Axis Asset Management Company settles Sebi case for Rs 6.27 crore for violating mutual fund norms
Axis Asset Management Company (AMC) and its entities, including former CEO Chandresh Kumar Nigam, have come to a settlement with the Securities and Exchange Board of India (Sebi) to resolve issues related to alleged failures in monitoring dealers’ activities, resulting in front-running of Axis Mutual Fund trades.
Alongside Nigam, the settlement involved former compliance officer Darshan Kapadia, former head of equity Jinesh Gopani, and former dealer at the AMC Pawan Jhangiani, as outlined in a recent Sebi order.
The entities collectively paid Rs 6.29 crore to settle violations of mutual fund regulations. Sebi confirmed that any potential proceedings for the violations are resolved with the settlement. The settlement was proposed by the entities, neither admitting nor denying the alleged violations, via a settlement order.
The allegations primarily revolved around Axis AMC’s inadequate monitoring of dealer activities, allowing a former dealer, Viresh Joshi, to engage in the front-running of trades. Furthermore, the AMC was accused of lacking a proper compliance system in the dealing room.
The order highlighted instances where certain employees, even from different departments, retained access to the dealing room, including unauthorized access during market hours. Most of Axis AMC’s trades were reportedly concentrated with Joshi, necessitating a temporary arrangement with an alternate dealer from the equity research or investment associate team.
Despite these measures, dealers were found negotiating trades with various brokers on behalf of the mutual fund and related entities, allegedly compromising operational integrity.
The AMC was criticized for failing to implement adequate checks and balances in dealing operations, resulting in the front-running of Axis Mutual Fund trades. Employees, including Gopani, were accused of sharing confidential information about the fund’s trades, impacting buying and selling decisions.
Moreover, Jhangiani was reprimanded for using mobile phones during market hours, contravening the AMC’s rules on communication during trading hours.
The violations came to light following a forensic examination by Alvarez & Marshal India, Deloitte Touche Tohmatsu India, and BDO India LLP. Sebi’s investigation also considered comments from the AMC and trustee boards, along with an interim ex-parte order issued in February 2023.
Sebi had previously prohibited 21 entities, including Joshi, from participating in securities markets in connection with the front-running case. The measures were part of an effort to curb front-running of Axis Mutual Fund trades between September 2021 and March 2022.
Following the Sebi order related to front-running activities, Nigam resigned as the CEO of Axis AMC in March 2023.
