Market regulator SEBI is now probing Franklin Templeton Mutual Fund (FTMF) and its executives with regard to the ‘unusual withdrawals’ from the six debt schemes before it announced the suspension of redemption in them on April 23, 2020. The market regulator has also issued show-cause notices (SCNs) to two other large institutions in the matter.

SEBI’s probe against FTMF is based on the revelations made in the forensic audit report of Chokshi and Chokshi LLP, sources with direct knowledge of the matter said. Reportedly, the audit has revealed that more than ₹15,300 crore, or over $2 billion, was withdrawn from the six debt schemes of FTMF just a few weeks before the announcement of suspension of redemption in these schemes came.

Audit report

The audit has found these redemptions ‘unusual’ since they were over three times the usual levels reported by the fund. The audit report has been kept under wraps by SEBI so far, even as FTMF investors have been seeking its disclosure. The show-cause notices were issued in December and quasi-judicial hearings are on.

“We have received a show-cause notice from SEBI and will be responding. Our interactions with SEBI as our regulator are confidential. Inspections and third-party audits fall within the purview of SEBI’s oversight of mutual funds and we are cooperating fully with SEBI,” FTMF said in reply to an email query from BusinessLine .

The SEBI show-cause notice questions FTMF and its executives for ‘unethical conduct and other illegalities with regard to the redemptions. It is alleged that FTMF gave knowledge of, or passed on information about, the situation and potential suspension of redemptions in the schemes to a few large investors.

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

The forensic audit is part of the SEBI investigation into FTMF’s dealings between 2018 and 2020. SEBI had ordered the forensic audit in May 2020 after investors complained of fraud and malpractice by FTMF. More than 3.15 lakh investors hold ₹28,000-30,000 crore in FTMF, and this has been stuck for nearly a year now.