Over the past few weeks, as part of its ongoing investigation into the alleged front running case in Axis Mutual Fund, the Securities and Exchange Board of India (SEBI) conducted search and seizure operations on 16 suspected entities in over 30 locations. In different cities of Maharashtra and Gujarat, an official said on condition of anonymity.
Mint first reported on May 18 that select fund managers of Axis Mutual Fund shared trading information with external brokers, which was used by seven entities in Gujarat who traded on these tactics in large numbers. Some of these entities were shell companies.
Axis Mutual Fund has sacked two fund managers Viresh Joshi and Deepak Agrawal without details on charges of misconduct. Joshi has sent a legal notice to the fund house for wrongful termination.
Since last few months, SEBI has been receiving alerts from its internal monitoring alert system and also inputs from National Stock Exchange regarding suspicious front running of trades of Axis Mutual Fund. The methodology has been put together based on its own alerts, NSE data and preliminary reports submitted by the fund house.
“Based on the said alert and monitoring inputs, SEBI has initiated an investigation into suspicious aspects of trading of Axis Mutual Fund by certain entities,” the official said.
“During the search and seizure operations, SEBI officials searched the official and residential premises of 16 entities covering Axis Mutual Fund officials, stock brokers, authorized persons (APs) of stock brokers and traders. SEBI has seized various records, documents and digital evidence extracted from mobile phones, laptops, desktops, tablets, hard drive discs, etc., found in the custody of these entities.
Joshi was the Head Equity Dealer and Fund Manager of 6 Funds at Axis Mutual Fund and Deepak Agarwal was the Equity Research Analyst and Fund Manager of three Mutual Fund schemes.
Both are accused of sharing trading data, disproportionate assets disproportionate to known sources of income and front running.
Front running is the act of trading in securities ahead of the fund house. Since funds conduct large transactions, their actions affect the price, and an individual can avoid profit or loss with prior knowledge of such transactions.