SEBI bans Vivek Kudva, Roopa Kudva for one year from market in FT case

Our Bureau Mumbai | Updated on June 07, 2021

Vivek Kudva, Senior official of Franklin Templeton AMC   -  Business Line

Also imposes ₹7 cr fine on them

Vivek Kudva, senior official of Franklin Templeton AMC, and his wife Roopa Kudva were found guilty of violating sections of prevention of fraudulent trading practices (PFUTP) by market regulator SEBI. They were held guilty for sections related to unfair trading practices.

Both have been banned from stock markets for one year by SEBI. Market regulator has also imposed a penalty of ₹4 crore on Vivek Kudva and ₹3 crore on Roopa Kudva.

Vivek Kudva was in possession of non-public confidential information when he and his wife redeemed nearly ₹30 crore from among the debt schemes run by the fund house. FTAMC shut the debt schemes on April 23, 2020, and suspended redemptions in them. However, the Kudvas’ redeemed a huge portion of their investments between March and April 2020.

“The Noticees (Kudvas) by redeeming their units ahead of the other investors have enjoyed an unfair advantage by having access to their investments; whereas the unit holders who remained invested were left in the lurch as their investments were locked up for a considerable amount of time,” said SEBI in its order issued on Monday.

₹22.64 cr to escrow account

Both have been banned from stock markets for one year and have been asked to return an amount of ₹22.64 crore in an escrow to SEBI, which will be released to them along with the cash being disbursed to other investors. This is the amount they received on redemption before the schemes were shut. Both have been asked to pay interest of 12 per cent on amount they had redeemed.

SEBI said that while the directors were not prohibited from trading in units of the schemes managed by the AMC, they should ensure that such trading conforms to ethical and moral standards and legal norms expected to be complied by a person entrusted with quasi - fiduciary responsibilities.

“Redemption of units by a director of the asset management company of a mutual fund while being privy to material non- public information cannot be considered as fair conduct,” SEBI order said.

SEBI had alleged that the act of of redemption of units while in possession of non–public information with respect to stress in the debt schemes inspected, amounted to an unfair trade practice in the securities market and a fraud on the other unsuspecting unit holders of said debt schemes who were not privy to such confidential information and therefore, could not redeem their investments.

However, SEBI has not pursued fraud against the Kudavas since the regulator believed that there was no inducement on their part to apply fraud.

SEBI has the power to order disgorgement of an amount equivalent to the wrongful gains made or losses averted by engaging in any transaction or activity in breach of the SEBI Act or regulations.

For such provision to apply, such ‘transaction’ or ‘activity’ must be in contravention of the provisions of the SEBI Act or regulations thereunder. In other words, the transaction or activity must be non-est or void, for the powers to disgorge under the aforementioned provision to be invoked. Such a principle cannot be said to be applicable.

Published on June 07, 2021

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