ED Conducts Searches of Franklin Templeton Officials; unusual withdrawals, dubious deals under the scanner

The Enforcement Directorate (ED) is conducting searches for Franklin Templeton officials who withdrew money before settling six debt schemes, the sources said.

Market regulator SEBI was investigating Franklin Templeton Mutual Fund (FTMF) and its executives regarding “unusual withdrawals” from the six debt schemes before announcing the suspension of redemption on them on April 23, 2020.

The market regulator had also issued justification notices (SCNs) to two other large institutions in the matter.

Some of the senior management executives mentioned in the ED First Information Report (FIR) include FT Chairman Sanjay Sapre, CEO Jayaram Iyer and APAC Director of Distribution Vivek Kudva.

Other executives who have also been charged with provisions of the Prevention of Money Laundering Act include Radhakrishnan Venkada, Pradip Pannalal Shah, Tabassum Abdulla and Santosh Das Kamath.

SEBI’s investigation against FTMF is based on disclosures made in Chokshi and Chokshi LLP’s forensic audit report, sources with direct knowledge of the matter said.

The audit has revealed that more than Rs 15.3 billion, or more than $2 billion, was withdrawn from the six FTMF debt schemes just weeks before the announcement of the suspension of redemption in these schemes.

FT AMC owed nearly $5 billion or ₹39,085 crore to more than 3 lakh investors from its six debt schemes that were abruptly closed in April 2020. But before the fund closed its six debt schemes, some top officials withdrew their own money, which is under investigation.

The audit has found these redemptions to be “unusual” in that they were more than triple the usual levels reported by the fund.

SEBI has kept the audit report secret so far, even as FTMF investors have been seeking its disclosure. The justification notices were issued in December 2021.

The audit report has said that the repayments totaled ₹9,826 crore across the six schemes in March 2020 and ₹5,531 crore the following month. Comparatively, the previous fiscal year saw redemptions of ₹3,255 crore in March and ₹2,378 crore in April.

The forensic audit was part of SEBI’s investigation into FTMF’s dealings between 2018 and 2020. SEBI ordered the forensic audit in May 2020 after investors complained of fraud and malpractice by FTMF.

Answer from Franklin Templeton:

• “We continue to cooperate with all regulatory and legal authorities and provide all the data and information they require. Franklin Templeton places great emphasis on regulatory compliance, and we have the right policies in place, in line with Indian regulations and global best practices.”

• “In reference to the six schemes in liquidation, as of March 16, 2023, these schemes have already distributed ₹26,931.27 crore to unit holders, which is equivalent to 106.81 per cent of the aggregate AUM value reported as of April 23, 2020, through the six schemes The total amount disbursed to date ranges from 99.32% to 112.46% 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 on April 23, 2020. In addition, five of the six funds have returned more than 100 percent of the AUM at the time of settlement. . decision on April 23, 2020.”

• “Four of the six schemes have liquidated all outstanding securities and only one issuer remains with three outstanding securities to be liquidated in the other two schemes. The AMC continues to support the ongoing liquidation process by a third-party liquidator.”