How Axis MF fraud case was executed
4 min read 01 Mar 2023, 11:49 PM ISTThe Securities and Exchange Board of India’s ensuing investigation has revealed a maze of connections created by Joshi to perpetrate the front-running.
PremiumMUMBAI : In May 2022, Axis Mutual Fund sacked its chief dealer Viresh Joshi in a shocking case of suspected front-running. This was followed by income tax raids at Joshi’s premises and Joshi suing his former employer for wrongful termination.
The Securities and Exchange Board of India’s ensuing investigation has revealed a maze of connections created by Joshi to perpetrate the front-running. In its 96-page interim order cum show cause notice issued on Tuesday, the regulator identified and penalized as many as 21 entities with a combined penalty of ₹30.55 crore. All of them have been barred from capital markets, and their bank accounts were frozen.
Front-running refers to individuals aware of upcoming large trades putting their own order first so as to profit when the large order moves the stock. But why and how so many entities were put to use in this scheme? Here is a look at Sebi’s findings.
Chasing the mules
The culprit cannot use his own name or account for front-running, obviously; he needs to find trading accounts that are not registered in their names to use them as so-called ‘mule accounts’.
According to Sebi, Joshi did this by connecting with a market operator Sumit Desai, who in turn got a Dubai-based individual Prijesh Kurani, to execute the trades in these mule accounts. More on Kurani later. Desai’s job was to identify trading accounts for Joshi and get the trading software installed on the system used by Kurani, who used to punch the orders on Joshi’s behalf. Desai, meanwhile, took the help of Pranav Vora, whom he had known for more than a decade, to arrange trading accounts where large intra-day trades could be placed. Sebi termed Desai and others responsible for finding the trading accounts as ‘arrangers’.
A magician and his enablers
The Sebi order has called certain individuals ‘enablers’. “Without the said noticees providing the necessary tools viz. trading account and trading terminal, the instructions/orders prima facie provided by Viresh Joshi apparently to front-run the trades of the Big Client (Axis MF) would not have fructified or had seen the daylight," Sebi order reads.
Apart from Kurani, this includes other individuals who lent their trading accounts and trading terminals to facilitate these trades.
One of the trading terminals used by Kurani was that of Marfatia Stock Broking. Nishil Surendra Marfatia, director of Marfatia Stock Broking, had given access to its trading terminal, as well as his trading account, to Pranav Vora. Vora provided Kurani access to Marfatia’s trading account and trading terminal at Desai’s request.
Vora arranged for more trading accounts, which facilitated the front-running scheme. Accounts of Bhavin Shah, Rupal B. Shah (wife of Bhavin) and Olga Trading Pvt. Ltd were made available to Kurani. These trading accounts belonged to clients of Vilpa Pranav Vora (Pranav Vora’s wife), who is an authorized person of Marfatia Stock Broking. Krunal Khamar, director of Olga Trading, and Shah submitted before Sebi that they had lent their trading accounts to Vora. Kamlesh Arjundas Dhanrajani was the other director at Olga Trading.
The trading terminal of another broking house – Woodstock Broking – was also used as part of the front-running scheme. Suresh K. Jajoo gave access to the trading account of Visa Capital Partners and the trading terminal of Woodstock Broking to Darshan Desai, brother of Sumit Desai. On the latter’s instructions, Desai approached Jajoo to lend the trading terminal and Visa Capital Partners’ trading account. Vimla S Jajoo, Ankit Jajoo and Sheepra Sumeet Kabra were the other partners in the firm. Desai’s (Sumit) employee Vaibhav Pandya was the one who was tasked to share the login ID and passwords of the trading terminals with Kurani. Sebi found that Pandya and others referred to Joshi as Jadugar (magician) in their chats to keep his identity under wraps.
The Kurani connection
Kurani not only executed trades on Joshi’s behalf but also executed the same trades in his family member’s accounts.
Sebi, in its order, cites Dharini Kurani (wife), Rekha Arun Kurani (mother), Bharti Navnit Godaya (mother-in-law) and MKB Bespoke Audio General. The latter is registered as a foreign portfolio investor (FPI), where Kurani’s brother Bindesh Kurani is a director.
Sebi’s investigations also found that Joshi set up a company in Dubai by the name of Vintage Capital Investment with the help of Kurani. Joshi’s father and his brother – Gangaram Joshi and Vipul Joshi – were made partners in this company, and Kurani’s wife – Dharini Kurani – was the manager and authorized signatory.
Sebi sought details of transactions in Vintage Capital Investment’s bank account in Dubai from the Securities and Commodity Authority, UAE. The bank account was maintained at Ajman Bank. It was found that between 5 April 2022 and 10 May 2022, ₹11.6 crore was transferred to the account.
Angadiyas to avoid detection
Sebi also found that the gains made from front-run trades in other accounts were transferred to Joshi but not through regular banking channels. According to Desai’s submission before Sebi, the profits were transferred to him in cash, and he transferred them to Joshi in cash.
According to Vora’s submission before Sebi, this transfer was done through Angadias. The Angadia system is a parallel banking system running in the country, which is used by traders and small business owners to send cash from one state to another through personnel called Angadia, which means couriers.
