In yet another mutual fund scam, Axis Mutual Fund suspended two fund managers for violations on Friday. According to an Axis Mutual Fund notice on May 4, two fund managers of Axis Mutual Fund — Viresh Joshi and Deepak Agrawal — were dropped as fund managers of four ETF schemes (Axis Consumption, Axis Banking, Axis Nifty, and Axis Technology) and three funds (Axis Arbitrage Fund, Axis Quant Fund and Axis Value Fund).
The two managers are facing allegations of ‘front running’, an illegal practice where an individual or broker uses his position to take advantage of likely price movement or change in the price of a security or asset.
Those accused of front running, after getting information in advance about a big transaction in a particular stock, invest in that stock through a personal account before the trade is executed. Once the broker executes the large order, the price of the share goes up and the broker sells his/her shares to generate a profit.
Suo moto investigation
Axis MF, India’s seventh largest mutual fund by assets, said it has been conducting a suo motu investigation since February 2022. “The AMC has used reputed external advisors to aid the investigation. As part of the process, two fund managers have been suspended pending investigation of potential irregularities,” its statement read.
Market regulator Securities and Exchange Board of India (SEBI) can initiate criminal proceedings in court against any person who indulges in unfair trade practices, including front running. Under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) or SEBI (PFUTP) Regulations, 2003, any individual who indulges in fraudulent and unfair trade practices is liable to pay a penalty that may extend to Rs 25 crore, or three times the profits made out of such practices, whichever is higher.
Under SEBI lens
The Axis Mutual Fund, collectively manages investments worth Rs 2.59 lakh crore, had been under market regulator SEBI’s lens for the past two years over suspected front running, Live Mint reported, quoting sources. A preliminary investigation points to front running in nine stocks that could have facilitated gains to the tune of Rs 170 crore.
Mutual fund insiders say the flamboyant lifestyle of one of the fund managers, who drives a limited-edition Lamborghini and owns several houses in Mumbai, caught the attention of the fund house, which began investigating the matter, The Indian Express reported.
It is not the first time that a case of front running involving India’s stock market has made headlines. Last year, SEBI barred three individuals associated with Reliance Capital Mutual Fund from participating in capital markets for six months for front running trades. In December 2020, the regulator barred 16 entities from the capital markets for up to seven years for indulging in front running. Of the 16 entities, six were asked to pay up illegal gains of nearly Rs 20 crore.