SEBI Bans 21 Entities In Axis Mutual Fund Front Running Case

Capital markets regulator Sebi on Tuesday barred 21 entities, including Axis Mutual Fund's former fund manager Viresh Joshi, from the securities market in connection with the front-running case at the fund house. In addition, the regulator has ordered impounding wrongful gains worth Rs 30.56 crore earned by them through "prima facie" front running activities, according to an interim order. Front-running refers to an illegal practice in the stock market where an entity trades on the basis of advance information from a broker or analyst before the information has been made available to their clients.

The present proceeding involves the front running of trades of Axis MF (Big Client) deals with a few suspected entities and trading members who have worked in close coordination with each other to front run the trades of the Big Client during the period from September 2021 to March 31, 2022. During the investigation, Sebi found that entities connected to Joshi, the then chief dealer of Axis MF, were observed to have traded in different securities ahead of the impending orders placed on behalf of the Big Client.

Subsequently, soon after the Big Client's orders were placed, these connected entities squared off their earlier trade positions taken on the exchange platform. In the process, substantial proceeds of profit were generated in the trading accounts of these connected entities by placing orders ahead of and in anticipation of the price movement of scrips in a certain direction on account of the impending large buy or sell orders of the Big Client, Sebi said. It was also noted that the trading accounts of the connected entities from which the front running trades were executed were arranged by Sumit Desai, apparently a market operator at the behest of Joshi, as per the 96-page interim order.

Also, Desai had introduced Prijesh Kurani, based out of Dubai, to Joshi and was entrusted with the task of placing the orders for front running the trades of the Big Client in the trading accounts of the connected entities. The other entities also played an equally vital part in the execution of those prima facie front running trades as they have knowingly lent their accounts to the front runner, Sebi noted. "The way Viresh Joshi has conducted himself as a dealer of Axis MF in conceiving a fraudulent scheme and executing the said scheme so meticulously over a sustained period in collusion with other unscrupulous entities to front run the trades of his very own mutual fund where approx. 66 lakh unit holders have put an aggregate sum of AUM of Rs 2.52 lakh crore (as on March 31, 2022), it smacks of rampant dishonesty and unfairness on the part of Viresh Joshi and his accomplices," SEBI said.

Accordingly, SEBI restrained 21 entities from buying, selling or dealing in the securities market or associating themselves with the securities market, either directly or indirectly, in any manner whatsoever until further orders. The order came after the Sebi's  surveillance system generated certain alerts indicating that trades by certain suspected entities executed during the period between September 2021 and March 31, 2022 appeared to have been not executed in the normal course of trading.

They were apparently in the nature of trades that were executed for front running the trades of Axis MF. Based on the alerts, Sebi carried out search and seizure operations at several entities, including offices of Axis MF, stockbrokers, and individuals. In May last year, the mutual fund promoted by Axis Bank had terminated the services of its chief trader and fund manager Viresh Joshi and fund manager Deepak Agrawal,who were facing allegations of front-running. However, Axis AMC that time did not elaborate on the violations that led to the two fund managers' sacking.