Sebi expands probe into HDFC MF front running

Sebi expands probe into HDFC MF front running

Alleges HDFC Trustees did not maintain high standards.

The Securities and Exchange Board of India has issued show cause notice to HDFC Mutual Fund including its CEO widening the probe against India’s largest investment management company.

The show cause says the company allegedly under reported instances of front running in far more cases than it has admitted so far. Front running in a mutual fund occurs when employees privy to confidential information on what shares the fund house is going to purchase from the market, use it to make their own investment.

In September 2011, Sebi had passed a consent order after HDFC Mutual Fund accepted 62 cases of front running in which ex-equities dealer Nilesh Kapadia was found responsible.

But in the latest show cause notice dated March 20, 2014, Sebi has stated that it has found 109 cases of front running in HDFC Asset Management Company whereas the company had through its letter of October 25, 2010 listed only 62 instances.


When contacted, an HDFC AMC spokesperson said, “This issue relates to the same alleged misconduct of the same dealer, Nilesh Kapadia who is no longer with the organisation since June 2010. We are in the process of resolving the issues with the regulator in accordance with Sebi rules.”

Sebi has also alleged that the HDFC Trustees did not maintain high standards of due diligence and care in their dealings and conduct of business. On the basis of the consent order issued against the company, its trustees paid Rs 20 lakh each while Milind Barve, the CEO paid Rs 15 lakh under the terms of settlement agreed under the High Powered Advisory Committee of Sebi.

While the earlier consent order was passed on trades executed between April and July 2007, the additional cases relate to the period between October 2006 and June 2007.

Sebi has alleged in the new show cause notice that, “HDFC Trustee did not ensure all the activities were in accordance with the mutual fund regulations and submitted wrong certificate to Sebi. HDFC Trustees did not report these front running activities to Sebi and they have failed to detect and prevent the information/instruction shared to front run HDFC traders.”

Sebi: Treat PSUs, pvt firms equal on minimum float

New Delhi: Market regulator Sebi on Thursday pitched for equal treatment for both private and public sector companies on the issue of minimum public float. “In 2010, when it was done, at that time government had a position that in one particular PSU if they float 25 per cent in one go, it will be a problem but now the government has to revisit it,” said UK Sinha, chairman, Sebi after a meeting with finance minister Arun Jaitley here. Sebi had earlier this week called for minimum 25 per cent public shareholding in public sector units as well to deepen the markets and increase public float. ENS