SEBI fines Franklin Templeton’s top executives for mismanaging debt funds


The Securities and Exchange Board of India (SEBI) has brought the American asset management firm, Franklin Templeton, into the spotlight for guilty of wrong-doing and mismanaging its debt funds.

On Monday, June 9, the regulator asked Franklin Templeton India AMC to return the fund management charges it had levied over the last three years on the six wound-up schemes, and back to the investors. It has additionally levied a monetary penalty of Rs 5 crore.

Broadly speaking, SEBI found Franklin Templeton India guilty of five charges. A study of its order gives us a taste of how fund houses can (mis)interpret SEBI regulations and how things could spiral out of control.

In a follow-up to its order issued last week, SEBI on Monday, June 14 imposed monetary penalties on Sanjay Sapre, its chief executive officer, and its debt fund managers, among other top officials.

It fined Sapre and Santosh Kamath, the chief investment officer of its fixed income management, a sum of Rs 3 crore each. SEBI also fined other debt fund managers of Franklin Templeton, namely Kunal Agarwal, Sumit Gupta, Pallab Roy, Sachin Padwal Desai and Umesh Sharma a sum of Rs 1.50 crore each.

SEBI observed that there were similarities in the way the six wound-up debt funds were managed. It had observed that all the six schemes had at least 65 percent of their assets in securities that were rated AA and below.

In response to the fund manager and senior employees’ penalties, a Franklin Templeton Spokesperson said: “We believe the company and employees have acted in compliance with regulations and in the best interest of unitholders in discharging their responsibilities. Based on our initial review of the order, we are considering all options with regard to next steps which may include filing an appeal before the Hon’ble Securities Appellate Tribunal (SAT).”

In addition, SEBI has also fined the trustee company a sum of Rs 3 crore and Saurabh Gangrade, the fund house’s chief compliance officer, a sum of Rs 50 lakh. “Evidences available do not indicate actions / directions to establish that the Trustees had exercised high standards of service, exercised due diligence, ensure proper care and exercised independent professional judgment to address these risks,” says the SEBI order.

The Franklin Templeton spokesperson confirms that the trustees and the fund house intend to file an appeal with the Securities Appellate Tribunal. “We place great emphasis on compliance and believe we have always acted in the best interest of unitholders and in accordance with regulations. As stated previously, the decision to wind up the schemes was a result of the severe market dislocation and illiquidity caused by the COVID-19 pandemic. The difficult decision to wind up these schemes was taken after due consideration of available options to avoid distressed sales of portfolio holdings to meet heightened redemptions and with the sole objective of preserving value for unitholders,” says the FT spokesperson.

While SEBI directed the first round of penalties to the fund house in its last week order, today’s order is directed at the individuals at the helm of affairs at the fund house.

In today’s order, it reiterated what it had said in its first order. “For a fund house which has been in this industry in India for over two and a half decades, it is surprising that its systems to monitor and manage critical risks like liquidity, credit and concentration are less than robust.

The effectiveness of these systems stand compromised in the process of the Noticee’s (Franklin Templeton India AMC, trustees, fund managers and senior employees) single-minded pursuit of reaping high yield,” said today’s SEBI order.