SEBI Slaps ₹40 Lakh Total Penalty on Woodstock, Marfatia Stock Broking and Directors in Axis Mutual Fund Front-Running Case
The Securities and Exchange Board of India (SEBI) has penalised two domestic brokerage houses—Woodstock Broking Pvt Ltd and Marfatia Stock Broking Pvt Ltd—along with their respective directors, imposing fines totalling ₹40 lakh for facilitating front-running trades connected to Axis Mutual Fund.
In an adjudication order passed by SEBI Adjudicating Officer Jai Sebastian, penalties of ₹10 lakh each were levied on Woodstock Broking, its director Suresh Kanmal Jajoo, Marfatia Stock Broking, and its managing director Nishil Surendra Marfatia. The entities have been directed to pay the penalty within 45 days.
Unauthorised Offshore Access and Technical Facilitation
The regulator's investigation stemmed from surveillance alerts flagging suspicious transactions executed ahead of large institutional orders placed by Axis Mutual Fund (identified as the "Big Client") between April 1, 2021, and March 31, 2022.
According to SEBI’s findings, Viresh Joshi, the then-chief dealer of Axis Mutual Fund, shared sensitive, non-public advance information concerning the asset manager's impending trades with Prijesh Kurani, who operated from Dubai. Kurani subsequently leveraged this intelligence to place pre-emptive orders across several trading accounts.
SEBI held that both brokerages breached the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations by providing trading infrastructure and technical support to Kurani:
- Both brokerage firms allowed the installation and operation of their ODIN trading terminal software on a computer system accessed by Kurani in Dubai.
- Kurani was neither an authorised person nor a registered dealer for either of the stockbrokers.
- In Woodstock Broking's case, technical evidence such as Media Access Control (MAC) identifiers, Internet Protocol (IP) address logs, WhatsApp messages, and remote desktop access via AnyDesk demonstrated that IT personnel actively facilitated off-site access.
- The trading account of Visa Capital Partners, which was used to execute front-running trades, was housed with Woodstock Broking, where Jajoo was also a partner.
Account Segregation and Disposed Proceedings
SEBI grouped the trading accounts involved in the illicit trades into two operational clusters: the Marfatia group (which included accounts such as Olga Trading Pvt Ltd, Nishil Marfatia, Bhavin Shah, and Rupal Shah) and the Woodstock group (linked to Visa Capital Partners).
However, the regulator disposed of proceedings without penalty against Shreya Nishil Marfatia and the late Surendra Mangaldas Marfatia, noting an absence of specific evidence proving their connivance, consent, or direct responsibility for the brokerage's relevant business operations.
Implications for Indian Investors
Front-running involves trading securities ahead of anticipated large-volume transactions by institutional players like mutual funds, driving up execution costs for funds and eroding the eventual returns of retail unitholders. By holding intermediary brokerages and their leadership accountable for infrastructure lapses and unauthorised terminal sharing, SEBI has sent a strong message to market intermediaries to enforce stringent access controls and safeguard market integrity.
