Axis MF front running case: SEBI bars Viresh Joshi, 20 others from accessing capital markets

SEBI had conducted a probe in the Axis MF front running case between Sept 2021 and Mar 2022 (Image: Reuters)

The Securities and Exchange Board of India (SEBI) on February 28 said it has barred Viresh Joshi, the former chief dealer of Axis Mutual Fund, and 19 others in a front running case linked to the fund house.

The market regulator said it identified Rs 30.5 crore as wrongful gains accrued due to the alleged front-running activities and directed that this amount be impounded from the entities.

SEBI further alleged that Joshi conceived a "fraudulent scheme" in "collusion" with other 'unscrupulous entities' to front run trades of Axis MF.

Also Read | Sacked fund manager Viresh Joshi sues MF house alleging wrongful termination

SEBI in its order claimed that it was Joshi, working as the head dealer, who had the discretion to decide as to when the orders of Axis MF would be placed. Further front-running trades were executed from trading accounts of the entities and persons indirectly connected to Joshi. In its investigation, SEBI observed that Joshi had abused the work-from-home situation prevalent in many organisations and fund houses during Covid-19 pandemic.

SEBI had observed from internal emails at the fund house, that Axis AMC had installed the Bloomberg trading terminals in the laptops of all of its dealers, so that the could route their orders (for securities to be bought and sold on behalf of the fund house) from their residences. Due to the Covid-19, Joshi used to alternate between working from home and his own private dealing room set up at office, to ensure isolation and social distancing.

Looking at the lack of surveillance at the fund house, Joshi hatched a scheme to make money on the side, through front-running. In September 2021, he approached Sumit Desai, his friend, to arrange for some trading accounts through which stock market transaction could be front-run. Desai, in-turn, contacted his friend Pranav Vora, in the following month, to get hold of trading accounts. These accounts, often known as mule accounts, are typically registered in someone else's names, but often lie idle and are used as conduit by scrupulous operators like Joshi. Vora brought several trading accounts belonging to the Marfatia Stock Broking Pvt Ltd's under the scheme. Desai, on his part, brought mule accounts from another stock broker, Woodstock Broking Pvt Ltd.

To execute the trades, whose information Joshi was to provide, Desai brought Prijesh Kurani into their scheme, who he knew for more than 5 years, as per SEBI's order. Interestingly, Kurani was based in Dubai. As per the plan hatched by Joshi, Desai and Vora, a trading terminal was installed in Dubai on Kurani's computer that enabled Kurani to punch in trades (after Joshi alerted him, minutes before Axis MF entered the markets) on behalf of the several mule trading accounts.

Kurani went a step further. Aside from placing orders in the mule accounts of the two stock brokerages, he also did similar front-running in the trading accounts of his own family members.

SEBI's order points out that the ill-gotten gains were transferred to the bank account of a company, specially incorporated in Dubai by Kurani, on behalf of Joshi. SEBI's order says that Joshi's brother and father even went to Dubai in December 2021, to complete the setting up formalities. Joshi's father and brother were also named as shareholders in the company.

Not just that, SEBI observed that Joshi had multiple mobile phones, which he had not disclosed to the fund house. This runs afoul with SEBI guidelines as dealers and fund managers aren't allowed to use their personal mobile phones during trading hours. They can only use recorded phone lines, which could include a specially-available mobile phone that records calls.

Front running is a market malpractice of trading in securities ahead of large client orders for personal gains. SEBI had conducted a probe in the case linked to Axis MF between September 2021 and March 31, 2022.

In its order, SEBI has not penalised or called any other senior officials at the fund house. But it says that there are parallel and seperate proceedings in progress at SEBI, which are "at different stages of investigation involving different entities." The present order, therefore says SEBI, is just about the front running of trades of Axis MF.