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Axis MF frontrunning case: Axis Bank awaits probe report; will not take action against mutual fund officials for now

The bank is standing by Axis Mutual Fund CEO and MD Chandresh Nigam after suspending two other fund house officials in connection with frontrunning allegations, say sources. But Nigam’s continuance might run afoul of the regulator.

May 11, 2022 / 09:37 AM IST
Representative image

Representative image


Axis Bank will wait for the findings of an investigation into frontrunning allegations at Axis Mutual Fund before taking a final decision on penalising erring officials, according to people aware of the lender’s plans. Axis Bank is the sponsor of Axis MF, India’s seventh-largest fund house.


The allegations of frontrunning at Axis MF are being probed by two external agencies appointed by the fund house. Front-running, in this case, refers to a mutual fund dealer trying to profit from his/her knowledge of orders that a fund house has lined up.


While Axis MF says the probe started in February, no action was initiated against any officials for months and there was nothing in the public domain to indicate that the bank was conducting an investigation.

That changed only in the first week of May, when MC Insider published a small item on May 2 about a dealer at a fund house driving around in a Lamborghini, alluding to his disproportionate assets.

Subsequently, it emerged that the mutual fund was finally taking some preliminary action.

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On May 6, Moneycontrol broke the news that Axis fund managers Viresh Joshi and Deepak Agarwal had been replaced (suspended) as fund managers on May 4.

No final action for now

No final action will be taken against any official, including Chandresh Nigam, managing director and chief executive officer of Axis Mutual Fund, until the investigation is completed, the people said.

The fund house had launched the probe into allegations of frontrunning in February 2022, Nigam said in a communication to distributors and investors late on May 8.


In the note, Axis MF asserted that it had started the probe on its own and that it was being carried out by external investigators. Preliminary action (suspension) had been taken against two fund managers (one of whom, Viresh Joshi, was the fund house’s chief dealer). Nigam assured investors of the “highest governance standards, stringent protocols and best-in-class processes for fund management.”


Nigam’s Bloomberg ID suspended


On May 6, when Moneycontrol broke the story of Axis fund managers Viresh Joshi and Deepak Agarwal being suspended, it had also come to light that Nigam’s Bloomberg ID had been taken down.

Bloomberg is a database and market information system (aside from being a digital news media company) that portfolio managers and analysts globally use to monitor stocks, markets and portfolios. It is an important tool for portfolio managers, each of whom is assigned an email ID and a login ID. All Bloomberg chats are recorded. Additionally, many fund houses, including a few in India, use Bloomberg as their order management system to instruct brokers which stocks to buy and which ones to sell.


Moneycontrol sources confirmed that the Bloomberg IDs of Joshi and Nigam had been deactivated since the evening of May 4. This means that these officials won’t have access to the Bloomberg system. As of May 10 morning, Nigam’s Bloomberg ID remained suspended.


Asked to explain the implications of the suspension, a fund manager at another fund house said that it was an indication that a major violation is suspected. If found to be true, the implications for the violators would be very severe, he added.


Moneycontrol reached out to Nigam, the fund house’s chief business officer Raghav Iyengar, its corporate communications officials as well as Axis Bank but was not able to elicit any response from them till publishing time.


Axis MF, with assets worth over Rs 2.55 lakh crore, has 23 equity schemes, 19 debt schemes and 9 hybrid schemes. It also manages three funds that invest abroad and two gold exchange-traded funds.


Does the buck stop at the CEO’s desk?


Nigam’s continuance at the helm of the fund house might run afoul of the Securities and Exchange Board of India, the capital markets regulator. In October 2020, SEBI had issued a code of conduct for dealers and fund managers at mutual fund houses.

Among other things, the code of conduct stated that dealers and fund managers “shall not indulge in any unethical business activities, or professional misconduct involving dishonesty, fraud or deceit, or commit any act that could damage the reputation of the organisation.”


It also instructed them to avoid “potential conflicts of interest.”


More importantly, SEBI laid down that dealers and fund managers must conduct all communication during market hours only through recorded modes of communication (telephone lines, for instance — all conversations over the phone in dealing rooms are recorded).


“All investment personnel desk phone calls are recorded during market hours. Cell phones are supposed to be kept aside or recorded if used for interaction with market intermediaries. Compliance officers have the authority to record calls and they keep the records,” said a manager at another fund house who did not want to be identified.


SEBI had also made it the responsibility of the heads of fund houses (chief executive officer — whatever be the designation) to ensure that the code of conduct is followed in “letter and spirit.” Any breach of the code of conduct has to be brought to the attention of the board of directors of the asset management company and the trustees, SEBI had added. The regulator had stressed in the code that dealers and fund managers have to provide a self-certification once every three months that they have abided by the code of conduct.


It was the responsibility of Nigam as head of Axis MF to ensure that his fund managers and dealers adhered to the code of conduct. Seen in this light, if his subordinates are found to have violated the SEBI code, he could face some heat from the regulator.


“The chief executive officer has the responsibility to ensure that the code of conduct is followed by all such officers (fund managers, chief investment officers, dealers etc) because in the regulatory experience of some cases, perhaps some of them (CEOs) either turned a blind eye or were complicit. The regulatory expectation from them is very high,” said Sumit Agrawal, founding partner of Regstreet Law Advisor and a former SEBI officer.


The timeline


People familiar with Axis Bank’s thinking told Moneycontrol that the bank’s board has not given any timeline by which the investigation will be completed. It has asked the two probe agencies to submit their findings at the earliest.

Axis MF maintains that the probe started in February 2022, suggesting that it is at least into its third month. A person with knowledge of the matter said a chartered accountancy firm (one of the Big Four) and a law firm have been appointed to jointly investigate the matter. Moneycontrol has not been able to confirm this.

SEBI is said to be monitoring the developments and the probe report is expected in a few weeks.



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Kayezad E Adajania heads the personal finance bureau at Moneycontrol. He has been covering mutual funds and personal finance for the past two decades, having worked in Mint and Outlook Money magazine. Kayezad was the founding member of Mint’s personal finance team when it was set up in 2009.
Dinesh Unnikrishnan is Deputy Editor at Moneycontrol. Dinesh heads the Banking and Finance Bureau at Moneycontrol. He also writes a weekly column, Banking Central, every Monday.
first published: May 10, 2022 04:34 pm
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