In a major blow for Franklin Templeton Asset Management Company (FT-AMC), the Securities and Exchange Board of India (SEBI) has barred the fund house from launching any new debt scheme for two years, while imposing a penalty of Rs 5 crore for violation of regulations in the shutting down of six debt schemes last year.
In its order on Monday, the capital market regulator said that Franklin Templeton Mutual Fund has been found to have violated the provisions of the Mutual Funds Regulations and also certain SEBI circulars.
The market regulator has also restrained the head of Franklin Templeton Asia Pacific (APAC) Vivek Kudva his wife Rupa, MD of Omidyar Network India from accessing securities market for one year. SEBI has ordered Vivek and Rupa to transfer Rs 30.70 crore of redeemed FT units to escrow account within 45 days. Vivek will pay a monetary penalty of Rs 4 crore, while Rupa will pay monetary Rs 3 crore as penalty.
Additionally, SEBI has initiated adjudication proceedings against certain employees of FT–AMC including the chief executive officer, chief compliance officer and the director.
FT-AMC will refund investment management and advisory fee of Rs 512 crore including interest.
“As a result of the irregularities in the running of the debt schemes inspected, loss has been caused to the investors. The noticee was under a statutory obligation to abide by the provisions of the Mutual Regulations and circulars issued thereunder, which it failed to do.
“Each of the provisions contained in Sections 15A(b), 15D(b), 15D(f), 15E and 15HB of the SEBI Act mandate a maximum penalty of Rs 1 crore. Accordingly, I am of the view that a monetary penalty of Rs 5 (five) crore be imposed under Section 15I of the SEBI Act read with Rule 5 of the SEBI Inquiry Rules, on the Noticee for the violations,” Securities and Exchange Board Of India’s Whole Time Member G. Mahalingam said in the order.
Franklin Templeton will have to pay the penalty within 45 days of the order.
The order also said that it shall refund the investment management and advisory fees collected from June 4, 2018, till April 23, 2020, with respect to the six debt schemes inspected along with simple interest at the rate of 12 per cent per annum, to the respective schemes, within a period of 21 days from the date of this order, for utilisation towards repayment of the concerned unitholders.
In the event of failure to comply with the direction, the noticee shall pay simple interest at 12 per cent per annum, which shall commence from the date the amount becomes payable.
In addition, the findings in the instant proceedings have brought on record several irregularities in the running of the debt schemes inspected, contrary to the interests of the unitholders in such schemes.
The irregularities also extend to failures to exercise adequate due diligence, carry out valuation of securities as per the principles of fair valuations and ensuring a robust risk management framework.
“In my view, the employees of FT-AMC may be liable for the aforementioned irregularities arising during the course of business of the noticee. From the records made available before me, I note that SEBI has initiated adjudication proceedings against certain employees of FT-AMC including the Chief Executive Officer, Chief Compliance Officer and the Directors,” the order said.
The SEBI noted that the matter examines the compliance of the AMC of a mutual fund to the norms during the period leading up to the winding up of the six schemes managed by the AMC, in April 2020.
So far, the fund house has distributed Rs 14,572.34 crore among the concerned investors in three tranches.
The unitholders of the six shut schemes will get Rs 3,205.25 crore in the week starting from Monday, the CEO had informed the investors in a letter.