Axis Fund Manager case: Axis Mutual Fund hires Deloitte to investigate high-profile case

Axis Mutual Fund has hired Deloitte as a second investigator in the leading case after the fund widened the scope of the investigation, two people familiar with the development said. Alvarez and Marsal (A&M) are already investigating the case for Axis Mutual Fund.

The fund house expanded the scope of the survey to include investment models or fund deployment and whether more people were involved in front-running.

According to a person with direct knowledge of the case, the market regulator had asked Axis Mutual Fund to clarify the precise modus operandi of the case and to broaden the scope of the investigations.

“Sebi probably wants to look at similar fact patterns in other cases as well where there might be high-profile allegations,” the person said.

Axis Mutual Fund has asked fund manager Deepak Agrawal to leave the business from May 20 following an investigation into alleged wrongdoing by him and chief trader and fund manager Viresh Joshi. The fund house also said it had terminated Joshi’s employment, ET reported on May 21.

An email query to Axis Mutual Fund, Deloitte and Sebi late Tuesday elicited no response before Wednesday’s press time.

Another person familiar with the development said A&M was looking into communication between the defendants.

The new investigation is expected to focus on exactly how the executives made the deals and find evidence of other executives’ involvement.

A&M will submit its report in the coming month.

“Deloitte was asked to deepen the process followed by the leaders involved.

There may not be direct communication that those involved were on the front line,” said one of the people quoted above.

“In some cases, fund managers might simply ask the broker to buy shares beforehand, and even that communication might not be direct. Investigators will be required to look at red flags and fact patterns,” the person said.

For example, some of the fact patterns might involve the purchase price of a particular stock.

“If the price of a share is Rs 50, but a stockbroker on behalf of a client is willing to buy the stock even at Rs 70, while few others are willing to do so The question is why is anyone willing to pay such a premium, is there inside information involved,” the person familiar with the development asked.

Investigators were also told to investigate whether the accused also passed the information on to others to confuse the facts. And if so, how was it done?

“Investigations will also focus on whether only two people were involved or if there could be more people who benefited from the highlighting,” the person familiar with the development said.

Front-running is buying or selling stocks based on non-public information that could impact the stock price.

In this particular case, the accused allegedly purchased shares in his personal account just before the mutual fund purchased the same shares.

When the fund bought these shares, the price rose to the benefit of the defendant.

Investigators were also asked to examine how the defendant spent the money. One of the people familiar with the development told ET that a defendant bought a Lamborghini, which initially raised suspicion.

Sebi is also said to be investigating at least a few other instances where he suspects fund managers have been involved in high-profile activities.

“These high-profile investigations have surged enormously during the Covid pandemic and are working from home,” an investigator not directly connected to the case told ET. “There were certain systems in place for fund managers and other executives to end such practices, which could not be strictly followed while working from home.”

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