The Enforcement Directorate (ED) on Tuesday arrested former Mumbai Police Commissioner Sanjay Pandey in connection with a money laundering case linked to the alleged illegal phone tapping of NSE employees.

The retired 1986-batch Indian Police Service (IPS) officer was taken into custody by the ED after over seven hours of questioning in the case, officials said.

His arrest came after two consecutive days of questioning in connection with the money laundering case linked to the alleged illegal phone tapping of the National Stock Exchange (NSE) employees.

Last week, the agency had arrested former NSE CEO Chitra Ramkrishna in the case.

Pandey retired from service on June 30. Before his four-month stint as Mumbai's Police Commissioner, Pandey served as the acting Maharashtra Director General of Police (DGP).

Pandey is facing two connected FIRs by the ED and Central Bureau of Investigation (CBI) of illegal interception of phones of NSE employees by iSec Services Private Ltd, a company founded by him, and violation of Securities and Exchange Board of India guidelines in conducting NSE's system audit.

Before his arrest, the agency questioned him in connection with the functioning and activities of iSec Securities Pvt. Ltd, one of the firms that conducted a security audit of NSE around the time the co-location irregularities allegedly took place.

In its FIR, the CBI had alleged that Ravi Narain and Ramkrishna, both former chief executives of the NSE, had roped in the company founded Pandey to snoop on the stock market employees by illegally intercepting their phone calls.

After the CBI FIR, the ED had named Pandey, his Delhi-based company iSEC Services Pvt. Ltd, NSE's former MD and CEOs Narain and Ramkrishna, executive vice president Ravi Varanasi and head (premises) Mahesh Haldipur, among others in the money laundering case.

Under the Prevention of Money Laundering Act (PMLA) probe, the ED is probing if any proceeds of crime were generated through this alleged illegal act and the accused laundered public funds.

Pandey was earlier questioned by the ED on July 5 in the alleged NSE co-location scam case in Delhi.

The ED discovered secret phone surveillance while probing the alleged financial irregularities at the NSE following which it reported it to the Ministry of Home Affairs (MHA), which asked the CBI to probe the charges, officials had earlier said.

The CBI had alleged in its complaint that during the period 2009-17, Narain, Ramkrishna, Varanasi and Haldipur conspired to illegally intercept the telephones of NSE employees for which they hired iSEC Services Pvt Ltd.

The company allegedly received a payment of Rs 4.45 crore for illegal tapping which was camouflaged as "Periodic Study of Cyber Vulnerabilities" at the NSE, the CBI alleged in its FIR.

The company also provided transcripts of the tapped conversations to senior management of the stock market, it had claimed.

"...Top officials of NSE issued agreement and work orders in favour of said private company and illegally intercepted the phone calls of its employees by installing machines, in contravention of provisions under Indian Telegraph Act," the CBI had said in a statement.

Officials said the interception was stopped in 2019, months after the CBI started probing the NSE co-location scam in 2018, and the machines and other infrastructure used for interception were disposed of as e-waste by the bourse.

The co-location and phone tapping cases relate to manipulation of the stock market through electronic contrivances.