FEMA probe against fund manager: ED seizes

MUMBAI: The Enforcement Directorate (ED) has seized foreign currency worth around ₹12.96 lakh during searches conducted as part of its FEMA (Foreign Exchange Management Act) investigation against Viresh Joshi, a former fund manager at Axis Mutual Fund (MF), for alleged contravention of the forex rules. The agency has found that ₹14 crore was spent on purchasing two properties in the United Kingdom (UK) and funds of ₹12 crore parked abroad – out of the illegal gains from the “front-running” activities that he and a few others were accused of.
Front-running activity in market parlance refers to a practice wherein a broker or trader executes orders on a security for their own account, while taking advantage of advance knowledge of pending orders from their customers. Such an activity is considered unethical and illegal, as it undermines the integrity of the market and causes disadvantages to other investors, agency sources said.
ED initiated its investigation based on an interim order passed by the Securities and Exchange Board of India (SEBI), which accused Joshi and others of indulging in front-running activities, thereby earning ₹30.56 crore as wrongful gains for them, ED sources said.
The agency on Monday had conducted searches at four locations in Mumbai and a location in Kolkata as part of the probe. The premises searched were linked to Joshi and a few brokers who are under the ED scanner. Apart from the foreign currencies (British Pound or GBP/Euro/United Arab Emirates Dirham or AED), the agency found and seized various documents pertaining to overseas immovable properties, overseas bank accounts and digital devices, the sources said.
ED has found evidence that unravelled the modus operandi allegedly employed by the accused, the sources said. According to them, Joshi was sharing market-sensitive information with brokers having terminals in Dubai, UAE, who could execute trade on his instructions, in return for kickbacks from them. Joshi allegedly also contacted a few other individuals/entities based in India who could lend their trading accounts on rental basis.
The illicit gains from such dubious trade were allegedly received by Joshi in cash from the said brokers. Joshi had allegedly used Kolkata-based operators to route the said cash in the bank accounts of multiple shell entities, which in turn gave unsecured loans to him, his family members and the firms beneficially owned by them, ED sources said.
ED’s preliminary probe has revealed that the alleged illegal gains made from front-running were utilised for buying immovable assets in the UK. ED found documents related to the purchase of two such properties in the UK for which an amount of ₹14 crore was remitted abroad. ED also found that two entities located abroad, M/s Vintage Capital Investment LLC (Dubai) and M/s Vincent Capital Holding Limited (UK) were allegedly incorporated with such funds and that, illegitimate gains worth ₹12 crore were stashed in accounts abroad.
Alleged tainted funds were also used to set up fixed deposits and buy properties in India, ED sources said. The agency’s probe is verifying if the quantum of FEMA contraventions in the case could allegedly be between ₹30 crore to ₹60 crore, ED sources said.
Last year, the SEBI, in its interim order, had directed the impounding of ₹30 crore on allegations that it represented unlawful gains earned from front-running activities, adding that these should be deposited in an escrow account of the regulator. Joshi and over a dozen entities were also restrained from accessing capital markets by the SEBI.