The entities paid a total of Rs 6.29 crore to settle the alleged violations of mutual funds norms, and accordingly, Sebi confirmed that “any proceedings that may be initiated for the violations…are settled in respect of the applicants”.
The settlement was reached following an application filed by the entities whereby they proposed to settle the alleged violations “by neither admitting nor denying the findings of fact and conclusions of law” through a settlement order. The allegations focused on Axis AMC’s failure to adequately monitor dealer activities, which allowed Viresh Joshi, a former dealer, to engage in front-running of trades. Additionally, the AMC was accused of lacking a proper system to ensure compliance in the dealing room.
It was alleged that access to the dealing room was not revoked for certain employees, including those from other departments, and there were instances of unauthorised access during market hours.
As per the order, the majority of Axis AMC’s active trades were concentrated with Joshi and in the absence of dealers, AMC had made a temporary arrangement with an equity research analyst or investment associate who could be assigned the role of alternate dealer. Despite this, dealers were found to be negotiating trades with multiple brokers on behalf of the mutual fund and connected entities, which allegedly compromised the integrity of the fund’s operations. “Accordingly, the AMC was alleged to have failed to monitor that there are adequate checks and balances in dealing operations, which resulted in front running of the trades of Axis Mutual Fund,” the order noted.
Moreover, employees of the AMC, including Gopani, were alleged to have passed on confidential information about Axis Mutual Fund’s trades, influencing the buying and selling of securities.
Additionally, Jhangiani was accused of using mobile phones during market hours, violating the AMC’s prescribed code of conduct regarding communication during trading hours.
The violations were uncovered following a forensic examination conducted by Alvarez & Marshal India, Deloitte Touche Tohmatsu India and BDO India LLP. The Sebi investigation also considered the board comments from the AMC and the trustee board, as well as the interim ex-parte order issued by Sebi in February 2023.
In connection with 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 emergence of the Sebi order regarding front-running, Nigam, the former CEO of Axis AMC, resigned from the company in March 2023.
