ED knocks at the door of Franklin Templeton execs, conducts searches

The Enforcement Directorate on Thursday conducted searches on the residences of Franklin Templeton India’s former and current executives in Mumbai and Chennai in relation to the closure of some funds in April 2020.

The federal agency conducted searches on Chief Investment Officer Santosh Kamath, former Asia-Pacific distribution head Vivek Kudva, his wife Roopa Kudva, who is also managing partner, Omidyar Network India, as well as on former India president Sanjay Sapre, among others, informed sources.

The searches are in connection with irregularities regarding withdrawals of investments from six debt schemes before they were closed on April 23, 2020, which the asset manager had blamed on the lack of liquidity due to Covid-19’s impact on the markets.

ED’s latest action follows orders passed by the Securities and Exchange Board of India (Sebi) nearly two years ago.

In June 2021, the capital markets regulator had restricted Vivek Kudva and his wife Roopa from accessing the securities markets for a year for redeeming their units in the closed schemes while allegedly being in possession of non-public information.

It imposed a cumulative penalty of Rs 7 crore and sought disgorgement of Rs 22 crore — nearly two-thirds of the amount they redeemed before the schemes wound up.

Franklin Templeton said it is cooperating with the regulatory authorities.

“We continue to cooperate with all regulatory and statutory authorities and provide all data and information required by them. Franklin Templeton places great emphasis on compliance with regulations, and we have appropriate policies in place, consistent with Indian regulations and global best practices,” said a spokesperson for Franklin Templeton.

A company executive said the ED action will have no impact on the present-day mutual fund schemes, mentioning that as of March 16 this year, the six schemes have distributed Rs 26,931.27 crore to unitholders, amounting to 106.81 per cent of the aggregate reported assets under management (AUM) value as of April 23, 2020.

“The total amount handed out so far ranges between 99.32 per cent and 112.46 per cent of the respective reported AUM values of the six funds as of April 23, 2020. At the time of each distribution, the net asset value of each of the schemes was higher than it was on April 23, 2020. Further, five of the six funds have returned over 100 per cent of AUM at the time of the wind-up decision on April 23, 2020,” he said.

Four of the six schemes have liquidated all performing securities.

There is only one issuer with three performing securities remaining to be liquidated in the other two schemes, he added.

Sebi had barred Franklin Templeton from launching debt schemes for two years and imposed a penalty of Rs 5 crore for violating regulatory norms in the closure of six debt schemes in 2020. The watchdog had also directed the fund house to disgorge Rs 512 crore it collected as investment management and advisory fees between June 2018 and April 2020.

Sebi’s action in the Franklin Templeton matter was challenged before the Securities Appellate Tribunal. The tribunal had provided some interim relief but is yet to pass its final order on the matter.

The story so far

• Franklin Templeton wound up six debt schemes in April 2020, citing liquidity issues
• In June 2021, Sebi imposed a penalty of Rs 5 crore on the fund house, ordered it to disgorge Rs 512 crore
• Fund house also banned from launching any new scheme for two years
• The Kudva couple — Vivek Kudva and Roopa Kudva — were slapped with a penalty of Rs 7 crore and directed to disgorge Rs 22 crore
• In July 2021, SAT stayed the one-year ban on Kudvas and gave interim relief to Franklin Templeton