The Securities and Exchange Board of India (Sebi) Tuesday barred former chief dealer of Axis Mutual Fund, Viresh Joshi, and 20 other individuals from accessing the securities markets in a case of alleged front-running of the trades of Axis Mutual Fund. In its investigation, Sebi concluded that these individuals wrongly earned Rs 30.56 crore from the front-running activities. What is the matter? The surveillance system in Sebi generated certain alerts which indicated that a few suspected entities executed trades that were in the nature of front-running the trades of Axis Mutual Fund (Axis MF or Big Client) between September 1, 2021 to March 31, 2022. These alerts also showed that not only numerous entities were suspected to be front-running the trades of Axis MF but several trading members of stock exchanges were also suspected to be involved with those suspected entities in executing these trades. Based on these alerts, the capital market conducted an investigation and found that these suspected entities and trading members worked in close coordination with each other to allegedly front-run the trades of Axis MF during the period. It was found that the leakage of information about the impending orders, which Axis MF was placing through diversified trading members, was possibly done at the end of the Big Client. The investigation showed that soon after the Axis MF orders were placed, these individuals, who were connected to Viresh Joshi, the then chief dealer of Axis MF, squared off their earlier trade positions taken on the exchange platform, Sebi’s Whole Time Member S K Mohanty said in the interim order issued in the matter on February 28. In the process, substantial proceeds of profit were seen to have been generated in the trading accounts of these connected individuals, 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 Axis MF. Similar trades were executed on numerous occasions during the investigation period. What is front running? Front-running refers to buying or selling securities ahead of a large order so as to benefit from the subsequent price move. Under this illegal trading practice, a broker’s or analyst’s use of nonpublic information to acquire securities or enter into options or futures contracts for his or her own benefit, knowing that when the information becomes public, the price of the securities will change in a predictable manner. Axis MF case: What is the amount siphoned off?? These individuals have collectively made wrongful gains of approximately Rs 30.56 crore from their trading activities, the Sebi order said. The markets regulator said that Joshi incorporated a company - Vintage Capital Investment LLC - in Dubai, apparently for indulging in such fraudulent acts including transferring the wrongful gains using clandestine channels in the bank accounts of the said company. Sebi also suspected that the ill-gotten wrongful gains may have siphoned off by these individuals, in an attempt to thwart any possible actions from the regulator for recovering such unlawful gains. What is Sebi’s interim order? Sebi restrained Joshi and 20 other individuals from buying, selling or dealing in the securities market or associating themselves with the securities market, either directly or indirectly, in any manner. The capital markets regulator also ordered to impound Rs 30.56 crore gained unlawfully by these individuals from the front-running activities. Sebi directed them to deposit the amount into an interest-bearing escrow account created in a nationalized bank within 15 days. “Viresh Joshi has caused serious breach of trust reposed by the investors/unit holders of Axis MF and can potentially cause further erosion of the trust in mutual funds per se as a medium of investment in securities market,” Mohanty observed in the order.
