SEBI accepted L&T Mutual Fund’s plea for a fine of Rs 10 lakh for front-running by one of its employees
Mumbai: L&T Investment Management is the second mutual fund house where SEBI has detected front-running by an employee. HDFC Mutual Fund was the first fund house where front-running by an employee was spotted.
The person involved in front-running in HDFC Mutual Fund was a dealer himself, while in the case of L&T the person found guilty of front-running was one of its employee Vikas Upadhyay , who managed to get access to information on large trades by the fund house. Apparently, Upadhyay was not part of the dealing room.
After a notice was issued to L&T Mutual Fund on April 26, 2010, the fund house through an affidavit of “undertakings and waivers” sought a settlement through a consent order. The SEBI accepted the plea made without admitting or denying guilt and settled for a fine of Rs 10 lakh as proposed by L&T Mutual Fund.
In the case of HDFC Mutual Fund, the dealer Nilesh Kapadia was banned from buying, selling or dealing in securities, directly or indirectly, or being associated with any intermediary or any entity registered with SEBI till further orders.
SEBI said L&T Mutual Fund had failed to exercise due diligence and care by not taking adequate measures to ensure non-leakage of information pertaining to its trading strategy to others. Upadhyay had on the basis of certain advance knowledge of certain block transactions indulged in front-running before orders were placed by the fund house in certain shares on seven days during April 1, 2008 to May 31, 2008.
Front-running is a practice where a person or a group of persons buy or sell shares in their own account taking advantage of advance information about orders from clients. Front-running is detrimental to the interests of investors and therefore, an illegal practice.
SEBI communicated the acceptance of L&T Mutual Fund’s consent proposal on November 23, 2010. L&T paid the fine of Rs 10 lakh on December 1, 2010, according to an adjudication order place by the securities regulator on its website on Thursday.
After the HDFC Mutual Fund case, SEBI had said it was investigating 10 other mutual fund houses for front-running. There are nine other fund houses where investigations could be on for front-running.
