Investors move SC, seek probe into siphoning of funds by Franklin Templeton

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Published: June 9, 2020 3:00 AM

They also want a stay on the e- voting process initiated by the fund manager from June 9, besides court-monitored investigation into the siphoning of the funds and also direction to Sebi to appoint an administrator to take over the functioning of Franklin Templeton AMC and its trustee.

They said that Franklin Templeton violated the Sebi MF regulations and did not seek unitholders’ approval before deciding to wind up.They said that Franklin Templeton violated the Sebi MF regulations and did not seek unitholders’ approval before deciding to wind up.

Delhi-based investors of Franklin Templeton on Monday moved the Supreme Court seeking stay on the scrapping of six debt schemes managed by the fund house. They also want a stay on the e- voting process initiated by the fund manager from June 9, besides court-monitored investigation into the siphoning of the funds and also direction to Sebi to appoint an administrator to take over the functioning of Franklin Templeton AMC and its trustee.

The petition filed by seven investors, including two firms, has sought quashing of the April 23 decision of Franklin Templeton to shut down six debt schemes handling money worth Rs 25,856 crore and also putting on hold redemptions indefinitely. They said that Franklin Templeton violated the Sebi MF regulations and did not seek unitholders’ approval before deciding to wind up. Franklin had sent notices to unitholders announcing that the e-voting windows would open between June 9 and 11.

The investors also want the apex court to appoint a forensic auditor to investigate into siphoning of funds/assets by Franklin Templeton and also its valuation norms.

While the Gujarat High Court last week put on hold Franklin Templeton MF’s e-voting process for winding up of the six debt mutual fund schemes, the Delhi and Madras High Courts have sought response from Franklin and Sebi on petitions against winding up of the six schemes — Franklin India Ultra Short Bond Fund, Franklin India Short Term Income Fund, Franklin India Credit Risk Fund, Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund and Franklin India Income Opportunities Fund.

Accusing Sebi of maintaining “eerie silence”, the petitioners led by Sanyam Jain said that the market regulator should lay down proper guidelines/procedure for winding up of MF especially “open ended” mutual fund schemes. Besides, Jain wants the SC to direct Franklin Templeton Trustee Services to immediately restore and realign the NAV of the six schemes by restoring the value of securities artificially and notionally reduced by it.

While requesting for the-court monitored investigation into the affairs of the MF, the investors have also raised issued with regard to granting of moratorium to the Future Group. “If there was a liquidity crisis, the trustees could not grant moratorium to a security issuing entity. It is also strange that on one hand moratorium has been granted by the Trustees, as if they were dealing with their own money, and on the other the trustees are crying an issue of systemic liquidity problem. The actions by Franklin is akin to beggars extending charity,” Jain said

“…On the basis of the moratorium the said securities have also been downgraded by the rating agencies. And based on the said downgradation, a discount is marked on the value of such securities,” the petition stated, adding that there is a possibility of “kickbacks and commissions” received by the officers of Franklin Templeton in purchase of non-liquid, untraded, long-term debentures by using investor funds.

It also pointed out that the continued exposure given to the Essel Group securities was allegedly not in the best interest of the unitholders.

Nearly 3.50 lakh investors, which have invested Rs 35,000 crore in Franklin’s short-term income funds, it said, adding that lakhs of unitholders have been left in lurch and will not be able to withdraw their investments, make fresh purchases, or make systematic withdrawals to meet their monthly expenses.

Further, small investors are set to lose on a conservative estimate of at least 40% of the existing NAV running into Rs 10,000 crore, the petition filed through advocate Puneet Jain said, adding that about Rs 9,000 crore has already been lost as a result of segregation (due to defaults), written down of values and borrowings made by the fund house.

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