In a bid to widen the investigation into the Axis Mutual Fund front-running case, the Securities and Exchange Board of India (Sebi) has carried out search and seizure operations on 16 entities in more than 30 locations spread over various cities of Maharashtra and Gujarat.
The operations are aimed at establishing whether there is a link between these entities and trades. Sources said the purpose is to identify all the entities which could have been involved in front-running. A detailed investigation into the matter is in progress.
Axis MF sacked Viresh Joshi, fund manager and chief dealer, and Deepak Agrawal, assistant fund manager and equity analyst, in connection with the case. The two have been accused of sharing trading data and having disproportionate assets as compared to known sources of income and front-running.
FE had earlier reported that Sebi has put in place tools and algorithms that can help it establish patterns in insider trading and front-running cases. The algos are working, claim sources, at the National Stock Exchange and are capable for identifying linkages that may seem innocuous to the human brain.
The search operations were carried out on the offices and residential premises of Axis Mutual Fund, stock brokers, authorised persons of stock brokers and traders. Sebi has seized various records, documents and digital evidences extracted from the mobile phones, laptops, desktops, tablets, hard drive disks etc. found in the custody of these entities.
Over the past few months, Sebi has been receiving alerts from its internal surveillance alert system and has also been receiving inputs from National Stock Exchange about suspected front-running of trades of Axis MF.
Based on these alerts and surveillance inputs, Sebi initiated investigation into the suspected front-running of trades by certain entities.
The Sebi investigation started after the fund house said on May 9 that it was carrying out a suo moto investigation into possible irregularities. The fund house replaced the two as fund managers across seven schemes.
According to industry insiders, the size of this scam is Rs 1,000 crore and the fund managers’ alleged misconduct came to light after one of them was seen driving around in a limited edition Lamborghini. Joshi has sent a legal notice to Axis MF on his “unlawful termination”.
Axis MF has reportedly hired Deloitte as a second investigator in the front-running case. Alvarez and Marsal (A&M) is already investigating the matter.
Front running is the act of trading in securities ahead of the fund house. Because funds make large transactions, their actions tend to impact the price, and a person can profit or avoid losses with prior knowledge of such transactions.