In a strongly worded interim order in the Axis Mutual Fund front-running case, Sebi on Tuesday barred 21 entities from dealing in the securities markets and directed them to disgorge Rs 30.6 crore in wrongful gains within 15 days.
Establishing links through a series of WhatsApp messages, the market watchdog identified Axis MF’s former chief dealer as ‘Jadugar’ who conceived a fraudulent scheme of front-running. “The notices have been able to earn large amounts of wrongful gains by their prima facie well-crafted manipulative scheme of front-running the trades of the Big Client,” said the order by SK Mohanty, Sebi’s whole-time member.
According to the order, in the process of executing the said scheme, they deliberately placed orders over the period in a manner to execute their first leg of trades ahead of the orders of Axis MF and the frequency of such trades did not continue for merely one or two stray incidents, but went on consistently with much more frequency in a manner to ensure that such front-run trades generate large sums of gains to them.
Sebi has directed these entities to deposit the amount in an interest-bearing escrow account, and allowed them to square off open positions in exchange-traded derivative contracts within three months of the order.
“…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 approximately 6.6 million unit holders have put an aggregate sum of AUM of Rs 2.52 trillion (as on March 31, 2022), smacks of rampant dishonesty and unfairness on the part of Viresh Joshi and his accomplices,” said the order.
It has also directed these entities to disclose within seven days the details of all assets held and investments in companies, and prohibited redemption or selling of securities held by them. The notices have been granted 21 days to file replies to the regulator.
Sebi cracked the whip on Axis MF last year, when it was alerted by their internal surveillance system that trades by certain entities between September 2021 and March 2022 were not executed in the normal course, amounting to front-running.
Front-running is the practice of purchasing shares/other securities based on advance non-public information regarding a large transaction that will affect the price of a security. It comes under the category of market manipulation and insider trading. It falls under the Sebi (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.
Subsequently, the probe by the regulator had led to the ouster of Viresh Joshi, chief dealer at Axis MF, and Sumit Desai from the fund house, after they were found guilty of executing the unlawful trades.