The Enforcement Directorate (ED) on Thursday conducted searches in Mumbai and Chennai as part of its moneylaundering probe related to an asset management firm Franklin Templeton and others including former/current executives.
The ED's probe is based upon Chennai police’s September 2020 case to probe alleged irregularities linked to the firm's April 2020 decision to wind up six debt schemes, citing liquidity challenges because of the Covid pandemic.
Conspiracy to defraud 3 lakh investors
The schemes allegedly had Rs25,000 crore of assets from 3 lakh investors. ED’s searches were spread across official and residential premises connected to the suspects. The Chennai police case was registered by its Economic Offences Wing (EOW) to probe the alleged irregularities upon a complaint on May 13, 2020 from an investors group Chennai Financial Markets and Accountability (CFMA) and a few others.
It was alleged that there was a conspiracy to defraud 3 lakh investors by causing wrongful loss to them and unlawful gain to themselves. CFMA’s statement of September 25, 2020 also questioned whether the decision to wind up the six debt schemes had been done as per the due process.
The company said it was cooperating with the agency probe. “We 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,” the company said in a statement.
In November 2020, the capital markets regulator Securities and Exchange Board of India (SEBI) had issued a show-cause notice to the company following its April 2020 decision to wind up the six debt schemes. Subsequently, the company was asked to pay Rs5 crore as a penalty, return over Rs450 crore collected as 22-month investment management and advisory fees, and was restricted from launching new debt schemes.
The company said that in reference to the six schemes under winding up, as of March 16, 2023, these schemes have already distributed Rs26,931.27 crore to unit-holders, amounting to 106.81% of the aggregate reported AUM value as of April 23, 2020. The total amount disbursed so far ranges between 99.32% and 112.46% of the respective reported AUM values of the six funds as of April 23, 2020, according to the company. 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% of the AUM at the time of the winding up decision on April 23, 2020, the company said.
What pushed the agency into action?
Homes of its Chief Investment Officer Santosh Kamat, former head of distribution in Asia-Pacific Vivek Kudva, and former India President Sanjay Sapre, were under the scanner.
Apart from that, Vivek Kudva's wife and Omidyar Network India's managing partner Roopa Kudva is also facing scrutiny from ED.
Although Franklin Templeton had claimed that pandemic pressure led to the collapse, SEBI had found the Kudvas guilty of redeeming Rs 30 crore from the closed schemes using confidential information.
The two were also barred by the Securities and Exchange Board of India from trading stocks for a year, after slapping both with Rs 7 crore in penalties.
What's Franklin Templeton's status now?
ED is now searching the premises owned by Franklin Templeton's current and former top executives in connection with SEBI's order on those fraudulent trade practices.
As the firm cooperates with ED, its current funds aren't affected as more than Rs 26,000 crore have been distributed to unitholders of six schemes.
SEBI had also blocked Franklin Templeton from launching new schemes for two years and imposed a Rs 5 crore fine, along with an order to return Rs 520 crore collected as investment management fees.
The matter is now with a Securities Appellate Tribunal, which is yet to pass a final verdict despite giving some interim relief to Franklin Templeton.
