India's market regulator bars 21 entities in Axis mutual fund front-running case

FILE PHOTO: The logo of the Securities and Exchange Board of India (SEBI) is pictured on the premises of its headquarters in Mumbai

By Jayshree P Upadhyay

MUMBAI (Reuters) -India's market regulator on Tuesday issued interim orders in a case of alleged front-running at Axis Mutual Fund, while issuing show cause orders to a former mutual fund executive and related entities.

The Securities and Exchange Board of India (SEBI) directed that 21 entities be barred from the capital markets until further orders.

It identified 305 million rupees ($3.7 million) as wrongful gains accrued due to the alleged front-running activities and directed that this amount be impounded from the entities. SEBI has not passed any directions against the fund house and its operations will not be impacted by the latest development.

The regulator conducted a probe in a case of front running in trades of Axis MF between September 2021 and March 31, 2022. Front running is a market malpractice of trading in securities ahead of large client orders for personal gains.

"Viresh Joshi, the then chief dealer of Axis MF, was observed to have traded in different securities ahead of the impending orders placed on behalf of the big client (Axis Mutual Fund)," SEBI said in the order.

Email queries sent to the fund house by Reuters and text message sent to Joshi's cell number were not immediately answered.

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

SEBI in its order concluded 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.

The regulator said Joshi had incorporated a company in Dubai apparently for indulging in such fraudulent acts including transferring the wrongful gains using 'clandestine channels'. The regulator demonstrated the front running in at least three stocks - new age tech company, consumer goods company and a manufacturing company.

(Reporting by Jayshree P. Upadhyay; Editing by Shailesh Kuber)