Sanjay Pandey, his mom Santosh Pandey, Armaan Pandey, and former senior NSE officials Ramkrishna, Ravi Narain (recently departed MD), Ravi Varanasi (former executive vice-president), and later Mahesh Haldipur after the ED alerted the CBI to the information regarding the alleged tapping of phones by iSec (former head of premises).

A CBI officer stated, “Other situations were filed in and we are looking into the situation.” The officer would not provide any other information. Based on the CBI’s FIR, the ED then filed another relating to the Preventing Money Laundering Act, and on July 19th, Pandey was taken into custody.

The Indian Telegraph Act has allegedly been violated by iSec Services, which Pandey floated because it monitored calls within the NSE without the necessary authorizations. They assert that this was accomplished when iSec was being paid Rs. 4.5 crore for fictitious research into cybersecurity incidents at the NSE.

They assert that this was accomplished when iSec was being paid Rs. 4.5 crore for fictitious incidents at the NSE. Although no actions have been undertaken against another person’s identity in the FIR, ED sources said that they most probably are called in for interrogation.

Tanveer Ahmed Mir, Pandey’s attorney, said when contacted by The Print that iSec was only “analyzing the transcripts of talks” that were provided to them by the NSE, not actively listening in on the discussions. He added that companies, like SEBI and national banks, have been using iSec to analyze calls and report questionable activity for comparable services. He stated that because the interception was carried out for “monitoring purposes,” it was lawful.

In a different complaint filed on May 19, CBI had past been charged iSec with breaking SEBI regulations by “fraudulently auditing” two NSE “high-risk” stockbrokers who used the co-location availability to engage in algorithmic trading. This FIR was maintained in response to an ED referral. The CBI claims that iSec Services audited Shastra Securities Trading Pvt . ltd. and SMC Global Securities Ltd without being authorized to do so. Authority for the findings states that because they were ineligible, they paid two outside companies and then used their names in place of theirs.

FUTURE COURSE

Let us know some more about insider trading and what consequences one needs to face with this effect.

If someone is found engaging in insider trading, he may have to face charges like imprisonment, a fine, or both. A decision for insider trading in the US may result in a heavy penalty of $5,000,000 and up to 20 years of imprisonment, according to the SEC. If alleged criminal for insider trading, following the SEBI, carries a potential fine of INR 250,000,000, or three times the transaction’s profit, whichever is higher. These crimes affect the whole society and the stakeholders attached to it.

It gives first mover advantage to high post directors & associates & they deflect the market according to that set of information. These are mainly done for profit motives and to increase the competition in the market.

edited and proofread by nikita sharma