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SAT verdict on Franklin Templeton plea against Sebi on Monday

Our Bureau Mumbai | Updated on July 09, 2021

Sebi had slapped a penalty of ₹5 crore and ordered to disgorge ₹512 crore investment management and advisory fee charged by the fund house for managing six suspended schemes

Securities Appellate Tribunal(SAT) will deliver its verdict on Franklin Templeton plea seeking a stay on Sebi penalty by first half of next week. The fund house had filed the petition with SAT last Thursday and it was heard the next day. Given the seriousness of the issue, the Appellate body will give its verdict on Monday, said sources.

Earlier, Sebi had slapped a penalty of ₹5 crore and ordered to disgorge ₹512 crore investment management and advisory fee charged by the fund house for managing the six suspended schemes. Following the verdict on the penalty, SAT will get into the objections raised by the fund house on findings of Sebi in its order. Franklin Templeton trustees and eight employees who have also been fined have also approached SAT against Sebi order. G Mahalingam, Wholetime Member, Sebi in his order early this month said the serious lapses and violations appear to be a fall out of Franklin Templeton’s obsession to run high yield strategies without due regard from the concomitant risk dimensions.

The fund house ought to have realised that the past track record in with respect to high–risk strategies is no guarantee against future mishaps. For a fund house which has been in this industry in India for over two and a half decades, it is surprising that its systems to monitor and manage critical risks like liquidity, credit and concentration are less than robust, said the order.

Franklin Templeton brings out the reasons of ‘business judgement’ to defend questionable decisions. However, it is seen that these decisions which involve deployment of public funds are barely documented. Similarly, the terms of investment covenants were apparently not in the interest of investors and the deficiencies in the agreements were sought to be corrected through a ‘commercial understanding’, it said.

While it is easy to shift the blame for such mishaps onto black swan events, regulatory changes, the fund house needs to seriously introspect and put in place robust risk control and due diligence mechanisms, given that the rest of the industry has been able to cope with the events and survive through the crisis period of the Covid pandemic, without reaching the point of winding up, said Sebi order.

Published on June 26, 2021

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