Plot thickens in the front-running case at Axis Mutual Fund
Jayshree P Upadhyay
MUMBAI: The two suspended fund managers of Axis Mutual Fund allegedly shared confidential information about the asset manager’s trades with brokers in Gujarat in return for kickbacks, according to new details discovered by a Securities and Exchange Board of India (Sebi) investigation.
“Tips were apparently shared through Whatsapp and screenshots of internal Bloomberg chats. The information shared with outside brokers was used by seven entities in Gujarat who traded on these tips in large numbers. Some of these entities were shell companies,” a person with knowledge of the matter said, requesting anonymity.
Sebi has been piecing together the modus operandi of the rogue fund managers using a preliminary probe report submitted by the board of Axis Mutual Fund, information collected from stock exchanges and its own investigation of the trading patterns of the Axis Mutual Fund officials, a second person with knowledge of the matter said.
Axis Mutual Fund’s preliminary report on the front-running scam found that the suspended fund managers—viresh Joshi and Deepak Agarwal—had assets disproportionate to their known income and violated Sebi’s code of conduct for fund managers and dealers.
Axis Asset Management Co. Ltd, which runs the mutual fund, has hired management consultant Alvarez and Marsal and law firm AZB & Partners to look into the conduct of the fund managers, the first person said.
Front-running, or the practice of trading in securities ahead of large client orders, is a serious securities market offence. It not only erodes customers’ trust but can also lead to losses or inferior prices for customers. Mutual funds typically place large orders, and such transactions can sway securities prices, allowing people with information about the trades to make outsized gains.
As part of its probe, Sebi last week took details of these officials’ emails and trade details of their connected entities (family members are included in the definition of connected entities), the person added.
Joshi was the head dealer and fund manager of five mutual fund schemes at Axis Mutual Fund, while Agarwal was the equity research analyst and fund manager for three mutual fund schemes.
The market regulator’s investigation, separate from what the asset manager is undertaking, will also examine the activities of other fund managers and officials of the asset manager, the first person added.
In response to a query about the Securities and Exchange Board of India broadening its investigation into the irregularities at Axis Mutual Fund, the company spokesperson said that the asset manager has been conducting an internal probe since February and cannot comment on any specific regulatory action at this stage.