Franklin Templeton (FT) had announced winding up 6 of its debt schemes in April 2020 citing redemption pressures and lack of liquidity due to COVID 19. In the last week, the securities and exchange board of India (SEBI) had already imposed an Rs. 5 crore fine on Franklin Templeton Asset Management Company (FT AMC) in addition to instructing FT to pay back management fees amounting to Rs. 512.5 crore. SEBI also banned the fund house from launching any new debt schemes for the next 2 years. Head of Franklin Templeton Asia Pacific (APAC), Vivek Kudva and his wife, Roopa Kudva, MD of Omidyar Network India were banned from accessing the securities market for 1 year and monetary penalties of Rs. 4 crore and Rs. 3 crore were issued respectively. They have also been instructed to transfer Rs. 30.7 crore of redeemed FT units to an escrow account within 45 days.
In its latest order, SEBI has imposed a cumulative fine of Rs. 15 crore on nine entities, including Franklin Templeton Trustee Services, senior officials and fund managers associated with the six debt schemes wound up by the fund house. SEBI also mentioned that the monetary penalties have to be paid within 45 days of receiving the order.
Monetary Penalties Issued
|Franklin Templeton Trustee Services Pvt. Ltd.||–||Rs. 3 crore|
|Sanjay Sapre||President- FT AMC||Rs. 2 crore|
|Santosh Kamat||Chief Investment Officer- FT AMC||Rs. 2 crore|
|Kunal Agarwal||Fund Manager||Rs. 1.5 crore|
|Sumit Gupta||Fund Manager||Rs. 1.5 crore|
|Pallab Roy||Fund Manager||Rs. 1.5 crore|
|Sachin Padwal Desai||Fund Manager||Rs. 1.5 crore|
|Umesh Sharma||Fund Manager||Rs. 1.5 crore|
|Saurabh Gangrade||Chief Compliance Office||Rs. 50 Lakh|
|Venkata Radhakrishnan||Director||Rs. 45 Lakh|
|Malathi Radhakrishnan||Wife of Venkata Radhakrishnan||Rs. 5 Lakh|
|Jayaram S Iyer||Director||Rs. 5 Lakh|
|Mywish Marketplaces Pvt. Ltd.||–||Rs. 5 crore|
SEBI stated that “The serious lapses and violations clearly appear to be a fallout of Franklin Templeton’s “obsession” to run high yield strategies without due regard from the concomitant (naturally associated) risk dimensions.” SEBI also noted that the notices provided by FT stated reasons of business judgment to justify questionable decisions with regard to the deployment of funds however there was barely any proper documentation to support this. Additionally, the terms of investment contracts were also not found to be in the interest of investors.
SEBI also mentioned in one of its orders that Vivek Kudva, head of Asia Pacific (APAC) for Franklin Templeton, and Alok Sethi, director at Franklin Templeton Trustees, were directors on the board of Mywish Marketplaces. They have been penalized for redeeming their units based on non-public information regarding stress in the six wound-up debt schemes. They violated the provisions of Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) norms.
In response to SEBIs action, an FT spokesperson stated that the decision to wind up the schemes was taken after due consideration of all options and to avoid distressed sales of portfolio holdings to meet redemption requirements. He further stated that immediate priority and focus remains on supporting the liquidation of the portfolios while preserving value. With regard to FT employees, the spokesperson also mentioned that they have acted in the best interest of unitholders and compliance procedures in discharging them.