The fund house, a joint venture between Axis Bank and the UK’s Schroders, is investigating whether the executives concerned -Viresh Joshi and Deepak Agarwal – were involved in front-running, received kickbacks and executed trades that were detrimental to the interests of the unitholders, two people familiar with the matter told ET. Axis is said to have informed the Securities and Exchange Board of India (Sebi) about the probe, they said.
Joshi, who has been with Axis since 2009, was the fund house’s chief trader and an equity fund manager. Agarwal was an assistant fund manager. Axis managed assets worth ‘2.54 lakh crore as on March 31.
An Axis Mutual spokesperson said in a statement Friday afternoon that the asset manager has been conducting a ‘suo motu investigation’ since February. “The AMC has used reputed external advisors to aid the investigation. As part of the process, two fund managers have been suspended pending investigation of potential irregularities,” said the statement. “We take compliance with applicable legal/regulatory requirements seriously, and have zero tolerance toward any instance of non-compliance.”
Axis did not name the two fund managers in its statement.
ET could not reach Joshi and Agarwal for comments.
Axis Mutual removed Joshi and Agarwal from fund management responsibilities from May 4. Joshi was a co-fund manager of the fund house’s arbitrage scheme and some exchange traded funds (ETFs).
While Axis did not specify what the ‘potential irregularities’ were, the speculation in the market was Joshi executed stock trades at prices that were marked up over the values then.
The probe found out that Joshi would tell the broker about the shares Axis was about to buy in bulk. After the broker bought the stock, the fund house would buy the stock from the broker at a higher price.
“This led to front running and the broker made profits out of the deal. In return, kickbacks were given to the fund manager and chief dealer,” said a person with direct knowledge of the probe. This could not be independently verified.
Joshi’s alleged transgressions have been the talk in the mutual fund industry and broking circles. A senior institutional person at a brokerage, who has interacted with Joshi, described him as a “brash individual who enjoyed a good life.” His lifestyle came under scrutiny as it was speculated that he drove a premium sports car.
A letter sent to Axis Mutual’s top management raising questions about the ‘lifestyle’ of Joshi was the trigger for the investigation, said the person directly aware of the probe. The fund house appointed a forensic auditor to examine the allegations. Both the executives were confronted with the findings of the report.
“A lot of the wrongdoings had gone unnoticed for almost two years because of the work from home arrangement,” the person said.
Sources said Axis Bank, led by chief executive officer Amitabh Chaudhry, is overseeing the probe into the irregularities at the lender’s asset management unit. The investigation also examined the role of the fund house’s top officials in the wrongdoings, said one of the two people cited above.
Chandresh Nigam is the CEO of Axis Mutual Fund.
“One of the questions being asked is whether Axis Mutual Fund’s top management turned a blind eye to the wrongdoings,” said the person. ET’s mailed query to Axis Bank remained unanswered.
“Under the (Indian) securities law, this amounts to manipulative and unfair trade practice involving influencing or manipulating the reference price or benchmark price of any securities,” said Puneet Shah, partner, IC Universal Legal. “Under the (Indian) criminal law, this amounts to criminal breach of trust vis-a-vis the investors for dishonestly misappropriating and disposing the entrusted property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied.”