HDFC Asset Dealer Barred by India Regulator for Illicit Trades

June 18 (Bloomberg) -- India’s market regulator said it banned a dealer at HDFC Asset Management Co. for so-called front running that led to estimated losses of 23.8 million rupees ($513,928) at the country’s second-biggest money manager.

Nilesh Kapadia, an assistant vice president at the Mumbai- based fund, has been barred from trading after findings showed 38 cases where Kapadia and his accomplices placed orders before the fund, leading to “illegitimate” gains of 19.9 million rupees, the Securities & Exchange Board of India said in a statement on its website.

Kapadia, an employee with HDFC Asset since June 2000, was tipping off his friend Rajiv Ramniklal Sanghvi before placing the orders for the fund. Chandrakant P. Mehta and his daughter- in-law Dipti Paras Mehta, in turn, traded on the tips received from Kapadia and Sanghvi, the regulator said.

Milind Barve, managing director at HDFC Asset Management, didn’t immediately respond to an e-mailed query on the order. The fund had about 1 trillion rupees in shares and bonds on May 31.

The regulator said trading and telephone records provided evidence of front running, a practice in which a trader executes orders for his own account, taking advantage of prior knowledge of a transaction expected to influence the price of a security.

The regulator ordered Kapadia and HDFC Asset to jointly deposit the estimated losses to the trustees of the mutual fund. Sanghvi and the Mehtas have been given 15 days to deposit the gains with the National Stock Exchange, which will hold the amount in an escrow account, according to the statement.

HDFC Asset has been told to probe Kapadia’s transactions and submit a report within six months, the regulator said.

Stocks that were front run include Reliance Industries Ltd., India’s most valuable company, State Bank of India, the nation’s largest lender, and Bharti Airtel Ltd., the biggest mobile-phone service provider, the regulator said.

The Securities & Exchange Board in May 2009 barred a fund manager at Passport Capital LCC, a San Fransico-based hedge fund for tipping off two people in advance of his trades.