HDFC AMC Front-Running Case: SEBI Settles Case With Two Entities
SAT also rejected SEBI’s objections to IL&FS Securities Services Ltd.’s demand seeking the contracts to be annulled. (Photo: BloombergQuint)

HDFC AMC Front-Running Case: SEBI Settles Case With Two Entities

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In a 12-year old case of front-running at HDFC Asset Management Company Ltd., markets regulator Securities and Exchange Board of India on Tuesday settled probe with two entities after they paid around Rs 10 crore towards settlement charges.

It was alleged that the two entities -- Rashi Investments and Vivek Mehrotra -- along with other entities acted as a group to front-run HDFC AMC and defrauded investors.

In two separate settlement orders, the regulator said that adjudication proceedings initiated against the two entities are settled and disposed of.

SEBI had issued show cause notices in March 2014 to the two entities for alleged violations of regulatory norms in the front-running of HDFC AMC.

The matter relates to trades conducted in 2007 and SEBI had begun its probe after receiving two separate references from the Bombay Stock Exchange and National Stock Exchange on suspected instances of front-running of the orders of HDFC Mutual Fund.

Front-running refers to an unethical practice of someone trading in shares on the basis of advance information given by a broker, analyst or other executive at a market intermediary before the trades are conducted by that entity.

Pursuant to the investigation into the front-running of HDFC AMC Trades-II, SEBI observed that the two entities -- Rashi Investments and Vivek Mehrotra -- along with other entities “acted as a group to front run HDFC AMC and defrauded HDFC AMC investors”.

The regulator further noted that by executing such trades, Rashi Investments made a profit of Rs 38.55 lakh while Vivek Mehrotra gained Rs 2.10 crore. Therefore, it was alleged that the entities have violated provisions of Prohibition of Fraudulent and Unfair Trade Practices norms.

Pending the adjudication proceedings, Rashi Investments and Vivek Mehrotra filed settlement applicants with the regulator and proposed to pay over Rs 3.21 crore and Rs 6.76 crore respectively towards settlement charges.

Thereafter, SEBI’s High Powered Advisory Committee recommended the case for settlement on the payment of the amount. This was also approved by SEBI’s panel of whole-time members, following which the the entities remitted the amount in September.

Accordingly, the SEBI has disposed of the adjudication proceedings initiated against the entities.

It said that enforcement actions, including commencing or reopening of the proceedings, could be initiated if any representation made by it is found to be untrue.

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