MCA orders SFIO probe into IL&FS Securities-Allied Financial case on suspicion of collusion

The Ministry of Corporate Affairs (MCA) has ordered the Serious Fraud Investigation Office (SFIO) to probe ILand FS Securities Services Limited (ISSL) after it found prima facie evidence it colluded with broking Allied Financial Services, which has been accused of carrying out rogue trades. The MCA has asked SFIO to complete the probe in two months, a source told Moneycontrol. The genesis of the case lies in trades that Allied Financial is accused to have carried on behalf of its clients Dalmia Cement without the latter’s authorisation. When the trades resulted in a loss of about Rs 4600000000, Allied failed to make the losses whole. After that, it fell upon ISSL, the clearing member, to guarantee the trade. A clearing member’s responsibility is to guarantee settlement of trades carried out by its empanelled brokers by ensuring adequate risk management standards. ISSL has also claimed it was in no position to honour the trade and the matter is in court. But MCA in its prima-facie investigation has now found that ISSL, in multiple instances, allowed the broker to trade without proper margin or collateral. In its initial probe, the MCA found 60 instances where trades worth Rs 25,0000000000 was allowed without proper collateral between July and December 2018. In fact, National Security Depository Limited (NSDL) had also raised concerns with ISSL about the lack of collateral at Allied’s end after it received a complaint. Further, the MCA found in its investigation that ISSL allowed Allied Financial to withdraw collateral, say on a Saturday, and deposit it back on Monday. This was allowed despite a senior ISSL official red-flagging it. ILand FS spokesperson Sharad Goel declined to comment on this development.