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Franklin Templeton Mutual Fund (FTMF) has offered to pay a fine and ‘settle’ its ongoing investigations with market regulator SEBI, sources say Activity area. SEBI is investigating FTMF for violation of the rules for the prevention of unfair and fraudulent commercial practices (PFUTP), which are also the subject of criminal proceedings.

But SEBI is unlikely to accept the FTMF’s offer as internal opinion is that the violations are quite serious, the sources said.

SEBI had issued a justification notice to FTMF after a forensic audit revealed serious mismanagement on the part of the fund company. At any time during or after the investigation, SEBI allows a listed offender to “settle the case” by paying a fine “without confession or denial of guilt”. But such an arrangement, known as a consent settlement, is used in less sensitive cases. SEBI alleged failures in FTMF’s risk management systems and even leaks of inside information regarding the closure of the schemes.

Neither FTMF nor SEBI responded to email questions about the settlement offer.

The FTMF has fallen into a cloud after abruptly shutting down six debt programs in April 2020, blaming Covid for the losses of those programs. However, the forensic audit showed that there were reasons other than Covid that led to the plans being closed.

Unusual withdrawals

Besides poor decision-making, FTMF also allegedly authorized unusual withdrawals from debt programs before they closed. Almost $ 2 billion was withdrawn weeks before buybacks in these plans were suspended. A forensic investigation found that FTMF insiders and their associates were granted an exit while the rest of the investors remained stranded. FTMF is also suspected of taking arbitrary loans and investing in unlisted debt securities without trading or liquidity. The Enforcement Department is investigating FTMF for any money laundering activity.

FTMF maintained that the winding-up plans continue to benefit from significant investments by its employees and management and that all redemptions have been processed in the normal course. The Supreme Court asked SBI Mutual Funds to oversee the sale of assets and repayments to FTMF investors.

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