SAT stays SEBI’s order on Franklin Templeton

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Franklin Templeton Asset Management (India) on Monday said the Securities Appellate Tribunal (SAT) has stayed Sebi’s order, whereby the regulator had barred the asset management firm from launching any new debt scheme for two years.

In addition, the regulator had asked Franklin Templeton to refund investment management and advisory fees to the tune of Rs 512 crore, including interest, collected with respect to its six debt schemes which are now shut.

“With reference to the order issued by Whole Time Member(WTM) of Sebi on June 7, 2021, Franklin Templeton Asset Management (India) Pvt Ltd filed an appeal and an application for stay before the Hon’ble SAT. After hearing the parties, the Hon’ble SAT has stayed the operation of the order passed by the WTM,” a Franklin Templeton spokesperson said in a statement.

The matter has been listed on August 30, 2021, for further directions, he added.

SEBI in its order found that Franklin Templeton Asset Management (India) “committed serious lapses/violations with regard to a scheme categorization (by replicating high–risk strategy across several schemes) and calculation of Macaulay duration (to push long term papers into short duration schemes).” Also, it committed violations in respect of non–exercise of exit options in the face of an emerging liquidity crisis, securities valuation practices, risk management practices, and investment-related due diligence, the regulator had noted.

“As a result of the irregularities in the running of the debt schemes inspected, the loss has been caused to the investors. The notice (Franklin Templeton AMC) was under a statutory obligation to abide by the provisions of the Mutual Regulations and Circulars issued thereunder, which it failed to do,” SEBI had said.

According to SEBI, serious lapses and violations appear to be a fallout of the Franklin Templeton AMC’s obsession to run high yield strategies without due regard from the concomitant risk dimensions, it added.

Franklin Templeton MF announced shutting its six debt mutual fund schemes on April 23, 2020 citing redemption pressures and lack of liquidity in the bond market.

The schemes — Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund, and Franklin India Income Opportunities Fund — together had an estimated Rs 25,000 crore as assets under management.

Subsequent to the decision to wind up the schemes, the Securities and Exchange Board of India (SEBI) ordered a forensic audit and appointed Chokshi and Chokshi LLP, Chartered Accountants to conduct a forensic audit of Franklin Templeton MF, Franklin Templeton AMC, and trustees, particularly in respect to the six debt schemes.