Sebi Issues Notice to Capital Group FPIs in Connection with Ketan Parekh Front-Running Case
Sebi Issues Show Cause Notice to Capital Group Over Front-Running Allegations
The Securities and Exchange Board of India (Sebi) has issued a show cause notice to six foreign portfolio investors (FPIs) managed by Capital Group, a US-based asset manager, over alleged lapses in maintaining confidentiality of trade-related information. This alleged leak of sensitive information reportedly enabled a large front-running network involving market operator Ketan Parekh and Singapore-based trader Rohit Salgaocar.
According to a report by The Economic Times, this is the first time Capital Group has been identified in a Sebi notice linked to the front-running case. The asset manager oversees more than $3.3 trillion globally. Sebi initiated legal proceedings against six FPIs - Smallcap World Fund, American Funds Insurance Series Growth-Income Fund, American Funds Fundamental Investors, The Growth Fund of America, AMCAP Fund, and Capital Group AMCAP Fund (Lux). The regulator's investigation covers the period between January 1, 2021, and June 20, 2023.
Sebi reportedly found alleged leaks of non-public and sensitive information related to large trading orders placed by Capital Group entities. The regulator claimed that two Capital Group traders, James Vincent Cheng and Terence Tsai, shared details of impending trades with Salgaocar, who is linked to Strait Crossing Pte Ltd, an entity not registered in India.
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Comparison of Capital Group's FPIs
| FPI | Description |
|---|---|
| Smallcap World Fund | Oversees small-cap stocks globally |
| American Funds Insurance Series Growth-Income Fund | Focuses on growth and income investments |
| American Funds Fundamental Investors | Emphasizes fundamental research for investment decisions |
| The Growth Fund of America | Concentrates on long-term growth investments |
| AMCAP Fund | Invests in large-cap stocks with growth potential |
| Capital Group AMCAP Fund (Lux) | Oversees large-cap stocks with growth potential in Luxembourg |
Sebi alleged that trade details, including stock names, prices, and quantities, were systematically shared before the execution of large buy or sell orders, allowing the front-running network to take positions in advance. The regulator examined Bloomberg chat logs and WhatsApp communications during the probe, which revealed that Salgaocar passed sensitive trade information to Parekh and other associated traders, enabling them to profit through front-running activities before Capital Group's orders were executed.
Investor Takeaway
Investors should be cautious of potential market manipulation and regulatory actions.
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