SEBI imposes penalties of Rs 7.5 cr on 21 entities in Axis MF front-running case
Capital market regulator SEBI on Friday levied fines totalling Rs 7.5 crore on 21 entities, including Axis Mutual Fund’s former fund manager Viresh Joshi, and barred them from the securities markets for up to seven years in a case related to front-running allegations.
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.
Also, the Rs 30.56 crore impounded in compliance with the directions of the interim order dated February 28, 2023, shall be treated as the disgorgement amount for all the entities, the regulator said in a 146-page final order.
The regulator has also directed these entities to pay 12 per cent annual interest on the disgorgement amount.
SEBI said it had concluded that “Viresh, Sumit Desai, Pranav Vora, Vaibhav and along with the other noticees, namely, the Kurani Group apart from Prijesh, the Marfatia Group and the Jajoo Group colluded to execute a scheme to front run the orders of the Big Client”.
The markets watchdog observed that these entities had facilitated the misuse in a manner that compromised market integrity.
“The inter-se connections amongst the noticees (21 entities), the statements recorded, the consistent pattern of pre-positioning and squaring off, the continuous profits, mule accounts used, offshore structures and the coded identities used, collectively show that this scheme was well thought-out and executed to evade early detection,” Sebi’s Quasi-Judicial Authority Biju S said in the order.
The regulator noted that the illegal gains involved, along with the large investor base, reflect the scale of the market abuse.
“Viresh was not merely a passive conduit of information; he conceived and orchestrated the scheme, identified and coordinated with the executioner (Prijesh), directed the trading activity, and facilitated routing of wrongful gains through a Dubai-based company that appears to have been incorporated to further the scheme and obscure the trail of illicit proceeds,” Biju said.
Therefore, the regulator found that these 21 entities flouted PFUTP (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) norms.
Accordingly, Sebi slapped a penalty of Rs 3 crore on Viresh Joshi and Rs 1 crore on Prijesh Kurani. Both of them were prohibited from the securities markets for up to seven years.
It also penalised 19 other entities in the range of Rs 5-65 lakh as well as restrained them from buying, selling or otherwise dealing in securities markets for up to seven years as well, the regulator said.
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 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.
