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7 DSP mutual fund staff quit amid probe on dubious deals

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DSP says the 7 officials had provided funds to an ex-employee who in turn traded in securities marketThe firm had initiated a probe for breach of internal code of conduct by these officials

MUMBAI : Mumbai: Seven employees of DSP Investment Managers Pvt. Ltd (DSPIM) resigned from their jobs earlier this month following an inquiry into suspicious transactions, said a spokesperson for the mutual fund and another person aware of the matter.

The officials had provided funds from their personal accounts to an ex-employee, who in turn, traded in the securities market. “It had come to our notice that certain employees in the sales function of DSP Investment Managers were providing personal loans to two individuals, including an ex-colleague, which were not reported to the company,” said the spokesperson in an emailed response.

The firm had initiated a probe into the misconduct of these officials, for what was a breach of the internal code of conduct, but they resigned before the probe could be completed. “An internal inquiry committee was set up and while the inquiry was on, these employees resigned,” said the spokesperson.

“For us, reputation comes first and, hence, we accepted their resignations subject to the conditions that they be required to extend their fullest cooperation in relation to the inquiry proceedings and they be subject to actions that the company may deem fit pursuant to the inquiry proceedings,” he added.

“While DSP is yet to conclude the probe, there seems to be a case of an alleged front-running, as these officials shared some investment tips with the ex-colleague,” said the second person cited above, requesting anonymity.

Front-running is a stock market malpractice where brokers buy or sell shares for personal benefit using information yet to be released to their clients. However, the DSP spokesperson said the internal inquiry committee has not found evidence of any insider trading, front-running or any other illegal activities.

“The said breaches relate purely to transactions done in their personal capacity and have absolutely no effect on investors, distributors or the business. Nobody from the fund management team was aware or involved in any such activities,” he added.

DSP has informed the Securities and Exchange Board of India (Sebi) about the incident and will submit the final investigation report to the regulator, said the two people.

A person familiar with the regulator’s thinking said Sebi will initiate action only after receiving the report.

As per mutual fund regulations, repeated so-called loan constitutes an activity which needs to be reported to the company and approved on a case-by-case basis. Non-reporting of such activity constitutes a breach of internal code of conduct.

“Since MFs deal with public money, revelations or suspicions of impropriety are looked from the angle of conflict of interest and enforcing code of ethics. Even without real damage prompting, or encouraging the conflicting interest is dealt severely by Sebi,” said Sumit Agrawal, founder, Regstreet Law Advisors and ex-Sebi official.

“Privately trading or indirect financing of suspicious transactions like front running is viewed very seriously by the regulator. Sebi usually examines the eligibility, quantity and frequency of such trades/finances/loans, its purpose, bank transactions and disclosure of it to the AMC (asset management company), due diligence by AMC etc,” said Agrawal.