IPO on cards: HDFC AMC may settle front-running case with SEBI through consent route

HDFC Asset Management Company | Market Cap Rs 61,4690000000 | Price return 101% (Image PTI) The uncertainty surrounding HDFC Mutual Fund’s proposed listing may soon be over as the company is likely to file a consent plea with Securities and Exchange Board of India in a case pertaining to alleged front running of trades by an ex-employee and violation of securities laws, a source told Moneycontrol. Under the consent mechanism, parties facing charges of securities law violations can settle the matter without admitting or denying wrongdoing, typically by paying a fee. Filing of the consent plea could expedite clearances required for HDFC AMC’s public offer. SEBI had halted proceedings for the initial public offer (IPO) after HDMC AMC filed its draft red herring prospectus on March 15. In its DRHP, the company had mentioned that it is “involved in an investigation initiated by SEBI with regard to alleged front-running and violation of securities laws”. SEBI carried out an investigation into the alleged front-running of trade orders of HDFC Mutual Fund by a certain set of persons on the basis of information provided by Nilesh Kapadia, formerly a dealer [in equities]. “In July 24, 2014, amongst other things, prohibited Nilesh Kapadia and certain other accused persons from accessing the securities market, or buying, selling or otherwise dealing in securities, for a period of ten years for violation of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. No directions were issued against the Trustee Company, our Company or our Managing Director in SEBI's orders dated July 24, 2014, and January 15, 2016,” HDFC AMC said in its IPO paper. “Our company deposited the total amount of losses suffered by the investors during the period November 2001 to September 2007, aggregating to Rs 6.960000000, as determined by SEBI, in a segregated bank account maintained with the Trustee Company. Our Company has thereafter compensated the concerned investors in accordance with the aforementioned directions issued by SEBI.” Front-running refers to the illegal activity of a person in the know of a large impending institutional transaction who does the trade himself first. Large transactions typically tend to move prices of securities benefiting front-runners. The company did not respond despite several attempts to reach it on phone.