SEBI Releases Adjudication Order Detailing Front-Running Investigation Involving Axis Mutual Fund Trades

The Securities and Exchange Board of India (SEBI) has released an adjudication order detailing an investigation into alleged front-running activities concerning the trades of Axis Mutual Fund [1]. The probe covers the period from April 01, 2021, to March 31, 2022 [1].

Investigation Background and Scope

SEBI initiated an investigation after its surveillance system generated alerts regarding trades executed by certain entities that appeared to front-run the trades of Axis Mutual Fund, referred to in the proceedings as the big client [1]. The regulatory body subsequently issued a show cause notice and appointed an adjudicating officer under the SEBI Act, 1992 [1].

According to the investigation findings, Mr. Viresh Joshi served as the chief dealer of Axis Mutual Fund and acted as the information provider during the relevant period [1]. The proceedings identified several arrangers and trade executors, including Mr. Prijesh Kurani, who operated out of Dubai [1].

Terminal Providers and Brokerage Involvement

The regulatory filing names Woodstock Broking Pvt. Ltd. (Noticee No. 1) and Marfatia Stock Broking Pvt. Ltd. (Noticee No. 7) as terminal providers that allegedly facilitated the execution of front-running trades [1]. The investigation alleges that these brokerages enabled access to trading terminals and offered operational support from outside India [1]. Specifically, IT officers from both brokerages—identified as Mr. Kunal Dalal for Woodstock Broking and Mr. Yunus Modan for Marfatia Stock Broking—used remote access software such as AnyDesk to install trading terminal software (ODIN) for Mr. Prijesh Kurani in Dubai [1].

Grouped Entities and Modus Operandi

SEBI's findings categorized the suspected front runners into distinct groups based on account connections and trading activities [1].

• Marfatia Group: Comprises Front Runner No. 1 (Nishil Surendra Marfatia, a director of Marfatia Stock Broking), Front Runner No. 2 (OLGA Trading Pvt. Ltd.), Front Runner No. 3 (Bhavin A Shah), and Front Runner No. 4 (Rupal Bhavin Shah), with trades executed through accounts held with Marfatia Stock Broking [1].
• Woodstock Group: Includes Front Runner No. 5 (VISA Capital Partners), where Suresh Kanmal Jajoo, a director of Woodstock Broking, is a partner and held a trading account [1].
• Additional Entities: Front Runner No. 6 (Dharini Kurani), Front Runner No. 7 (Rekha Arun Kurani), Front Runner No. 8 (Bharati Navnit Godaya), and Front Runner No. 9 (M K B Bespoke Audio General FPI) were also linked through familial and organizational connections to the trade executors [1].

Search and seizure operations conducted by SEBI on May 12, 2022, at the premises of Ms. Dharini Kurani yielded mobile device backups and WhatsApp chat data belonging to Mr. Prijesh Kurani [1]. The analysis reportedly uncovered communications regarding remote terminal installations, the incorporation of Vintage Capital Investment LLC in Dubai, fund routing discussions, trade screenshots shared with other arrangers, and draft correspondence [1].

Front-running in securities markets involves trading ahead of a large institutional order to benefit from the anticipated price movement caused by that order. Regulatory bodies such as SEBI monitor market surveillance data to detect and penalize such manipulative practices.

Investigations into front-running at major mutual funds are critical for maintaining market integrity and investor trust in Indian financial markets, highlighting the enforcement mechanisms overseeing institutional trading desks and brokerage intermediaries.

The adjudication order could lead to regulatory penalties and further compliance reviews for the brokerages and individuals involved, reinforcing compliance standards across Indian mutual fund trading operations.

The document outlines allegations and findings from an investigation report and show cause notice; final determinations of liability and specific penalties are subject to the adjudication process outcomes.