Madras High Court Issues Notices To Franklin Templeton, SEBI: Investors Group

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Notices have been issued to crisis-hit Franklin Templeton Mutual Fund and SEBI by the Madras High Court after a petition was filed by an investors group to safeguard nearly Rs 28,000 crore of investors’ money stuck in six schemes shut down by the fund house, according to a statement.

The investors’ group, Chennai Financial Markets and Accountability, also said it is separately launching an online petition to bring together all affected investors and the same would be forwarded to the Prime Minister’s Office, the U.S. parent of the fund house and the U.S. Securities and Exchange Commission.

It further said mutual funds and fund managers should be made to answer questions on their choice of investment, and compliance with regulatory and prudential norms, among others.

Last month, Franklin Templeton had closed six debt funds, citing redemption pressures and lack of liquidity in the bond markets. Since then, the Securities and Exchange Board of India has asked the fund house on multiple occasions to focus on repaying the investors at the earliest.

According to CFMA, the Madras High Court on issued notices on May 26 to SEBI, Franklin Templeton Asset Management India, trustees of the mutual fund, its President Sanjay Sapre, fixed income CIO Santosh Kamath and other key management personnel after a Public Interest Litigation was filed by it.

The high court took cognizance of the seriousness of the matter wherein the money of the common public, amounting to about Rs 28,000 crore, is at risk of getting wiped off and has asked SEBI to file a reply along with a status report on the actions taken by it, CFMA said in its statement.

As per the investors’ group, Franklin Templeton MF in their own admission has stated that the recovery of money across six schemes will be in the range of 5-81% over a period of over 5 years.

“Given the fact that six schemes had Rs 28,000 crore of assets under management, average loss to unitholders taking 20% as average realisation, would be around Rs 22,400 crore. This is the size of hole in the pocket of common man where the principal amount is wiped off,” it added.

Nithyaesh Natraj, the counsel for CFMA, said in the present difficult times, the unitholders which otherwise have right to liquidate their holdings, will have to wait for over 5 years and by then FTAMC would have left the Indian shores.

“Presently, the unitholders are left in lurch and will not even be able to foot emergency medical bills, leave alone fulfilling their dreams for themselves and their family,” he added.

Natraj alleged that the winding up of six schemes by FTAMC is just the tip of the iceberg and this default in India has been done by a mutual fund that was being considered among the best in the country with the pedigree of a U.S.-based multinational firm.

To ensure that the fund managers do not run away and all efforts are made to recover the money of unitholders, the investors group has also sought disclosure of their personal assets, injunction with regard to disposal of their assets and restraining them from resigning or travelling abroad until the entire amount is recovered.

Reacting to it, a Franklin Templeton spokesperson said in a statement, “We deny all allegations and wish to clarify that there has been no illegality, wrongdoing or misrepresentation.”

“We continue to follow due process, both in making investment decisions and in the winding up of these schemes. We have acted in the best interest of our investors and in accordance with all regulations,” it said.

CFMA alleged that the mutual fund industry has been running a campaign ‘Mutual Fund Sahi Hai’ to “hypnotise” the common people and make them believe that the money invested in mutual funds was as safe as bank deposits.

It further said a small disclaimer at the end of offer document, “investments in mutual funds are subject to market risk”, does not absolve the mutual funds, their trustees, fund managers and key management personnel from charges of cheating, fraud, arbitrariness and imprudent investment decisions.

Earlier in a letter to investors, Sapre had said Franklin Templeton is committed to ensuring an orderly and equitable exit for all investors at the earliest possible time.

On Thursday, the fund house had said that voting window for affected investors will be open for three days starting June 9.

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