Daijiworld Media Network - Mumbai
Mumbai, Jul 25: The Securities and Exchange Board of India (SEBI) has barred former Axis Mutual Fund chief dealer Viresh Joshi from accessing the securities market for seven years after finding that he masterminded a front-running scheme by misusing confidential information related to the fund house's impending trades. In its final order, the market regulator also barred 20 other individuals from the securities market for periods ranging from three to seven years.
SEBI imposed a penalty of Rs 3 crore on Joshi, while the cumulative penalty on all 21 individuals involved in the case stands at Rs 7.4 crore.
Front-running is an illegal market practice in which an insider, such as a fund manager, dealer or broker, uses unpublished price-sensitive information about a large upcoming trade by a mutual fund or client to execute personal trades in advance and profit from the subsequent price movement.
The regulator's investigation, initiated after the fraud came to light in 2022, found that Joshi had shared confidential information regarding impending orders of a major client with an external associate, Prijesh Kurani.
According to SEBI, Kurani, acting on Joshi's instructions, executed trades through conduit or mule accounts belonging to 15 individuals. The regulator further stated that Sumit Desai, Pranav Vora and Vaibhav Pandya assisted Joshi by arranging these accounts and introducing him to Kurani, thereby facilitating the front-running operation.
In its interim order dated February 28, 2023, SEBI had directed the impounding of Rs 30.55 crore, identified as prima facie unlawful gains from the alleged front-running activities, jointly and severally against all 21 noticees.
Describing the case as an "unusually elaborate fraudulent scheme," SEBI said Joshi engaged Desai and Vora to procure proprietary accounts for trading, coordinated with Kurani, used coded identities and mule accounts, drafted an email for Bhavin denying misuse of his demat account, routed illegal gains in cash through accountants and agents, and established a company in Dubai to channel the proceeds abroad.
The regulator observed that the seriousness of the offence was compounded by the fact that Joshi had previously been found guilty of violating the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations in other cases. It also noted that the unlawful gains identified in the present case exceeded those recorded in previous similar matters.
SEBI rejected the claim that the mule account holders were passive participants, stating that they had knowingly allowed their demat accounts to be used for executing the illegal trades.
"Their accounts provided the instrument through which the impugned trades were concealed," the order stated.
It further observed that by lending their accounts, accepting consideration, allowing third-party funding and operations, or failing to provide credible explanations for such usage, the account holders had actively facilitated the fraudulent scheme.
SEBI also noted that the affected institutional client had around 1.28 crore investor accounts as of March 31, 2022, highlighting the large scale of the market abuse and its potential impact on investors.
The regulator concluded that Joshi was not merely a source of confidential information but the principal architect of the scheme. It found that he conceived and directed the operation, coordinated with Kurani, supervised the trading activity and facilitated the routing of illegal proceeds through the Dubai-based company, which appeared to have been incorporated to conceal the trail of illicit funds.