‘Suspicious activity’. ED conducts raids on Franklin Templeton officials; unusual withdrawals, dubious deals under scanner

Enforcement Directorate (ED) is conducting searches on officials of Franklin Templeton who withdrew money before winding up six debt schemes, sources said.

Market regulator SEBI was 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 had also issued show-cause notices (SCNs) to two other large institutions in the matter.

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Some of the top management executives named in the ED’s First Information Report (FIR), include FT President Sanjay Sapre, CEO Jayaram Iyer, and Head of APAC Distribution Vivek Kudva.

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

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.

The audit has revealed that more than ₹15,300 crore, or over $2 billion, was withdrawn from the six debt schemes of FTMF just a few weeks before the announcement of the suspension of redemption in these schemes.

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

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 2021.

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 was 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.

Response from Franklin Templeton:

• “We continue to cooperate with all regulatory and statutory authorities and provide all data and information required by them. Franklin Templeton places great emphasis on compliance with regulations, and we have appropriate policies in place, consistent with Indian regulations and global best practices.”
• “In reference to the six schemes under winding up, as of March 16, 2023, these schemes have already distributed ₹26,931.27 crore to unitholders, amounting to 106.81 per cent of the aggregate reported AUM value as of April 23, 2020, across the six schemes. The total amount disbursed so far ranges between 99.32 per cent and 112.46 per cent 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 it was on April 23, 2020. Further, five of the six funds have returned over 100 per cent of the AUM at the time of the winding up decision on April 23, 2020.”
• “Four out of six schemes have liquidated all performing securities and there is only one issuer with three performing securities remaining to be liquidated in the other two schemes. The AMC is continuing to support the ongoing liquidation process by a third-party liquidator.”

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