The Securities and Exchange Board of India (Sebi) has imposed penalties amounting to INR 7.5 crore on 21 entities, including former Axis Mutual Fund fund manager Viresh Joshi, and barred them from participating in the securities market for up to seven years in connection with a front-running case involving trades linked to a large institutional investor. 
Front-running is an illegal market practice in which individuals trade securities using confidential information about upcoming transactions before those orders are executed in the market. Such trades allow those involved to benefit from expected price movements ahead of other investors. 
In its 146-page final order issued during the past week, Sebi also directed that the INR 30.56 crore impounded under its interim order issued in February 2023 be treated as the disgorgement amount for all 21 entities. The regulator further ordered the entities to pay annual interest of 12 per cent on the disgorged amount. 
Sebi concluded that former Axis Mutual Fund fund manager Viresh Joshi, Sumit Desai, Pranav Vora, Vaibhav, members of the Kurani Group, Prijesh Kurani, the Marfatia Group and the Jajoo Group had acted together in executing a front-running scheme involving trades of a large institutional client, referred to in the order as the "Big Client." According to the regulator, the coordinated actions of the entities enabled the misuse of confidential trading information in a manner that undermined market integrity. 
The market regulator observed that the links among the 21 entities, statements recorded during the investigation, repeated instances of taking positions before the client's trades and closing them soon after execution, continuous profits, the use of mule accounts, offshore structures and coded identities collectively indicated that the scheme had been carefully planned and designed to avoid early detection. 
Sebi further noted that the scale of the illegal gains and the involvement of a large investor base reflected the seriousness of the market abuse. 
According to the regulator, Viresh Joshi was not merely a source of confidential information but had conceived and managed the overall operation. Sebi said he identified and coordinated with Prijesh Kurani, directed trading activities and facilitated the routing of alleged unlawful gains through a Dubai-based company that appeared to have been created to conceal the movement of illicit proceeds. 
Based on its findings, Sebi held that all 21 entities had violated the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations. 
The regulator imposed the highest penalty of INR 3 crore on Viresh Joshi and INR 1 crore on Prijesh Kurani. Both have been restrained from accessing the securities market for up to seven years. 
The remaining 19 entities were fined amounts ranging from INR 5 lakh to INR 65 lakh each. They have also been prohibited from buying, selling or otherwise dealing in securities for periods of up to seven years, depending on the findings against them. 
The case relates to trades executed between September 2021 and March 2022, during which Sebi investigated suspicious trading activity carried out ahead of orders placed by Axis Mutual Fund, identified in the order as the Big Client. The investigation found that entities connected to Joshi, who was serving as the fund house's chief dealer at the time, traded in several securities before the institutional orders were placed. 
After the large client executed its transactions, the connected entities allegedly squared off their positions shortly thereafter, allowing them to benefit from price movements triggered by the institutional trades. Sebi stated that this pattern was consistently observed across multiple transactions and formed the basis of its enforcement action. 
The case first came into public focus when Sebi issued an interim order in early 2023, freezing alleged illegal gains and restricting several entities from accessing the securities market while the investigation continued. The final order concludes one of the regulator's major enforcement proceedings involving front-running allegations in the mutual fund industry. 
Source PTI