Securities and Exchange Board of India (SEBI) has levied a fine of Rs 15 crore on nine entities/individuals in connection with its investigation related to Franklin Templeton’s winding up of six debt schemes in April 2020. They include Franklin Templeton Trustee (Rs 3 crore), Sanjay Sapre (Rs 2 crore), Santosh Kamath (Rs 2 crore), Kunal Agarwal (Rs 1.50 crore), Sumit Gupta (Rs 1.50 crore), Pallab Roy (Rs 1.50 crore), Sachin Padwal Desai (Rs 1.50 crore), Umesh Sharma (Rs 1.50 crore), and Saurabh Gangrade (Rs 50 lakh).
The order can be accessed here.
Here are the findings of SEBI's forensic audit:
- There were similarities in investment strategy though the investment objectives were different in the six wound up schemes. This was observed by way of high exposures in “AA and below” Corporate bonds in all the six schemes even though investment objectives as per the SIDs of these schemes are different. Further, as per the Portfolio holding data, most of the securities are rated AA or below at the time of investment. In addition, there was concentration of similar securities across schemes under audit where investments were made over 70% of the issue of such debt securities and most of the investments which were made in schemes were common at the time of investment.
- FT-MF had incorrectly calculated Macaulay duration, taking interest rate reset dates as deemed maturity. By way of taking interest rate reset date as deemed maturity date, FT-MF had attempted to accommodate many long-duration securities in shorter duration portfolios and had managed to run multiple schemes with similar strategy. The bonds where put option was available was not exercised even though the rating of the securities were downgraded to BBB- which is the last threshold below which the security becomes noninvestment grade.
- There were discrepancies in respect of valuation of securities where terms of the issue have been changed frequently including the postponement of put option, granting moratorium, change in coupon rate, etc., which resulted into declaration of incorrect NAV.
- The schemes had high exposure to (a) unlisted securities, (b) securities rated below AAA, and (c) securities where more than 70% of the issuance was subscribed to by the six schemes. Investment risks were being regularly brought to the notice to the Trustee Board by the Head of Risk Management. These were in nature of concentration of securities, downgrades of securities, early warning signals in respect of issuers and liquidity issues in the fixed income schemes. Evidences available do not indicate actions/directions to establish that the Trustees had exercised high standards of service, exercised due diligence, ensure proper care and exercised independent professional judgment to address these risks.
- Investment Process Note does not contain key aspects such as objective parameters for investment decisions and inclusion of the same in the research report, haircuts based on nature of collaterals.
The regulator has also levied fine on its directors in connection with redeeming from FT debt schemes based on non-public information:
- Jayaram Iyer: Rs 25 lakh
- Venkata Radhakrishnan: Rs 45 lakh
- Malathi Radhakrishnan: Rs 5 lakh
A fine of Rs 5 crore is levied on Mywish Marketplaces, an associate company of Franklin Templeton AMC.
