The Bank of India mutual fund (MF) has settled an investigation started by the Securities and Exchange Board of India.
Sebi had on November 2022 accused the fund house, India’s 30th largest in its sphere, with assets of around Rs 3,369.95 crore, of violating debt security valuation norms and observed that it had unfairly transferred bad securities, which were also classified as high-risk schemes, into low and medium-risk schemes.
The market regulator also observed that Bank of India MF’s former chief executive officer (CEO) Sandeep Dasgupta had withdrawn a sizeable amount of his investments from the fund house.
In its settlement order put out on December 28, Sebi said that it had observed that Dasgupta “was in possession of all unpublished material information about the valuation of the defaulted securities and while possessing the said information, he withdrew almost his entire investment from the fund to his advantage”.
Sebi said not just Dasgupta, his wife and daughter also redeemed their investments after allegedly knowing the dire straits that the fund house was in. In its settlement order, Sebi said that it appears that Dasgupta would have passed on the information to his wife and daughter, who too decided to withdraw their investments.
The watchdog imposed a penalty of Rs 93.60 lakh on Dasgupta, and Rs 39 lakh each on Dasgupta’s wife and daughter. Additionally, Sebi also imposed a penalty of Rs 1.36 crore on the fund house, Rs 39 lakh on its compliance officer (at the time) Rajesh Chawathe, and Rs 45.50 lakh on Alok Singh, the fund house’s chief investment officer, who heads the fund management team.
Sebi conducted an inspection of the Bank of India Mutual Fund (known as BOI AXA MF at the time) between August 2018 and February 2019. It found several violations at the fund house with regard to the valuation of debt securities, inter-scheme transfers of securities, and the CEO and his family redeeming their holdings, unfairly.
Much of the year 2020 went by in Sebi seeking explanations from the fund house. SEBI initiated its adjudication proceedings against the fund house after it was convinced that it needed to be investigated in detail. In May 2022, SEBI issued a show cause notice to the fund house.
In July 2022, exactly two months later, BOI MF decided to settle the matter with SEBI, by paying a penalty. To be sure, a settlement is neither an admission nor a denial of the accusations.
Dasgupta resigned from the fund house in March 2021. Anthony Heradia took over as the fund house's CEO in August 2021 but resigned in February 2022. In October 2022, Mohit Bhatia joined the fund house as its CEO. Bhatia was earlier employed at Canara Robeco MF between 2013 and September 2022.
Dasgupta’s conduct bears a striking resemblance to what happened in Franklin Templeton India MF.
Vivek Kudva, former head of Asia-Pacific distribution at Franklin Templeton, and his wife Roopa Kudva had withdrawn Rs 30.70 crore from the six debt funds, days before they were wound up in April 2020. SEBI had found the fund house, its trustee company, and eight other senior fund house officials, guilty of mismanagement of debt funds, in a series of detailed orders in August 2021. Kudva’s and his wife’s conduct was part of SEBI’s investigation.
Franklin Templeton MF contested the orders at the Securities Appellate Tribunal(SAT). The SAT is a tribunal body that hears appeals against orders that are passed by SEBI. The FT India case has started to be heard at the SAT.