Axis MF: Axis MF found evidence pointing to violations of... -
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Axis MF: Axis MF found evidence pointing to violations of…

Early in May, Axis Mutual Fund, one of India’s top asset managers, was in the eye of the storm after allegations of wrongdoings by two executives – Viresh Joshi, chief trader and an equity fund manager, and Deepak Agarwal, assistant fund manager – erupted. Subsequently, both the employees were asked to leave the fund house. The event drew a backlash from investors, while a regulatory investigation is underway. Earlier this week, Chandresh Nigam, CEO of Axis MF, opened up about the fiasco in an interview – the first after the incident – with Nishanth Vasudevan. Edited excerpts:

Axis Mutual has maintained that the forensic investigation before the termination of the two executives was suo motu. What was the trigger?

There were multiple triggers. We were coming back to the office from a work from home system and our auditors said they were unable to comment on work from home controls during that period. That made some of us including the audit committee a bit uncomfortable. There were some market rumours too. That is when we decided to do a review. An auditor does a review every year anyway, but this was an extraordinary one. I am saying extraordinary because it was out of turn.

Was the review only on the equities side or also on the debt side?

It was only on the equities side.

Why was the review only on the equities side?

At that point, our concerns were more on the equities side. I am not in a position to disclose that because it is part of the (forensic) report.

After the internal investigation began in February, was there a delay in benching the two fund managers?

There was absolutely no delay. We were absolutely prompt. The suo motu investigation began in February. We have to find something in the investigation to take action. This was a review on account of our work from home policy and some market rumours. Only when we find something, can action be taken. So, the moment we found out, we immediately took action.

Isn’t it a global practice that when somebody is under the scanner, you bench the employee?

My entire equity team was under review. Then I would have had to bench everybody. That was not the idea. We didn’t go into this investigation with the knowledge of some kind of securities law violation. It is something that came out later. As soon as it came out, action was taken.

So, were there no complaints against the two fund managers?

There were no specific complaints against these individuals, no whistleblowers. Nothing of that sort. We did it suo motu.

There have been specific allegations against Viresh Joshi.

(Interrupts) I have not heard of any such things. Now, it’s fashionable to come up and say there are allegations.

The allegations are that there were transgressions while punching trades for the scheme.

There is a process when it comes to punching in trades. All the trades were placed within the limits set by the fund managers.

So, what is it that you have found out against the two fund managers?

We have reasons to believe they are securities law violations. We have disclosed this to the regulator. There is substantial evidence pointing to serious securities law violations.

Is the proof based on your forensic study?

The investigation is more about gathering evidence on potentially suspicious transactions or matters.

Could you specify what are the wrongdoings?

In the first case (Viresh Joshi), the reason for suspension and consequent termination was for several reasons including multiple red flags identified as part of the investigation process and findings, including his non-cooperation in the investigation. We have strong reasons to believe serious and

breach of securities laws by him. In the other case (Deepak Agarwal), we had reasons to believe securities law violations, in addition to non-compliance with our policies.

Did the investigations also include front-running and receiving kickbacks from brokers?

Relevant investigation findings have been updated to regulatory authorities. Since regulatory scrutiny is also ongoing, we would like to refrain from commenting on the exact contours of the investigation.

Is the front-running allegation true?

We have found certain suspicious transactions, which we have reported to the regulator. To conclusively establish front running, there are a lot of things to be proved. There are inherent limitations in relation to information available with us as a private organisation. Our findings are necessarily limited by the same.

There were allegations about Viresh Joshi’s opulent lifestyle. Did you receive complaints about that?

I don’t want to comment on any matters concerning the specific findings of the investigations.

Viresh Joshi has alleged unlawful termination in a lawsuit against Axis Mutual. How are you contesting it?

We will respond to that in court. We have enough grounds on which the termination is justified. We are not worried about that. In fact, it is surprising that someone against whom there is substantial evidence of securities law violations is alleging unlawful termination.

How do you plan to regain investors’ confidence after the fiasco?

This is not an event we are proud of. This affected us in a way we never expected it to. We never expected that somebody would be able to circumvent our processes, controls, and training. We have taken a little bit of a hit on our business. But things are improving. As this event goes in for some sort of closure, we will get back to our business trajectory.

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