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The Securities and Exchange Board of India (Sebi) today barred Nilesh Kapadia, Assistant Vice President - Equities, HDFC Mutual Fund, from participating in the securities markets for irregularities in trading. Kapadia has been with HDFC MF for the last 10 years. The regulator also asked Kapadia and HDFC MF to jointly deposit Rs 2.38 crore — losses estimated due to trading irregularities — to the Trustees of HDFC Mutual Fund within a month.According to Sebi, the investigation revealed 38 instances over 24 days spread across the BSE and NSE during April-July 2007. In these instances, three individuals — Rajiv Ramniklal Sanghvi, Chandrakant Mehta and Dipti Paras Mehta — were placing buy/sell orders ahead of substantial buy/sell orders of HDFC AMC. Known as front-running, the three squared off their trades within the same trading session, substantially against the orders of HDFC AMC.In the 38 instances, Sanghvi and the Mehtas made substantial intra-day profits by front running the orders of HDFC AMC. Sebi's preliminary findings revealed that Kapadia of HDFC Mutual Fund was tipping off and advising Sanghvi to trade ahead of the orders of HDFC AMC and had helped him make substantial gains in the process.In its order, Sebi said that Kapadia's continuation as a dealer for HDFC AMC poses a threat to the large number of unit-holders of HDFC Mutual Fund and the portfolio management clients of HDFC AMC. Besides Kapadia, it also barred Sanghvi and the Mehtas from trading in securities. Quoting Regulation 25(3) of Sebi (Mutual Funds) Regulations, 1996, the order said, "The asset management company shall be responsible for the acts of commission or omission by its employees..." Therefore, HDFC AMC is also responsible for the acts of Kapadia, it said.The order also barred HDFC AMC Ltd from utilising the services of Kapadia for the trading activities and asked the company to institute an internal inquiry to be conducted by the trustees. It asked the trustees to set up an investigation committee to examine all transactions/dealings by Kapadia on other occasions. The committee shall submit the final report to Sebi within six months. The trustees have also been asked to submit a plan to overhaul the internal control systems and the internal preventive measures of HDFC AMC within a month.
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