Franklin Templeton draws flak abroad, nudge at home

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Franklin Templeton is a premier global investment management company.
Franklin Templeton is a premier global investment management company.

Fined heavily by three global regulators in Canada, Hong Kong, Korea for more than a year for serious regulatory violations, Franklin Templeton is sitting pretty over a Rs 28,000 crore alleged scam in India. So far, it has faced a simple nudge from the Securities and Exchange Board of India (SEBI). The market regulator, according to reports reaching the Indian Capital, has fined Franklin Templeton Rs 10 lakh and extended the time limit for forensic audit by auditor Chokshi & Chokshi.

The move has, expectedly, rattled the country’s financial markets.

The FT group is facing several serious litigations and strong proceedings for illegally winding up six schemes in India. As many as 40,000 investors have got an estimated Rs 28,000 crore stuck because of the group’s decision to wind up the schemes that experts claim violate regulatory guidelines.

Reports circulated by Washington says the FT group has — for long — indulged in regulatory breaches and shoddy practices for which global regulators fined it heavily. The matter has been reported to the United States Securities and Exchange Commission (SEC), since Franklin Templeton is headquartered in Washington DC. As such, the US SEC has also reprimanded Franklin Templeton several times in the past.

As per the US SEC Report of 2019, three global regulators, the Financial Supervisory Service (FSS), Korea, the Securities and Futures Commission, Hong Kong, and the Ontario Securities Commission, Canada, have severely castigated and fined the Franklin Templeton group for serious regulatory violations over the past decade.

But in India, the group has escaped unscatched.

As per the earlier timeline, Choksi & Choksi, a chartered accountant and forensic audit firm was to complete the investigation by the first week of July. Now, the same report will be submitted by the first week of August, 2020. 

People whose investments are stuck with FT feel a low fine by SEBI and delay in forensic audit by the auditor could send “strong and wrong signals” to those whose cash is stuck with those schemes FT wants to dilute.

At stake is a whopping Rs 28,000 crore of 40,000 investors. 

FT had initiated an e-voting process to seek unitholders’ nod to wind up the schemes. Initially, the e-voting process was scheduled to be held between June 9 and 11, 2020. However, the process was delayed after certain investors approached various high courts (HCs) against the fund house.

The petitioners said voting should not be allowed until the audit report is made public so that investors can make an informed choice. A SEBI council had argued before the Gujarat HC that the forensic audit report was for internal information of the regulator and cannot be a ground to delay the voting. The court had still granted a stay on the voting process till the forensic audit report was made available in public domain.

On June 20, 2020 the Supreme Court directed that all matters related to winding up of FT MF schemes be heard in the Karnataka High Court. Franklin Templeton had prayed before the apex court to vacate Gujarat HC’s stay on e–voting. The SC, however, didn’t intervene in Gujarat HC’s stay order on the e-voting process.

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