Capital markets regulator SEBI (Securities and Exchange Board of India) has fined Franklin Templeton Trustee Services FT AMC CEO Sanjay Sapre and seven other folks to the tune of Rs 15 crore, in the matter relating to the abrupt closure of six debt mutual funds schemes last year. SEBI in its order stated that the proof seen by it does not indicate that the Trustees had exercised higher requirements of service, exercised due diligence, ensured suitable care and exercised independent experienced judgment to address dangers. Earlier last week, SEBI had fined Franklin Templeton and asked it to return Rs 512 crore in management and advisory costs to investors.
CEO, CIO, fund managers fined
The SEBI order imposes a Rs 3 crore penalty on Franklin Templeton Trustee Services and a further Rs 2 crore every on Franklin Templeton AMC CEO, Sanjay Sapre and CIO Santosh Kamat. Further, the order has imposed a Rs 1.5 crore penalty every on Kunal Agarwal, Sumit Gupta, Pallab Roy, Sachin Padwal Desai, and Umesh Sharma — all fund managers. The industry regulator has also fined Saurabh Gangrade, the Chief Compliance Officer of the firm Rs 50 lakh. The order stated that the penalty has to be paid inside 45 days.
“The serious lapses and violations clearly appear to be a fall out of the FT-MF’s obsession to run high yield strategies without due regard from the concomitant risk dimensions,” SEBI’s order stated. They additional added that the terms of investment covenants had been apparently not in the interest of investors and the deficiencies in the agreements had been sought to be corrected by means of a ‘commercial understanding’.
Forensic audit reveals discrepancies
In the forensic audit, ordered last year, SEBI located that in the six closed schemes there had been similarities in investment method despite the fact that the investment objectives had been distinct. “This was observed by way of high exposures in “AA and below” Corporate bonds in all the six schemes even although investment objectives as per the SIDs of these schemes are distinct,” the industry watchdog noted. The audit located that in 42 situations (for FI-UBF) and 17 situations (for FI-LDF), exit possibilities had been in truth not exercised exactly where obtainable.
The audit also revealed that there had been discrepancies in respect of valuation of securities exactly where terms of the situation have been changed often which resulted in the declaration of incorrect NAV. It also located that FT failed to carry out due diligence with respect to investments in illiquid securities and observed that the pattern of investment transactions is “akin to giving loan to issuers”.
Franklin Templeton, reacting to the order stated that disagrees with SEBI order. “We believe the company and employees have acted in compliance with regulations and in the best interest of unitholders in discharging their responsibilities. Based on our initial review of the order, we are considering all options with regard to next steps which may include filing an appeal before the Hon’ble Securities Appellate Tribunal (SAT),” a Franklin Templeton Spokesperson stated. The six schemes below winding up have distributed Rs 17,778 crores to unitholders or 71% of the AUM of Rs 25,214 crores on the date of the winding-up choice.