The Securities and Exchange Board of India (Sebi) has barred Vivek Kudva and wife Roopa Kudva, former MD of Omidyar Network India, from accessing the capital market for one year for redeeming their units in the schemes shuttered by Franklin Templeton Mutual Fund while allegedly being in possession of non-public information.
The regulator has imposed a cumulative penalty of Rs 7 crore on Vivek, who serves as a director on the Franklin MF, wife and late mother Vasanthi.
Further, they have been directed to disgorge Rs 22 crore into a separate bank account—nearly two-thirds of the amount they redeemed before the schemes were shut.
The individuals had cumulatively redeemed units worth over Rs 30 crore from Franklin India Short Term Income Fund (STIP) and Franklin India Income Opportunities Fund (IOF) while in possession of material non-public information weeks before the schemes were wound up.
Sebi in a show cause notice alleged that Kudva his capacity as a director was privy to information such as concerns of redemption, concentration and liquidity risk pertaining to the stress in the debt schemes, most of which was not in public domain. The regulator alleged that this amounted to “an unfair trade practice in securities market and a fraud on the other unsuspecting unit holders of said debt schemes who were not privy to such confidential information and therefore, could not redeem their investments.”
In their replies, the Kudvas said that they had redeemed the units on the basis of non-public information.
“The noticees decided to sell to their units in the schemes based on, inter alia, generally available public information and in the context of an extraordinary market situation due to the unprecedented black swan event of Covid-19 pandemic,” they said in their reply to Sebi.
“The noticees 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. In such a scenario, I find it appropriate to place the noticees (with respect to their investments in the two schemes) in a similar position, to that of the unit holders who had remained invested,” Sebi explained the rationale behind disgorgement.
Sebi in the order said that the normal investors of STIP and IOF schemes had got only a fourth of their investment back so far. As a result, the Kudva’s also need to return about 75 per cent of the amount they had redeemed from these schemes. They have also been directed to transfer 12 per cent of the redeemed amount into Sebi’s Investor Protection And Education Fund account.