While the pace of its growth has been dizzying, the glow around Quant MF and Tandon began to fade late last month. On 23 June, digital-only publication Moneycontrol published a story, citing people privy to the development, that officials from market regulator Securities and Exchange Board of India (Sebi) had searched the offices of the asset management company (AMC) in Mumbai and Hyderabad. The report said the case related to suspicions of ‘frontrunning’, an illegal practice.
Frontrunning at a mutual fund is akin to insider trading in listed companies, wherein a fund manager, trader or dealer is aware of large buy or sell orders and uses that information for personal gains. The fund is affected as the price can go up before it executes a buy order, which, in turn, affects investors by impacting the net asset value of a scheme.
Subsequently, Quant confirmed that it had received queries from Sebi although it did not clarify the nature of the probe. The regulator has not disclosed what it is investigating. In an interview with Mint on 25 June, Tandon maintained that it was business as usual.
“Look around you. Do you see any disruption? We are all carrying on our usual work,” he said.
Sebi’s Quant kettle may be on the boil, but this story has nothing to do with it. Indeed, it focuses less on Quant Mutual Fund, which Mint has covered in depth over the years, and instead looks at Quant Capital, a company set up a decade before the AMC, and where Tandon faced other challenges.
They may share first names, but the two companies are not related.
Look around you. Do you see any disruption? We are all carrying on our usual work.
—Sandeep Tandon
Quant Capital, the forerunner, started as a brokerage before moving into derivatives and commodities trading, among other things. It is now in the final stages of bankruptcy proceedings at the National Company Law Tribunal.
On the other hand, Quant MF, which was formerly known as Escorts Mutual Fund, is run by Quant Money Managers, the asset management company Tandon owns.
Most of all, this story shines a light on Sandeep Tandon’s path to entrepreneurial success. Beyond a handful of people in the mutual fund industry, few know of this winding trail, for it has lain obscured within the dense foliage of Quant Capital’s corporate filings. In retracing those steps, we found that it was not so much a well-paved path as a roller-coaster ride. So, buckle up.
(Note: We reviewed over 3,000 filings by Quant Capital and its half-a-dozen subsidiaries from the last 17 years to piece together this narrative. In addition, we reviewed hundreds of court filings, emails and text messages. We spoke to eight executives, all of whom sought anonymity in order to speak freely about what transpired at their companies. We also spoke to Tandon, to get his version of the events covered in this story. He denied each point that it covers during a two-and-a-half hour interaction with Mint.)
Genesis
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Tandon’s entrepreneurial journey started with Quant Capital Private Ltd, a firm founded in December 2007 by his friend Adil Patrawala, a former Edelweiss Financial Services executive. Tandon, who was completing his stint at Kotak Securities at the time, joined Quant Capital in April 2008.
According to filings with the ministry of corporate affairs (MCA), Patrawala owned 51% of Quant Capital, while Tandon owned 49%. However, Tandon took on the CEO role while Patrawala was the COO.
“Adil knew the nuts and bolts of what is needed for a business, while Sandeep’s strength was in the institutional equity derivatives business. For this reason, Adil took on the role of COO because that required building new lines of business, managing operations and ensuring compliance,” said a person close to the developments.
Tandon, however, told Mint that he was the brains behind Quant Capital, and that he had prodded Patrawala to do the paperwork and incorporate the company as he was serving his notice period at Kotak Securities.
The two friends were ambitious and hungry. They rented an office on the sixth floor of the Maker Chamber IV building at Nariman Point, Mumbai, the primest of prime real estate—Mukesh Ambani’s Reliance Industries has an office on the fifth floor.
After starting out buying and selling shares for institutional clients, Quant Capital quickly branched into five other areas: proprietary trading, wealth management, retail equity, commodities, and non-banking finance.
The two friends were ambitious and hungry. They rented an office on the sixth floor of the Maker Chamber IV building at Nariman Point, Mumbai, the primest of prime real estate.
Tandon and his team oversaw institutional customers while Adil managed the remaining businesses. It was a heady time for the small team. “Our vision was to build Edelweiss 2.0—a much bigger financial services firm focusing on technology,” recounted one of the early employees of Quant Capital.
That was the heyday of the first wave of financial entrepreneurship. First, Indiabulls Financial Services went public in 2004. Next, Nirmal Jain, a young graduate from the Indian Institute of Management-Ahmedabad, got his company, IIFL Finance Ltd, listed in 2005. Jain’s batchmate from the class of 1989, Rashesh Shah, took his firm, Edelweiss Financial Services, public in November 2007.
Quant Capital, however, was different from the rest of the pack. Its use of technology set it apart from Edelweiss, IIFL Finance, and Indiabulls’ broking business. Staying true to its name, the company used computer algorithms to buy and sell stocks.
In July 2010, Tandon roped in Reliance Capital as a strategic investor. Reliance Capital picked up a 74% stake in the company for about ₹200 crore. Patrawala’s stake came down to 13.26%, while Tandon’s shrank to 12.74% after the dilution.
By 2013, Quant Capital had become a 300-person team. It ended 2012-13 with ₹103 crore in revenue and recorded a ₹13.4 crore profit.
However, that spectacular run ended and the company plunged into a downward spiral soon after.
Exodus
Many of Quant Capital’s employees—23, to be specific—had joined the company from other financial firms, including Kotak Securities and Edelweiss, after being promised shares in the company. “Quant was a startup and we all joined with lower salaries because we all were promised equity in the company,” said the second executive.
Five of those executives told Mint that Quant Capital had promised to give up to 12% equity to the group of 23 as they had taken a cut in pay to come on board. These shares were to come from the 26% equity stake held by Tandon and Patrawala. Reliance Capital’s ownership was not to be diluted.
According to the five executives, while discussions were held on the issue with Tandon in 2011 and for much of 2012, none of them got any shares.
“Sandeep would say it is correct that we are to get shares, but he wouldn’t talk about when. It was getting clear that he had no intention of keeping his word,” said a third executive. “This was becoming problematic. All of us were earning less. But Sandeep and his team at the institutional desk took market salaries and hefty bonuses,” said a third executive.
Tired of waiting for the promised payout, many of them resigned and moved on from Quant. By December 2012, all 23 executives had left Quant Capital.
In the Lion’s Den
Speaking to Mint in his nondescript sixth floor office in Prabhadevi, in a building located between the more stately Goldman Sachs and ICICI Securities offices, Tandon gives little evidence of the aggressive personality he is reputed to have as a fund manager. He is guarded, never letting anyone read his mind. At times, he laughs, deflecting us as we try to get a glimpse into his emotions.
Except for two pet labradors, who hold sway over his affections, Tandon is always formal in every interaction. Periodically, his staff interrupt our conversation, seeking his intervention, giving credence to the popular belief that he is a one-man army/micromanager at Quant.
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As the executive cited above put it, “Sandeep is a lone wolf. He does not have many friends. But above all, if he sets his eyes on something, he always gets it. As a micro-manager, he always wants to be the decisionmaker in everything.”
Tandon told Mint he has friends and that the description of him preferring to work alone was incorrect. “Rakesh Jhunjhunwala was a very dear friend,” he said.
When we sought clarity on the events at Quant Capital, Tandon said it was more important to focus on the present, especially since his fund house was outdoing the industry. He said he was perplexed by why questions on bygones were being raised now, when the fund was doing well. “I don’t know what the purpose of discussing this more than 15-year-old episode is. What is important is how we built Quant,” said Tandon, referring to the AMC.
Rakesh Jhunjhunwala was a very dear friend.
—Sandeep Tandon
Co-founder’s Ejection
The employees who were demanding a share in the company’s equity found a sympathetic ally in Patrawala. According to some of the executives cited above, Patrawala tried to convince Tandon about the need to honour their promises to the group. “Adil took it upon himself to fight for all of us,” one of them told Mint. What happened next, however, left Patrawala reeling.
According to the minutes of the board meeting held on 23 February 2013, Tandon brought a notice before the Quant Capital board for the removal of Patrawala, allegedly for committing all manner of malafide acts.
It didn’t end at Patrawala. According to three executives, Tandon was unhappy with the group of 23 who had demanded shares.
In the April-June quarter of 2012, Reliance Capital hired the consultancy EY to conduct a forensic audit of the alleged wrongdoings. EY concluded that Patrawala and the 23 employees had stolen data, siphoned funds and committed financial irregularities. All of them were issued show-cause notices in February 2013, after they had left the company.
Mint has reached out to EY for comment but has not received a response thus far.
According to the minutes of the board meeting held on 23 February 2013, Tandon brought a notice before the Quant Capital board for the removal of Patrawala, allegedly malafide acts.
EY’s findings were taken up at the 23 February board meeting. “The Independent Auditors have submitted their Reports to Reliance Capital Limited and Audit Reports have implicated Shri Adil Patrawala, director and employee of quant group and few other employees in various malpractices and fraudulent activities such as IPR/data theft, siphoning of funds, execution of back datedAgreements/MOUs without authority, financial irregularities, etc. clearly acting against the interest of the Group,” said the minutes of the meeting.
In addition, the minutes noted, “The group has also served Show Cause Notice to Shri Adil Patrawala…In last few months Shri Adil Patrawala has threatened board members, chief executive officer, chief financial officer, chief operating officer, chief technology officer, company secretary, compliance officer, principal officer and various employees of the Group and have been filed to record and protect the human wealth of the Group.”
Four months later, in June 2013, Patrawala was removed from the company he had founded less than six years earlier. The ensuing legal battle brought some relief to Patrawala and some employees. In January 2014, a company law board directed Quant Capital to delete some of the EY report’s conclusions on employee misconduct from Quant Capital’s 2013 board meeting minutes.
Mint has not been able to ascertain if Patrawala and the 23 executives implicated in EY’s report committed any wrong. We are not revealing the identities of the employees.
Mint reached out to Patrawala over the phone but he declined to speak.
The five former employees Mint spoke to maintain that Tandon’s actions were “retaliatory” and “vindictive”, as they had all quit the company by the end of 2012.
Tandon rejects this narrative. He maintains that the 24 executives, including his friend and co-founder Patrawala, were looking to build a parallel business. He also denies that he was not willing to share equity with the employees.
After the ouster of Tandon’s friend and co-founder, more people continued to leave. Among these exits, the departure of Quant Capital’s company secretary and compliance officer, Vivek Thakur, in February 2014, stood out. In an unusual move, Thakur penned a letter questioning if the management, led by Tandon, would tamper with official documents.
“I further state that I have in my possession some copies of the original work performed by me in the capacity of Company Secretary/Compliance Officer/Authorised Signatory which I believe would be tampered/doctored after my resignation from the post of Company Secretary/Compliance Officer/ Employee taking into consideration the current litigations affecting the Company,” Thakur wrote to the board of Quant Capital, in his 3 February 2014 letter.
“I further state that in the past also exiting employees have been pressurized by the Quant management from external agencies by filing false and frivolous complaints and I do not wish to be treated in such manner,” Thakur wrote.
Mint has reached out to Thakur by email but is yet to get a response.
Soon, the executive exodus started reflecting on the company’s performance: Quant Capital’s revenue declined 35% from a year earlier to ₹66.1 crore in the year ended March 2014. Worse, it slipped into the red, reporting a ₹1.21 crore loss.
Revelations
With most of the team gone, Tandon started to build his own business. He set up Quant Capital Securities in June 2013, followed by Quant Capital Holdings Pvt. Ltd in August 2013. Quant Employees Welfare Foundation Private Ltd was incorporated a month later.
Finally, many subsidiaries of the Reliance Capital-backed Quant Capital were sold to the Tandon-owned Quant Capital Holdings between 2013 and 2015. Four such subsidiaries, Quant Capital Finance and Investments Private Limited, Quant Commodities Pvt. Ltd, Quant Capital Advisors Pvt. Ltd (QCAPL), and QOPPA Trading, changed ownership in this manner to come under Tandon’s holding company.
The original Quant Capital was left only with Quant Broking, Quant Securities and Quant Investment Services. Mint could not establish why the Reliance Capital-backed company sold so many of its businesses to Tandon, especially since Tandon was already the CEO of Quant Capital.
Tandon maintains that all his business transactions with Reliance Capital were transparent and had been undertaken because Reliance Capital wanted to shut down its brokerage business and focus on getting a bank licence. “Since they wanted to shut down the business, I thought I could buy it myself,” he told Mint.
Tandon also had an eye on the mutual fund business of the Delhi-based Escorts Group. According to filings by Escorts Asset Management Ltd, the promoter of Escorts Mutual Fund, Tandon picked up a 10% stake in the AMC in the year ended March 2016.
Exit and Resurrection
And then one fine day, Tandon quit the Reliance-backed Quant Capital, in rather strange circumstances, going by his resignation letter.
“I would like to inform you and place on record the unfortunate developments that unfolded after the conclusion of the Board meeting,” Tandon wrote in that letter, addressed to the board of Quant Capital. “As you are aware, I tabled serious reservations on the audit report tabled at the meeting and requested RC (Reliance Capital) nominees to record the factual inaccuracies in the minutes. Probably as a trigger of that request, Mr Bapna threatened to sack me and the entire team of Quant in an unjust and harsh manner,” the letter stated.
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Reliance Capital appointed Amit Bapna to the board of Quant Capital in July 2014. Bapna was the president and chief operating officer of Reliance Capital before he left in August 2020. He is now the chief financial officer of Essar Ports.
“Mr Amit Bapna led a team of IT specialists and security officers to take physical possession of the Quant offices and evicted all the working staff under the pretext of a management coup led by him. I have decided to lean on the pressure of RC and Mr Bapna and resign as the CEO of Quant with immediate effect.”
An email sent to Bapna seeking comment remains unanswered. Mint also reached out to the Reliance Anil Ambani Group for comment (Reliance Capital is in bankruptcy proceedings) but is yet to receive a response.
Without revealing any details, Tandon admitted that differences had cropped up between the two sides, leading him to head for the exit door.
In 2021, Reliance Capital’s board was replaced by the Reserve Bank of India citing governance issues and payment defaults. Subsequently, it ended up in bankruptcy court. Late last year, the Hinduja group agreed to buy Reliance Capital and its subsidiaries, including Quant Capital, for about ₹10,000 crore.
Escorts Mutual Fund was rebranded as Quant Mutual Fund. Its stellar performance in a short time turned Tandon into the star he is today.
A month after leaving the Reliance owned company, on 20 February 2018, Tandon bought Escorts’ mutual fund business through Quant Capital Finance and Investments, a company he owned in full with his family. Details of the financial transaction were not disclosed, but Mint learned that the deal was finalized for about ₹250 crore. Escorts Mutual Fund was subsequently rebranded as Quant Mutual Fund. Its stellar performance in a short time turned Tandon into the star he is today.
Repeating history
In 2021, three years after setting up his Quant business empire, Quant Capital Advisors Pvt. Ltd, a wealth management company Tandon had acquired from Reliance Capital, saw a repeat of what had happened eight years earlier.
In December 2020, Tandon had hired FTI Consulting India, a consulting firm that carries out forensic probes, as he suspected some employees of the wealth management division had been cheating him.
In a strange coincidence, just as EY had implicated 24 employees of wrongdoing at the Reliance Capital-backed Quant Capital in 2013, FTI Consulting found in 2020 that eight of Quant Capital Advisors’ employees had committed misconduct. All the eight employees of Quant Capital Advisors were probed long after they had left—the employees were issued show-cause notices on 18 March 2021, whereas they had all quit the company by the end of 2019.
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“Based on our work procedures performed, it can be noted the Custodians were indulging in theft of proprietary data of QCAPL, running parallel and competing businesses, soliciting clients of QCAPL, violating terms of employee contracts and the Code of Conduct and obtaining potential personal gains on account of their dealing,” FTI Consulting India concluded, in a report titled Project Eldorado. “These breaches have caused significant diminution of the intrinsic value of the company.”
One of the employees was Anurag Seth, who had quit QCAPL in December 2019. Tandon sought the removal of Seth as a director of Quant Capital Finance & Investment, a subsidiary of Quant Capital Holdings, which had been set up in August 2013.
“We left Quant in September 2019. We put in our resignation in September 2019, which was duly acknowledged by Quant, and then served our notice till December 2019,” Seth told Mint in an email response, when asked why he and his colleagues had quit the firm. “We left Quant because Quant/Sandeep bought an AMC in 2018 and wanted to focus on the mutual funds business, whereas we always wanted to focus on the wealth management business, our core strength,” said Seth.
We deny the findings of the FTI report in its entirety. Even the Board of Quant Capital has now declared the FTI Report as ‘void’.
—Anurag Seth
“We deny the findings of the FTI report in its entirety. Even the Board of Quant Capital has now declared the FTI Report as ‘void’. Even NCLT Mumbai dismissed the FTI Report in its order initiating CIRP (Corporate Insolvency Resolution Process) against Quant Capital,” Seth added.
Mint reached out to FTI Consulting for comment but has not received a response from the consultancy so far.
When asked about the parallels with the 2012 incident, Tandon said: “Please remember that it was Reliance Capital that hired EY in 2012. In 2020, I hired FTI Consulting. But is there anything wrong in this (undertaking a forensic audit) if you suspect some of your employees have done wrong?”
While the earlier part of his entrepreneurial journey was full of ups and downs, Tandon, 54, managed to stabilize things and get on a more stable path after going solo. He has won accolades for quickly building Quant Mutual Fund into a respected industry name.
However, Sebi’s search and seizure operations at the fund house’s properties have slowed down his relentless march. With the regulator taking a closer look into the goings-on at his company, Tandon may once again find himself on a ride with many twists and turns. But then, he is no stranger to challenges and may weather this storm just as he has so many others.
