A forensic audit has indicated several wrongdoings, including insider trading, by the key management personnel of Franklin Templeton Asset Management (India).
Certain key officials of the fund had redeemed their personal investments just before the formal announcement of the closure of six debt schemes and made money during that time, the audit report by Choksi & Choksi pointed out.
According to sources, “capital markets regulator Sebi may look into these redemptions from the perspective of insider trading regulations.”
The fund is currently facing several court cases and investigations, including one by Sebi, for allegedly closing six schemes in an abrupt manner.
The Choksi & Choksi report indicates that the fund gave favours to certain companies it had invested in by not exercising the put option, despite the suggestions given by the risk management committee to its Chief Investment Officer to do so.
A put option is a contract that gives its holder the right to sell a number of equity shares at a pre-determined price, called the strike price, before the option’s expiry.
As per the report, fund managers were inconsistent in exercising the put option. With some companies, they executed it, but with some others, they didn’t, despite a major downgrade from category A to category D grade in less than a year’s time.
Rules permit fund managers to execute the put option when investments are downgraded by credit rating agencies.
Amit Tandon, Managing Director, IIAS Proxy Advisory, firm told: “Clearly, it appears that a lot was going on in the back-end. If something is too good to be true, you need to look under the hood. This holds not just for investors, but even the board and trustees.”
On April 23, 2020, Franklin Templeton wound up six debt schemes that were meant for high-yield investments, with a total asset under management of over Rs 25,000 crore. The company cited inadequate liquidity in the debt market as a reason.
The forensic audit pointed that the firm invested heavily in unlisted debt securities, which were mainly illiquid. Some of those companies were newly incorporated.