The Securities and Exchange Board of India (SEBI), in an ex-parte interim order dated July 18, 2024, barred 21 entities from accessing the securities market in connection with a front-running scheme involving Axis Mutual Fund. SEBI directed the disgorgement of unlawful gains amounting to approximately Rs 30.6 crore and impounded the corresponding amounts held in the accounts of the implicated entities.
Background
SEBI's investigation originated from surveillance alerts that detected suspicious trading patterns in multiple securities where Axis Mutual Fund held significant positions. The regulator's examination revealed that Viresh Joshi, who served as a chief dealer at Axis Asset Management Company, had allegedly exploited confidential information regarding the fund house's impending large-value trades between 2018 and 2021.
The scheme, as described in the order, involved Joshi communicating advance information about upcoming buy and sell orders to connected individuals. These persons and entities would then take positions ahead of the fund's trades, profiting from the predictable price impact that large institutional orders generate in the market. SEBI deployed sophisticated data analytics and trade pattern matching to identify synchronised trading activity across the implicated accounts.
Key Provisions
SEBI's 96-page interim order established the following:
Market access prohibition: All 21 identified entities, including individuals and corporate bodies, were barred from buying, selling, or dealing in securities in any manner — either directly or indirectly — until further orders.
Disgorgement directive: The entities were directed to disgorge unlawful gains totalling approximately Rs 30.6 crore, calculated on the basis of profits generated through front-running trades.
Asset freeze: Banks and depositories were directed to freeze the demat accounts and bank accounts of the implicated entities to the extent of the disgorgement amount.
Surveillance methodology: SEBI's investigation utilised trade-by-trade analysis, comparing the timing and volume of trades by the implicated entities against Axis Mutual Fund's order flow. The regulator identified statistically significant patterns of trades placed minutes or hours before the fund's orders, followed by squaring off positions after the fund's trades moved prices.
Ex-parte nature: The order was passed without hearing the entities, given SEBI's finding that the proceeds of the front-running activity were at risk of dissipation.
Implications for Practitioners
This order represents one of SEBI's most extensive front-running enforcement actions in terms of the number of entities implicated and the sophistication of the surveillance analysis deployed. The Rs 30.6 crore disgorgement figure underscores the scale of profits that front-running schemes involving large institutional investors can generate.
For compliance officers at asset management companies, the order reinforces the critical importance of internal information barriers, trade surveillance systems, and restrictions on personal trading by employees with access to order flow data. The fact that the alleged scheme operated for approximately three years before detection points to gaps in internal controls that fund houses must address proactively.
Securities lawyers should note SEBI's reliance on statistical pattern analysis as the evidentiary basis for the interim order. The implicated entities will have an opportunity to present their defence during the final proceedings, and the extent to which circumstantial evidence from trade pattern matching can sustain findings of violation will be a key legal question.
The order also signals SEBI's increasing analytical capacity in detecting complex market manipulation schemes that span multiple accounts and extended time periods.