Mumbai: The Securities and Exchange Board of India (SEBI) on June 14 imposed a total fine of Rs 15 crore on nine entities, including Franklin Templeton Trustee Services, Sanjay Sapre, its chief executive officer, and its debt fund managers, among other top officials associated with the fund house's six debt schemes.
In a follow-up to its last week's order, SEBI has issued a fine of Rs 3 crore on Franklin Templeton Trustee Services Pvt Ltd, and Rs 2 crore each on Franklin Asset Management (India) Pvt Ltd President Sanjay Sapre and its Chief Investment Officer Santosh Kamat.
The market regulator also fined Kunal Agarwal, Sumit Gupta, Pallab Roy, Sachin Padwal Desai, and Umesh Sharma each Rs 1.5 crore for their roles as fund managers for various Franklin Templeton schemes at the time of the violation. It also fined chief compliance officer Saurabh Gangrade Rs. 50 lakh.
Sebi, in the order, said that the forensic audit report found that Franklin Templeton violated several regulations in the management of the six shut debt schemes.
"There were similarities in investment strategy though the investment objectives were differing in the six wound up schemes. This was observed by way of common fund managers, high exposures in “AA and below” corporate bonds in all the six schemes even though investment objectives as per the SIDs of these schemes are different. Further, as per the portfolio holding data, most of the securities are rated AA or below at the time of investment. In addition, there was concentration of similar securities across schemes under audit where investments were made over 70% of the issue of such debt securities and most of the investments which were made in schemes were common at time of investment," said Sebi in its 151-page order.
The AMC is likely to move to Securities Appellate Tribunal (SAT) against the SEBI oder.
When asked for comments, a Franklin Templeton spokesperson said, "At Franklin Templeton, we place great emphasis on compliance, and have policies in place to cover a variety of matters consistent with applicable regulations and global best practices. 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)."
According to Franklin, the difficult decision to wind up these schemes was taken after due consideration of available options to avoid distressed sales of portfolio holdings to meet heightened redemptions and with the sole objective of preserving value for unitholders. The current net asset value of each of the six schemes is higher than it was on April 23, 2020.
The six schemes under winding up have already distributed INR 17,778 crores to unitholders, comprising 71% of the AUM of Rs 25,214 crores on the date of the winding-up decision.
"Of the above, Rs 3,205 crores was paid out just last week. The process of monetisation and distribution is ongoing. The Trustee’s immediate priority and focus remains on supporting the liquidation of the portfolios of the six schemes under winding up and distributing monies to our unitholders at the earliest, while preserving value," said a Trustee statement on SEBI's adjudication order.