lipped from: https://www.thehindubusinessline.com/opinion/editorial/exemplary-penalties-are-called-for-in-the-axis-case/article66577104.ece
In seeking to bar Viresh Joshi and co from the markets and impound their ill-gotten gains, SEBI appears to be letting off the perpetrators of this serious fraud rather lightly
SEBI must conclude investigations at a much faster pace so that the money trail doesn’t go cold | Photo Credit: Sefa kart
Ten months after Axis Mutual Fund admitted to investigating its Chief Dealer Viresh Joshi for front-running allegations, the Securities Exchange Board of India (SEBI) has issued an interim order indicting Joshi and twenty other market participants. SEBI’s findings show the modus operandi used by Joshi and his accomplices was quite simple. Taking advantage of buy and sell orders conveyed to him by Axis’ fund managers, Joshi took advance positions in the same stocks through mule accounts, and pocketed gains as Axis’ large orders went through.
The regulator seems to have been alerted to these misdoings, after its surveillance systems detected numerous trading accounts routinely getting ahead of Axis’ orders. It seized electronic devices and perused call records, bank statements and WhatsApp transcripts to put together its case. The discovery that multiple trading accounts were indirectly linked to Axis’ chief dealer alerted SEBI to the possibility of front-running. SEBI regulations expressly bar the use of mobile phones in dealing rooms and require recording of all official calls. But the pandemic seems to have prompted Axis Mutual Fund to allow its dealers to instal trading software on their personal laptops, while operating from isolated dealing rooms. Joshi is alleged to have exploited this, using multiple devices at work to tip off his cronies.
SEBI has estimated that Joshi and his contacts pocketed ill-gotten gains of ₹30.55 crore from front-running Axis’ moves between September 2021 and March 2022. But chances are that these activities went on much longer, with the actual damage to Axis unitholders being much higher. Charging Joshi and his accomplices with fraudulent trading practices and gross market abuse, SEBI has duly impounded the ₹30.55 crore, frozen their demat and bank accounts, and proposed a disgorgement order while barring them from the market for a period.
While SEBI’s indictment of Joshi is justified, there are some loose ends. Processes at Axis Mutual Fund seem to have been lax and that needs to be addressed. Even if isolated dealing rooms became necessary during Covid, it isn’t clear what stopped Axis from closely supervising its dealers or from holding them accountable for the prices at which they executed orders. That Joshi was not just the chief dealer but also doubled up as a fund manager for a couple of schemes, shows poor governance practices. In seeking to bar Joshi and co from the markets and impound their ill-gotten gains, SEBI appears to be letting off the perpetrators of this serious fraud rather lightly. There is no recompense whatsoever to Axis unitholders. As SEBI has said that this order is only a preliminary one, one hopes its final order will address these aspects. It is good to see the market regulator extensively use its search-and-seizure powers to frame this case, but it also needs to conclude such investigations at a much faster pace so that the money trail doesn’t go cold.