Used tech know-how to read mobile tower signals, comb through reams of Bloomberg chats
From a reading of mobile tower signals and dissecting dubious whistle-blower complaints to piecing together Bloomberg chat extracts, capital markets regulator Securities and Exchange Board of India (Sebi) has gone the extra mile in blowing the lid off a front-running scandal at Axis Mutual Fund (MF), which has resulted in ill-gotten gains of over Rs 30 crore.
Legal experts say establishing front-running violations isn’t easy, but Sebi has built a strong case in affirming violations by Viresh Joshi, former chief dealer at Axis MF, and 20 others who had allegedly built a cleverly crafted nexus to pocket these gains. This was made possible by the use of sophisticated analytical tools by the securities watchdog.
“The case involved a complex network of individuals and entities allegedly involved in insider trading and other fraudulent activities. Sebi’s investigation in this case involved extensive use of data analytics and forensic audits to uncover wrongdoing, indicating a shift towards more sophisticated investigative techniques,” said Sumit Agrawal, founder, Regstreet Law Advisors, and former Sebi official.
Sebi, in a 96-page ex-parte interim order issued on Tuesday, barred the 21 entities from the securities market and directed them to disgorge the unlawful gain of nearly Rs 30.6 crore.
A reading of the 96-page order shows innovative use of new-age analytical tools to comb through WhatsApp chats, emails, and call data records and establish mobile phone locations through the use of tower IDs.
A whistle-blower complaint from January 2022 and items seized in searches helped Sebi tear through the delicately crafted fraudulent scheme, allegedly devised by Joshi.
Sebi has alleged that Joshi passed on sensitive non-public information about impending large orders of Axis MF to his associates who took positions and benefited due to the impact triggered by large orders of Axis MF.
A skimming of chats between these entities helped unravel the modus operandi — the itinerary of Joshi’s father and brother to Dubai for establishing a company for routing their orders, evidence of trading accounts being shared, usage of ‘on rent’ or ‘family’ mule accounts, sharing of non-public information, and regular conversations.
Sebi found that Joshi used two different mobile numbers to evade scrutiny by the fund house.
Since both these numbers were registered in another name, the regulator analysed the tower ID of the location of both mobile numbers.
These two mobile numbers were simultaneously located and were functional to the location of the Axis MF office on several dates relevant to the case.
Further, the regulator was successful in putting faces to coded names like ‘Jadugar’ and ‘Asdfg’, used by connected entities for referring to communication from Joshi.
Each message was carefully read, analysed, and used to piece the whole puzzle, said legal experts. For instance, one message in a sea of communication between connected entities stating “today, Jadugar birthday” played a key role in affirming Joshi’s identity as the one doing all the scheming.
An analysis of internet protocol addresses and Mac IDs of terminals in Dubai helped in establishing the connection between the accused parties.
It was found that there was no physical supervision on Joshi, at both the dealing rooms in the office and house during work from home, due to ever-evolving pandemic protocols.
Industry experts said that the Axis MF matter has been a lesson learnt for the industry to identify lapses gnawing at the system.
Recently, Sebi floated an advertisement inviting auditors to conduct a forensic audit of the Rs 40-trillion MF industry.
“Forensic audit refers to going beyond the normal audit, beyond accounting and the balance sheet. Axis (MF) is the trigger. Because something like that cannot be detected through a normal audit,” said a leading fund manager.
The misconduct at Axis MF has led to a series of new regulatory tightening for the industry by Sebi. Last year, it brought trading in MF units under stricter Sebi (Prohibition of Insider Trading) Regulations, and is now considering prescribing norms for the role of trustees, chief executive officers, fund managers, and dealers.
This, combined with the use of technology, will help Sebi stay ahead of the curve, added legal experts.