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Franklin Templeton Mutual Fund (FTMF) has offered to pay a fine and ‘settle’ its ongoing investigations with market regulator SEBI, sources told BusinessLine . SEBI is probing FTMF for violation of the Prevention of Unfair and Fraudulent Trading Practices (PFUTP) Rules, which also attract criminal prosecution.
But SEBI is unlikely to accept FTMF’s offer as the internal view is that the violations are quite grave, the sources said.
SEBI had issued a show- cause notice to FTMF after a forensic audit revealed grave mismanagement by the fund house. Any time during the investigations or after it, SEBI allows a listed wrongdoer to ‘settle the case’ by paying a fine ‘without admission or denial of guilt.’ But such an arrangement, known as settlement with consent, is resorted to in less-sensitive cases. SEBI has alleged lapses in FTMF’s risk management systems and even leakage of insider information with regard to the closure of the schemes.
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As of March 2021, the total AUM stood at ₹60,799 cr against ₹1,16,323 cr in March 2020Neither FTMF nor SEBI responded to email queries on the settlement offer.
FTMF came under a cloud after it abruptly shut six debt schemes in April 2020, blaming Covid for the losses in the schemes. However, the forensic audit showed that there were reasons other than Covid that had led to the closure of the schemes.
Unusual withdrawals
Apart from poor decision making, FTMF is also alleged to have allowed unusual withdrawals from the debt schemes before they were shut. Nearly $2 billion was withdrawn weeks ahead of suspension of redemptions in these schemes. Forensic probe found that FTMF insiders and their associates got an exit while the rest of the investors remained stuck. FTMF is also alleged to have incurred arbitrary loans and invested in unlisted debt instruments that had no trading or liquidity. The Enforcement Directorate is investigating FTMF for any money laundering activity.
FTMF has maintained that schemes under winding-up continue to have significant investments from its employees and management and all redemptions were processed in the normal course. The Supreme Court has asked SBI Mutual Funds to oversee asset sale and refunds to FTMF’s investors.
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