Sebi levies Rs 40 lakh penalty on four entities in Axis MF front-running case

Sebi imposed penalties after investigating trades that appeared to involve front-running of Axis Mutual Fund’s orders. The regulator fined Woodstock Broking, its director Suresh Kanmal Jajoo, Marfatia Stock Broking, and its director Nishil Surendra Marfatia. Each received a Rs 10 lakh penalty.

The central issue was access. Sebi found that both brokers helped install and operate ODIN trading terminals on a computer used by Prijesh Kurani in Dubai. Kurani was not an authorised person or registered dealer of either broker. Sebi also examined communications, technical records, and account links.

The regulator concluded that the brokers provided infrastructure and technical assistance that aided alleged fraudulent trades. It held this conduct breached the PFUTP Rules. The four entities must pay their penalties within 45 days of receiving the order.

The total financial penalty is Rs 40 lakh. Sebi imposed Rs 10 lakh separately on Woodstock Broking, Suresh Kanmal Jajoo, Marfatia Stock Broking, and Nishil Surendra Marfatia. The equal penalties applied to both brokers and their respective directors.

Sebi investigated trades executed during a one-year period, from April 1, 2021 to March 31, 2022. The investigation began after surveillance alerts identified transactions that appeared to resemble front-running of Axis Mutual Fund’s trades. The alerts led the regulator to examine the people, accounts, systems, and technical connections involved.

The order gives the four entities 45 days from receiving it to pay. The amount is a regulatory penalty, while the findings concern alleged assistance in executing fraudulent or unfair trades. The article does not state whether any further punishment was imposed.

Front-running is trading before a large, expected order when advance knowledge may reveal how that order could affect prices. It matters because the person acting first may gain an advantage unavailable to ordinary market participants. The article describes trades that appeared to front-run Axis Mutual Fund, identified as the Big Client.

For example, if someone knows a mutual fund is preparing a large purchase, that person could buy beforehand. If the fund’s order pushes the price higher, the earlier buyer may benefit. A person could similarly sell first if a large sale were expected. The article does not establish the exact direction of the alleged trades.

Such conduct can undermine confidence in fair markets and price discovery. Sebi’s investigation followed surveillance alerts about suspicious trades during April 2021 to March 2022. Its order focused on alleged assistance and infrastructure, rather than describing every underlying trade.

Sebi said the two brokers enabled the alleged trades by providing the systems needed to place and route orders. It found that their ODIN terminals were installed and operated on a computer used by Prijesh Kurani in Dubai. Kurani was neither an authorised person nor a registered dealer of the brokers.

For Woodstock, Sebi cited WhatsApp messages, IP and MAC address evidence, and IT personnel who helped provide remote access through AnyDesk. It also noted that Visa Capital Partners held an account with Woodstock and that Jajoo was a partner in that firm. For Marfatia, Sebi cited its managing director’s statement, IT messages, and shared MAC IDs.

The regulator therefore treated the brokers’ role as more than passive service provision. It concluded they supplied infrastructure and technical assistance that aided fraudulent trades. The case highlights the compliance risk of allowing unauthorised users to access broker systems.

The evidence mattered because it connected digital activity with the brokers’ infrastructure and personnel. ODIN terminals showed where trading capability was installed. Remote-access software, including AnyDesk, indicated that systems could be operated from elsewhere. This helped Sebi examine whether the brokers had enabled access beyond approved users.

IP addresses can help associate activity with a network or location, while MAC IDs identify network hardware. Sebi cited IP and MAC evidence in Woodstock’s case and common MAC IDs in Marfatia’s case. WhatsApp conversations involving the brokers’ IT personnel provided communications about technical assistance. These pieces were considered alongside statements and account information.

No single item is described as the entire case. Instead, Sebi relied on a combination of technical and documentary evidence. The regulator concluded that the brokers facilitated alleged fraudulent trades by supplying infrastructure and access to an unauthorised user.

PFUTP stands for the Prohibition of Fraudulent and Unfair Trade Practices Rules. These rules are designed to prohibit conduct that deceives, manipulates, or unfairly disadvantages market participants. The article says Sebi relied on these rules after finding that the brokers aided execution of fraudulent trades.

The alleged violation was not limited to the person placing trades. Sebi said the brokers supplied necessary infrastructure and technical assistance. That included ODIN terminals, remote access, and other support connected with a computer used by an unauthorised Dubai-based user. The regulator also examined communications, technical identifiers, and account relationships.

Helping execute a fraudulent or unfair trade can matter because market infrastructure makes trading possible. If a broker knowingly enables unauthorised access or assists suspicious activity, its role may contribute to the conduct under investigation. Here, Sebi imposed Rs 10 lakh penalties on each broker and director and ordered payment within 45 days.

Market surveillance systems continuously examine trading activity for unusual patterns, relationships, or timing. In general, they help exchanges and regulators identify activity that may need investigation. This supports fair price discovery by detecting conduct that could give some traders information or access unavailable to others.

In this case, the surveillance system generated alerts about trades that appeared to front-run Axis Mutual Fund. Sebi then investigated the trades, the brokers’ systems, communications, account links, IP addresses, and MAC IDs. The investigation period ran from April 1, 2021 to March 31, 2022. The alerts were a starting point, not the entire evidence described.

Surveillance does not automatically prove wrongdoing. It helps direct attention toward activity requiring deeper review. Sebi’s order shows how alerts can lead to examination of both trading behaviour and supporting infrastructure. Here, the regulator ultimately found that the brokers aided fraudulent trades and breached PFUTP Rules.

The immediate consequence is a Rs 10 lakh penalty for each of the four entities: Woodstock Broking, Suresh Kanmal Jajoo, Marfatia Stock Broking, and Nishil Surendra Marfatia. They must pay within 45 days of receiving the order. The article does not mention a trading ban, licence cancellation, or other immediate sanction.

Sebi’s findings concern access and support. Both brokers allowed ODIN terminals to be installed and operated on a computer used by Prijesh Kurani in Dubai. Kurani was not an authorised person or registered dealer. Woodstock’s case also involved AnyDesk access, while Marfatia’s case involved common MAC IDs linking systems.

The broader implication is a compliance warning. Brokers may face penalties when they provide infrastructure or technical assistance that enables alleged fraudulent trades, even if the systems are operated by another person. Firms therefore face pressure to control access and monitor how their trading technology is used.