Second Sebi consent order in HDFC MF front running

The Securities and Exchange Board of India (Sebi) has passed a second consent order in its investigation of front running involving HDFC Asset Management Company (AMC), India’s largest mutual fund (MF).

The order was put up on Sebi’s website on Thursday.
Front running is a malpractice where advance knowledge of a stock or securities transaction is misused to take a position ahead of it in order to make illegal profits.

A consent order allows one accused of such malpractices to settle charges without admitting or denying guilt, by paying some money  and voluntarily accepting debarment from trading for a certain period.

Monday’s consent order against Sanjay Sanghvi requires him to pay `15 lakh and face voluntary debarment for 36 months. More details about this individual are not available.

The case dates back to June 2010 when Sebi identified an employee of HDFC mutual fund, Nilesh Kapadia, as one who leaked information about some stock market deals by the fund to a college friend and others. The regulator had acted after stock exchanges found a strange coincidence between the trading pattern of certain individuals (Rajiv Ramniklal Sanghvi, Chandrakant P Mehta and Dipti Paras Mehta) and that of HDFC AMC.

Sanjay Sanghvi was not mentioned in the order about Kapadia. But the regulator issued a notice to  Sanghvi on February 11, 2011, following another investigation.
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He proposed settlement through the consent process on July 13, 2011 and followed it up with a revised application for consent on September 8, 2011. (DNA Money had reported on further investigations into front running at HDFC AMC on August 29, 2011.)

Sebi accepted the revised terms on February 24, 2012, and Sanghvi paid up on March 9.

Although Sebi did not explain the delay of almost six months in making this order public, market sources speculated it may be due to long-time vacancies on the Sebi board.
Monday’s consent order is the second one in the matter of front running involving HDFC AMC.

According to the previous order dated September 30, 2011, the AMC, its MD Milind Barve, and its trustees had paid a total of `55 lakh towards settling charges against them.

On May 25 this year (91 days after passing Sanghvi’s order), Sebi amended its consent order guidelines to exclude settlement of offences such as front running from the consent process.