Did the Trustees do their fiduciary duty at FTTSPL at all?

By Jagdish Patel, November 02 2020 04:22 PM

And here is more dope on the dubious role of Franklin Templeton Trustee Services Private Limited (FTTSPL), the so-called trustees of Franklin Templeton Asset Management Company (FTAMC)

  1. April 9 – 22, 2020 - Borrowing enhanced from 20 % – 40%
  2. April 14, 2020 – suggested, as a last resort, redemption may be stopped up to 90 days
  3. April 23, 2020 – Winding up
  4. 27th April, 2020, RBI announced Rs.50,000 crores Special Liquidity Facility for Mutual Funds
  5. 6th May, 2020 – FT Global head blames SEBI for the problem of FTMF.
  6. 7th May, 2020 – SEBI holds FTMF responsible and asks them to return money to unit holders
  7. 28Th May, 2020 – E- Voting on unit holders’ approval to approve Trustees or new agents to wind up the scheme by liquidating the portfolio.
  8. 24Th October, 2020 – Hon’ble High Court of Karnataka orders consent of the unit-holders is necessary by a simple majority to the decision of winding up is obtained by the Trustees in accordance with sub-clause (c) of Clause (15) of Regulation 18 of the Mutual Funds Regulations

In view of this, Franklin Templeton Trustees owe an answer to the below questions in the interest of the unit holders and investors at large. These are serious issues which require regulatory intervention, and SEBI must step in stem the rot in this mutual fund mismanagement! If SEBI is running from its regulatory duty then it raises even more serious questions about why it is doing so!

  1. What was the legal basis for FTTSPL Trustees to agree to FTAMC recommendations on winding up?
  2. Why was an independent audit not insisted upon to check whether the recommendation of FTAMC did not have any conflict or unprofessional conduct considering that the winding up was not of one scheme but six schemes with value of Rs 26,500 crore?
  3. Were FTTSPL Trustees already aware of such a development happening and hence there was no surprise in the decision of winding up?
  4. Did FTTSPL Trustees ever see FTMF SEBI inspection report where some of the non-compliance may have been made?
  5. Why did FTTSPL not realize the need for an independent inspection and audit of operations of FTMF and FTAMC?
  6. Since FTTSPL has no employees, how does it verify the views given by FTAMC to maintain its independence and unit holders’ protection?
  7. Since the winding up developments took place so rapidly between April 14-23, 2020, how did FTTSPL Trustees convince themselves of such major developments and how many Trustees meetings were held and what independent evaluation was done to see that this winding up does not have any malpractice or fraud as these investments were done over long time?
  8. What did the FTTSPL Trustees do when SEBI was recommending reduction in concentration of unlisted debt portfolio and FTTSPL was not achieving this for a long period and then eventually closed?
  9. Did FTTSPL Trustees ever seek more staff for their assessment of FTAMC or to seek legal opinions on winding up independently?
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By Pritesh Somani, November 04 2020 03:03 PM
I think, it is good that an organization like CFMA is trying to legally protect unit holders claims against FTMF which has closed the 6 schemes, something which has not happened with any other Mutual Fund in the industry. Apparently, the Court Order required FTMF to obtain approval of unit holders on merger of schemes as per MF Regulation 18(15)(C) before it treats winding up as given and starts identifying a mechanism for liquidation. In case merger fails, then FTMF will have to start redemption of Units and failure to do so will mean default by FTMF in which case FTMF will be entitled to regulatory action by SEBI. In case merger is approved, then the portfolio of the 6 schemes will have to be liquidated by FTMF or its agent as may be approved by the unit holders. Before FTMF seeks approval of the unit holders, it is expected, as per international good governance norms, that FTMF defines what is expected to be recovered and in what time frame so that the unit holders treat their consent on some concrete basis with full information. In normal redemption process, NAV defines the money a unit holder gets and the regulations define the period of 10 days within which time redemption has to be done. Therefore, as in normal redemption, time and value, is transparently known upfront, in exceptional case of FTMF, like, winding up, also the expected redemption time and redemption value should be ideally made known. But since the matter has wide implications for the MF industry, all concerned need to take a strong yet cautious approach in the court. As media reports suggest, all parties are likely to approach the Supreme Court to seek clarification on this case so that rest of the industry can operate within a transparent regulatory environment. Organizations like CFMA and other petitioners who contested the case should also undertake legal remedy for the benefit the unit holders of FTMF wound up schemes and fight for more transparent mutual fund operations so that FTMF like episodes are not repeated in future. Let’s hope for the best.