A former chief trader and fund manager of Axis Mutual Fund who is accused of cheating investors to the tune of ₹2 lakh crore by 'front-running' in trade activities has been sent to Enforcement Directorate’s (ED) custody by a special Prevention of Money Laundering Act (PMLA) court.
Viresh Joshi, who was arrested under the anti-money laundering law, will be in ED’s custody until August 8, the agency said on Sunday.
The ED had also undertaken searches in the case on August 1, covering multiple premises in Delhi, Mumbai, Gurugram, Ludhiana, Ahmedabad, Bhavnagar, Bhuj and Kolkata, and frozen shares, mutual funds and bank balance worth ₹17.4 crore during the searches.
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The Income Tax Department had earlier conducted searches in this case in 2022.
In front-running, a dealer with an institutional money manager like a mutual fund takes advantage of his knowledge of the orders that his employer has lined up for the day and tries to profit from them.
If the dealer wants to profit, he enters the market minutes before he punches in the orders by the fund house. Mutual funds usually place large orders on the stock market that can move the price of a stock.
The dealer buys or sells the stock minutes before the mutual fund places its trades. The idea is to profit from the big investor’s moves, either by buying or selling shares.
“The search operations were part of an ongoing investigation into the illegal profits made by certain entities/persons by indulging in front-running trade activities in scrips traded by Axis Mutual Fund from 2018 to 2021,” the ED said, which had been investigating the matter under the civil provisions of the Foreign Exchange Management Act (FEMA).
In December, 2024, an FIR was registered by the Mumbai Police alleging that Joshi, the then-fund manager of Axis Mutual Fund, "exploited" confidential information on the trades to be executed on behalf of Axis Mutual Fund to pre-emptively trade stocks, generating substantial "illicit" gains.
Joshi was therefore accused of "cheating" the investors of Axis Mutual Fund, which holds assets under management of more than ₹2 lakh crore, the ED said.
"The accused had utilised a terminal in Dubai to punch the front-running trade orders through mule trading accounts obtained from various brokers. In addition to Joshi, the investigation has revealed that many other traders/brokers also misused the advance inputs on Axis Mutual Fund trades and indulged in front-running to generate illicit trade profits, which are nothing but proceeds of crime," the agency alleged.
The alleged illicit funds generated by various traders/brokers, identified till date, amount to more than ₹200 crore and this sum could be much higher, the ED added.
The agency claimed that the proceeds of the fraud were funneled through multiple shell entities and bank accounts beneficially owned by the accused persons/entities and their family members.
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