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The Franklin Templeton funds had to borrow from banks in the face of mounting redemption demands.  (Photo: Bloomberg)
The Franklin Templeton funds had to borrow from banks in the face of mounting redemption demands. (Photo: Bloomberg)

Top Franklin execs sold out early, shows audit

  • Audit by Choksi and Choksi says Franklin Templeton had not exercised put options in papers despite a ratings downgrade

A few key managerial personnel of Franklin Templeton India withdrew their own investments before the fund house shut six of its debt schemes on 23 April, according to a forensic audit ordered by the Securities and Exchange Board of India.

The audit by Choksi and Choksi also said Franklin Templeton had not exercised put options in papers despite a ratings downgrade, said two people with direct knowledge of the matter. The put option was not exercised in papers belonging to Essel group, Reliance group companies, among others, these people added. A put option gives the holder the right to sell a particular asset at a particular time and price.

“These findings have been placed before a committee of division chiefs. The audit and Franklin’s response to the observations are being examined," said one of the two people cited above.

The forensic audit is part of the Sebi investigation initiated into the investment decisions taken by Franklin Templeton from 1 April 2018 to 23 April 2020. Sebi ordered the forensic audit in May after investors complained to the regulator, alleging malpractices.

On 23 April, amid severe redemption pressure and illiquidity, Franklin Templeton shut down six of its debt schemes with assets under management (AUM) of 26,000 crore, which impacted 300,000 investors.

In an emailed statement, Franklin Templeton said Sebi has not come out with any such findings. “Our interactions with Sebi as our regulator are confidential. Inspections and third-party audits fall within the purview of Sebi’s oversight of mutual funds, and we are cooperating fully with Sebi," said a spokesperson.

The audit report also pointed to irregularities in redemptions, which totalled 9,826 crore across the six schemes in March and 5,531 crore in the following month (till 23 April).

In comparison, the previous financial year saw redemptions of 3,255 crore in March and 2,378 crore in April.

One of the main issues pointed out by the auditor is that of Franklin employees withdrawing their own investments from the schemes ahead of the closure decision.

“A few KMPs of Franklin Templeton withdrew their personal investments before the winding-up decision," said the first person cited above.

“Employees who made investments in Franklin Templeton MF schemes continue to hold substantial investments in the affected schemes. We have already communicated the reasons for winding up and request our investors not to be swayed by unverified or speculative reports. We continue to follow due process, both in making investment decisions and with regard to the winding up of the funds," said Franklin Templeton in the email.

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