FTMF fraud: Not just a case of Breach of Trust

By Sanjive Srinivasan, October 12 2020 06:34 PM
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As a Unit Holder in the Franklin Templeton Mutual Fund scheme (FTMF) which they closed down abruptly in April this year, I have been following the matter closely and going through media reports regarding the same. Now, the forensic audit report has come but not made public but which has been reported by the media in detail. After going through these media reports, I have come to the conclusion that the FTMF has indulged in various improper acts like:

  1. Excessive Investment in unlisted securities.
  2. Selective redemptions
  3. Staff has redeemed units just before winding up.
  4. In some schemes the management did not exercise the put option.
     

Since SEBI and FTMF have decided to not make the forensic report public until all issues are explained by the Mutual Fund and accepted by the auditor and SEBI, this might as well be just a glimpse of the mammoth Franklin Templeton fraud that has so far galloped around Rs 28,000 crore of over 3 lakh Unit Holders like me.

My question is, why is this entire process being handled in a very protracted manner despite the urgency and nature of the scam or the irreversible decisions being made by the public, judiciary and unit holders??

There has been a widespread furore and criticism in the media and the public at large about the way FTMF has been conducting itself post April, but its President, Mr Sanjay Sapre calls it baseless allegations and rumours! This is shocking to say the least!

In fact, Mr Sapre needs to immediately address the concerns of us Unit Holders by answering at least the following questions:

  1. What is the current realizable NAV of these six schemes as against the NAV on April 23, 2020?
  2. Why was the put option not exercised at more appropriate time?
  3. What is the minimum amount that can be realized by the Unit Holders if the assets were disposed immediately?
  4. What is the minimum time required to relinquish the portfolio in order to pay immediately?
  5. Why is FTMF not publishing the findings of forensic auditors and requisite explanations to clarify the auditors’ observations and not putting its audit report compliance on its website instead of writing cursory letters?
     

I strongly feel that yet another forensic audit is needed to consider following potential risks, considering the fact that winding up has conclusively damaged the interest of Unit Holders without their consent:

  1. Was the portfolio invested by FTMF in wound up schemes the best option or what else was evaluated but not invested and the reasons thereof?
  2. Did market sales done for redemption by the FT AMC ensure market integrity without structured trades, inappropriate market timing, price checks, front running, insider trading, etc?
  3. Were Investments and scheme allocation of investments done without any bias?
  4. How was the independence and corporate governance ensured between the AMC and Trustee Company and in how many decisions did the Trustee company took independent view against the recommendation of AMC?
  5. Was the decision to invest large amounts in unlisted companies and then not selling them as per the SEBI schedule also approved by the Trustees and did the Trustees take independent legal or market opinion to assess the suitability of AMC’s recommendation?
     

As I understand, the Trustees have a right to change the AMC with the permission of the Unit Holders. However, if the Trustees are not checking the recommendations independently then the Trustees will never know whether the AMC is working in the best interest of the Unit Holders or not.

It is strange that the six schemes were wound up together and in no scheme did the Trustees get any early warning signals to correct the other schemes in time. Lack of independence of the Trustees could have been the only reason of their failure which is also seen from the limited infrastructure, expenses and human resource available with the AMC.

I feel it is high time, the courts ordered investigation into the investment, divestment, compliance, trade timing, governance, etc. which alone can reveal how the Trustees as well as the AMC violated the best practices. Only that will pave the path for speedy recovery of our hard-earned money.

Satyamev Jayate!

Comments(12)
By Karthikeyan D, November 13 2020 03:04 PM
I DISAGREE with Jyothish. FT USBF-UST Debt funds CAN be re-opened safely; BUT, as long as VERY STRICT limits on Redemptions are maintained. Example- re-open USBF UST fund and maintain SEBI imposed mandate limit of just 20% redemptions of Total Unitholdings Allowable per investor per year only; VERY STRICTLY!! Then UST can be operated safely forever I feel.. Other funds depends on the cash positive situation really, and I am not sure about them??

By JyothishK, November 12 2020 09:39 PM
Re-OPEN of All or Any of these 6 Debt funds schemes = 100% TOTAL DISASTER for all investors!

By NEO_Navi99, November 12 2020 09:39 AM
https://twitter.com/NE0_07/status/1325875737153318912 Follow this twitter comments. unitholders consent votes in Simple Majority given for PERMANENT CLOSURE of 6 schemes, is SIMPLY THE BEST OPTION right now for all of the 6 debt funds FT AMC schemes. Also, please follow Telegram Channel of https://t.me/joinchat/FjE1lxVUr7blEtus4QgfXQ

By Varadarajulu, November 10 2020 07:33 PM
All investors please understand and educate yourselves about debt funds 'Portfolio Segregation SIDE-POCKETING' terminology. In case unitholders consent for RE-OPEN wins by a 'simple majority', then as per below comments of the FT AMC Distributors Zoom-call-conference, they will mark down ALL ILLIQUID ASSETS in all of the 6 debt schemes to ZERO value. Any defaults of bonds [like Essel-FutureGroup-ADAG etc], also gets marked down to ZERO values internally to these debt funds. AND SO, now if there is no side-pocketing done at all then all these losses will be 'hidden' from your brokers latest MF account balance view. At this time if you try to redeem ANY or ALL units then you will be HIT VERY HARD by HUGE LOSSES maybe even upto 90 percent is possible in some of the funds. So, I am also in agreement with Mr. JanS to Simply vote for FULL CLOSURE of all of these 6 debt funds schemes, and let FT do the hardworks to recover portfolio assets [either by natural organic maturity or 'FAIR-VALUE' sales and pay us back over the years - direct to our demat bank accounts folks.

By Ravi, November 09 2020 09:28 AM
In my Humble Opinion the MOST Honest method in case unitholders consent vote is for RE-OPEN is to simply 'side-pocket' the NON-Cash_Positives part until they become liquid in the future and allow the funds to continue with business as usual.. For Example: UST MF is having 43% cash positive as of now and, so in case RE-OPEN vote wins then FT can just simply 'side-pocket' 57% of portfolio of all UST investors. Remaining 43% of the fund values, can be redeemed fully or else, as many investors wants the funds to be open it can still be run properly I feel. This way nobody gets losses at all.... Regarding 15% penalty fines to be levied for lack of liquidity for 9 months investors have to file law-suits on SEBI to take necessary actions and steps for the same as they are simply staying as a mute spectator on the sidelines so far...

By JanS, November 08 2020 06:35 PM
Today was DISTRIBUTERS FT meet happened. Please see Telegram channel Deepak Kali -https://t.me/joinchat/FjE1lxVUr7blEtus4QgfXQ In case vote consent to re-open wins then FT will mark down all Illiquid Bonds to Zero and also there is no sidepocketing for EsselADAG marked down to Zero. This means that, each and every redemption will be hit by 60% or more losses RIGHT FROM THE FIRST ONE!! Means NAV will be 60% or more lower on RE-OPEN, than when funds got Freezed people... So, does'nt matter if you want to redeem only 100 rupees or 100 lakhs of your full funds - The value of money coming into your bank will be only 30% of what you had invested in first place with FT debt funds. CLosure of funds is only option to vote for now!

By Anil Gupta, November 01 2020 10:49 AM
After the Karnataka High Court's ruling major concern is to safeguard the Capital of Investors. In case the scheme is re-opened there will be a mad rush to en-cash , which will lead to huge erosion of Value, (expected to be in the region of 70 to 80 percent by various analysts). Same will be the result if FT is forced to monetize it's holdings in these Six Schemes in question for any other reason. Scam or no scam Franklin should return the monies to all it's unit holders based on NAV of 23rd April 2020 plus interest (say 9% or as decided by court) for the delay period incurred after 23rd April 2020.

By JohnSumu, October 30 2020 11:39 AM
ALL HERE PLEASE READ THIS CAREFULLY - https://economictimes.indiatimes.com/mf/analysis/what-will-happen-now-ask-franklin-templeton-debt-mutual-fund-investors/articleshow/78887907.cms

By Adarsh Mittal, October 28 2020 05:00 PM
Franklin Asset management co must remember---satya pareshan ho sakta hain, parajit nahi…You will not be able to get away with this massive fraud no matter what you claim! High hopes till end from judiciary!

By ranjeev, October 17 2020 02:51 PM
satyamev jayate

By Tushar Kapadia, October 15 2020 01:34 PM
Right. I strongly feel that SEBI should be regularly updating us, the Unit Holders of FTMF on the progress regarding the repayment. How can SEBI leave it completely to FTMF who are themselves in the dock for abruptly closing the schemes? How can it be left to the very FTMF management whose intent itself is doubtful after their misconduct?

By Jagdish Pandey, October 14 2020 12:20 PM
Entirely agree. We do not know what is happening at SEBI regarding the FTMF scam since SEBI is not forcing them to make the forensic audit public. So, right now, our entire hope hinges on the FIR registered by EOW, Chennai. You are rightly saying that the courts should order a thorough investigation into the affairs at FTMF that led to this scam. I would say that the investigation and its progress should also be monitored by the court within a specified time-frame.