The Income Tax (I-T) Department on July 28 said it carried out a search operation on a former fund manager of Axis Mutual Fund and seized “incriminating evidences” in the form of documents and digital data.
A statement by the department did not contain the names of the mutual fund or the fund manager. But people familiar with the matter told Moneycontrol that the raids were conducted on Viresh Joshi, a former chief trader of equities at Axis Mutual Fund who was fired because of allegations of irregularities (front-running). They did not want to be named.
The I-T Department also conducted searches on sharebrokers, middlemen, and entry operators related to Joshi and seized unaccounted deposits of more than Rs 55 crore, according to the statement.
The fund manager was sharing specific trade-related information with brokers, middlemen, and persons located in foreign jurisdictions, the tax department said, adding that they used the information to make illicit gains in the share market.
On May 6, Moneycontrol broke the story that Axis Mutual Fund had suspended its chief dealer Viresh Joshi, along with assistant fund manager Deepak Agarwal, on allegations of irregularities (front-running).
On May 18, the fund house sacked Joshi as he was being investigated for irregularities.
Axis MF later confirmed that it was conducting a suo moto investigation over the last two months since February 2022 and had appointed reputed external advisers to aid in the investigation.
The fund house has so far not publicly disclosed the exact nature of wrongdoings that it has been investigating, but has maintained that there have been alleged violations of securities law.
In June, Joshi filed a lawsuit accusing the asset management company of unfairly terminating his employment in connection with a suspected front-running case.
The case came to light in early May when the fund house implemented changes in its equity fund management. At the time, Axis AMC didn't comment on the reasons behind the changes. However, in a communication sent to investors and distributors on May 9, Chandresh Nigam, managing director, and chief executive officer of Axis AMC, said the fund house had started an investigation and appointed “reputed external advisors” to carry out the investigation.
All about front running
Front running is an illegal activity in India. In this, a dealer with an institutional money manager like a mutual fund takes advantage of his knowledge of the orders that his employer has lined up for the day and tries to profit from them.If the dealer wants to profit, he enters the market minutes before he punches in the orders by the fund house. Mutual funds usually place large orders on the stock market that can move the price of a stock.The dealer buys or sells the stock minutes before the mutual fund places its trades. The idea is to profit from the big investor's moves, either by buying or selling shares.