The Enforcement Directorate (ED) announced on September 11, 2024, that two days earlier, it had conducted search operations as part of an ongoing probe into the frontrunning business of Axis Mutual Fund and unearthed incriminating documents.
The search was conducted on September 9, 2024 at various locations in Mumbai and Kolkata of Axis Mutual Fund.
ED said foreign currencies amounting to Rs. 12.96 Lakh, various incriminating documents pertaining to overseas immovable properties, overseas bank accounts, and digital devices had been confiscated. Preliminary investigations revealed that Viresh Joshi, the former chief dealer of Axis Mutual Fund, utilised the illegal gains made from frontrunning activities to purchase these immovable properties in the UK.
Documents related to two such properties were also found for which Rs 14 crore was remitted abroad, ED said. ED also found that overseas entities in Dubai were incorporated with these funds, and illegitimate gains to the tune of Rs 12 crore were parked in these accounts. Funds were also used for making fixed deposits (FDs) and for buying properties in India. Further investigation is under progress, ED said.
Background
ED has initiated an investigation on the basis of an interim order passed by the Securities and Exchanges Board of India (Sebi) levelling allegations of frontrunning business against Viresh Joshi and others for earning wrongful gains of approximately Rs. 30.56 crore.
Frontrunning is an illegal practice in the stock market where a person trades based on prior insider information from a broker, or directly, about a set of trades that is going to get executed.
During the course of the investigation, further evidence surfaced, which threw light on the modus operandi of the frontrunning scam. Joshi was allegedly sharing sensitive information regarding the stock market in return for kickbacks from brokers having terminals in Dubai who could execute trades on the basis of his instructions. He also contacted a few other individuals or entities based in India who could lend their trading accounts on a rental basis.
The illicit gains generated through the said trade was received by Joshi in cash from the brokers. Further, Joshi used his Kolkata-based operators to route the cash into the bank accounts of multiple shell entities, which in turn gave unsecured loans to him, his family members, and the firms or companies beneficially owned by them.
Sebi issued a circular on August 8, 2024 for asset management companies (AMCs), asking them to implement an institutional mechanism to enable them to identify, tackle, and deter potential market abuse, including frontrunning and fraudulent transactions in securities.
