SEBI orders Franklin to refund Rs 512 cr fees; bars from launching new debt funds for 2 years
SEBI has also slapped a 2-year ban on Franklin Templeton AMC from launching any new debt scheme
In a tough indictment, market regulator SEBI on Monday directed Franklin Templeton’s Vivek Kudva, Head of Asia Pacific for FT, his wife Roopa, and his mother, Vasanthi to pay a combined Rs 7 crore as monetary penalty, besides banning Vivek and Roopa from accessing the securities market for one year. The order came in the matter related to Kudvas cumulatively redeeming units amounting to Rs 30 crore between March and April 2020 in FT debt funds while in possession of material non-public information of the troubles brewing in Franklin MF debt schemes.
The Kudvas redeemed investments in two schemes: Franklin India Income Opportunities Fund and Franklin India Short Term Income Fund/Plan. These two funds are part of the six schemes for which the fund-house announced an unprecedented winding up on April 23, 2020, weeks after Kudvas took out their Rs 30 crore. The Kudvas by redeeming their units ahead of the other investors have enjoyed an unfair advantage by having access to their investments, whereas the unit holders who remained invested were left in the lurch as their investments were locked up for a considerable amount of time.
Additionally, SEBI slapped a 2-year ban on Franklin Templeton Asset Management India (AMC) from launching any new debt scheme, ordered a total refund of Rs 512 crore in investment management and advisory fees collected from June 4, 2018 till April 23, 2020 with respect to the six debt schemes being wound up. To add insult to injury, Franklin Templeton Asset Management India has also been directed to pay Rs 5 crore in fine.
SEBI found Franklin Templeton Asset Management India seriously wanting in so far as its conduct as an AMC is concerned and found it to be in breaches of the mutual funds regulations as also the SEBI circulars, brought out above, under various heads. “Income derived out of wrongful conduct, which ultimately resulted in loss and caused hardship to the investors, in my view, is liable to be disgorged, as proposed in the SCN (show cause notice). The investment management and advisory fees in 6 schemes came to Rs 451 crore and 12 per cent simple interest per annum amounted to another Rs 61 crore. At Rs 512 crore refund, this would be one of the biggest disgorgements ever ordered by SEBI in a mutual fund matter.
In the specific case of Kudvas, Vivek and Roopa have been directed not to liquidate their existing holding of securities including the units of mutual funds. Vivek is liable to pay a monetary penalty of Rs 4 crore for the redemptions undertaken on his own behalf and on behalf of mother Vasanthi, and Roopa is liable to pay a monetary penalty of Rs 3 crore for the redemptions from her account.