Axis Mutual Fund Front-Running Case: SEBI Reveals The Modus Operandi Of The 'Jadugar'
Axis MF's former dealer Viresh Joshi was called 'Jadugar'; shared non-public information with his co-conspirators, alleges SEBI.
The market regulator in an interim order barred 21 entities from the capital markets on Tuesday in the Axis Mutual Fund front-running case. This includes Axis Mutual Fund's former dealer Viresh Joshi. The Securities and Exchange Board of India has also ordered the attachment of Rs 30.5 crore in front-running profits earned by the entities.
Joshi, along with the "arranger" and "enabler" entities, traded in different securities between September 2021 and March 2022 before placing orders on behalf of the mutual fund, according to SEBI. The regulator has detailed the modus operandi for the order placement, including in shares of Hindalco Industries Ltd., Tata Consumer Products Ltd., Zomato Ltd.
The front-running activity prima facie led to unlawful enrichment, and was in violation of the SEBI Act and the unfair trade practices regulations, the regulator has said.
The Grand Scheme
The front-running was undertaken prima facie through the terminals of four broking entities, viz., Marfatia Stock Broking Pvt., Olga Trading Pvt., Woodstock Broking Pvt., and Visa Capital Partners, according to the regulator.
SEBI has noted that ahead of the Axis MF orders, there was a substantial jump in the trading activities in the accounts of entities registered with these brokerages, both in the cash as well as the derivatives segment of the market.
The grand scheme was undertaken through mule accounts set up with these brokers. Joshi, along with market operator Sumit Desai (aka Pintu Bhai) and his acquaintance Prijesh Kurani, set up conduit accounts in Dubai for carrying out the trades.
Joshi as a mutual fund dealer had access to critical, non-public information, such as any impending orders for the fund. He also had the means to communicate the information to the outside world, as he maintained two phone numbers, one of which was not disclosed to the mutual fund as required, SEBI found. It also relied on WhatsApp and Bloomberg Chats to evidence that Joshi passed on confidential non-public information to stock brokers not empaneled with Axis Mutual Fund.
As per SEBI's findings, Joshi never communicated with his co-conspirators through his official number. Referred to as ‘Jadugar’, Joshi's identity was ascertained by SEBI through a KYC verification of the phone number. Based on the information provided by Joshi, his associates executed trades from the conduit accounts.
Source: SEBI interim order
The regulator found that some of the scrips that the MF traded and the broking accounts that the alliance managed were the same. The profits for these accounts came mainly from intra-day transactions. They followed either a buy-buy-sell pattern or a sell-sell-buy pattern, depending on the intra-day transactions and subsequent orders to be placed by the MF.
While these accounts made huge profits on the day MF traded, they made only nominal or no profits on other days, the regulator has found. Similarities were also found in the orders and frequency of trade across all these accounts pointing at a concerted action.
Communications between Kurani and Desai about the amounts owed to Jadugar further confirmed the regulator's view that the trades were made on behalf of someone who is an insider at the fund.
To detail the trade execution method, SEBI has categorised Joshi as the "information carrier"; Sumit Desai and his acquaintance Pranav Vora as the "arrangers"; and six entities, including Kurani as the "enablers". BQ Prime could not immediately reach these individuals for a comment.
The entities, alleged to have made wrongful gains, have been barred from the capital market, and directed to deposit Rs 30 crores in an escrow account within 15 days.
Since SEBI's observations and findings are prima facie at this stage, the alleged front-runners have been asked to submit their replies within 21 days.