Axis Asset Management Company (AMC), along with its Trustee, former CEO Chandresh Kumar Nigam, and three other individuals, have reached a settlement with the Securities and Exchange Board of India (Sebi) concerning allegations of inadequate monitoring of dealer activities, which allegedly led to front-running of trades by Axis Mutual Fund. The settlement also involved former compliance officer Darshan Kapadia, former head of equity Jinesh Gopani, and former dealer Pawan Jhangiani at the AMC, according to a Sebi order issued on Monday.
The involved parties paid a total of Rs 6.29 crore to resolve the alleged violations of mutual funds regulations. Sebi stated that “any proceedings that may be initiated for the violations… are settled in respect of the applicants.” The settlement was achieved after the parties filed an application proposing to resolve the alleged violations “by neither admitting nor denying the findings of fact and conclusions of law” through a settlement order.
The allegations centered on Axis AMC’s failure to properly monitor dealer activities, enabling Viresh Joshi, a former dealer, to engage in front-running trades. The AMC also faced accusations of not having an adequate compliance system in the dealing room. It was alleged that access to the dealing room was not revoked for certain employees, including those from other departments, leading to unauthorized access during market hours.
According to the order, a significant portion of Axis AMC’s active trades were concentrated with Joshi. In the absence of dealers, the AMC temporarily assigned an equity research analyst or investment associate as an alternate dealer. Despite these measures, dealers were allegedly negotiating trades with multiple brokers on behalf of the mutual fund and connected entities, which reportedly compromised the integrity of the fund’s operations. The order noted that the AMC allegedly failed to ensure adequate checks and balances in dealing operations, resulting in front-running of Axis Mutual Fund’s trades.
Furthermore, employees of the AMC, including Gopani, were alleged to have shared confidential information about Axis Mutual Fund’s trades, affecting the buying and selling of securities. Additionally, Jhangiani was accused of using mobile phones during market hours, violating the AMC’s code of conduct regarding communication during trading hours.
The violations were uncovered through a forensic examination conducted by Alvarez & Marshal India, Deloitte Touche Tohmatsu India, and BDO India LLP. The Sebi investigation also considered comments from the AMC and the trustee board, as well as the interim ex-parte order issued by Sebi in February 2023.
In relation to the front-running case, Sebi had previously barred 21 entities, including Joshi, from participating in the securities market. These actions were part of a scheme to front-run Axis Mutual Fund trades between September 2021 and March 2022. Following the Sebi order regarding front-running, Nigam resigned from his position as CEO of Axis AMC in March 2023.
