The Securities and Exchange Board of India (Sebi) on Monday said HDFC Mutual Fund, its chief executive officer Milind Barve and HDFC Trustee Company have settled charges with respect to failure of preventing front-running by its employees by paying Rs 55 lakh.
Sebi had alleged that HDFC MF had failed in adhering to the code of conduct for portfolio manager, while the trustee company had failed to certify that there had been no instances of front running by any of its key people. It was also alleged that Barve, in his capacity as CEO of HDFC MF failed in his responsibility for the overall risk management function of the company.
HDFC MF and HDFC Trustee Co paid Rs 20 lakh each to the regulator, while Barve paid Rs 15 lakh to settle the charges through a consent order mechanism.
Consent order, in simple terms, means an order settling administrative or civil proceedings between the regulator and an entity which may prima facie be found to have violated securities laws.
In June last year, Sebi had banned HDFC MF’s former equities dealer Nilesh Kapadia from stock market transactions for tipping off his friend before placing the orders for the fund house.
This practice, known as front-running, increases the cost of acquisition of shares or reduces the realisation from the sale of shares for the concerned mutual fund scheme. According to Sebi investigations, front-running at HDFC MF had resulted in a loss of Rs 2 crore for its unitholders.
Sebi’s investigation had revealed 38 instances over 24 trading days between April and July 2007, when the three investors – Rajiv Sanghvi, Chandrakant Mehta and Dipti Mehta had bought or sold shares before HDFC MF’s trades were executed.