New Delhi, Jun 30 (IANS): The Franklin Templeton group, which is facing several serious litigations and strong proceedings for illegally winding up six schemes in India recently wherein around Rs 28,000 crore of around 40,000 investors has got stuck, has a long and controversial history of regulatory violations, globally, according to a research report issued by the Chennai Financial Markets and Accountability (CFMA).

The Franklin Templeton group has long been found to have indulged in regulatory breaches and shoddy practices for which global regulators not fined it heavily which has been reported to the United States Securities and Exchange Commission (SEC), since Franklin Templeton is headquartered in Washington DC, says the report.

The CFMA, a society to protect the interests of investors, was the first to oppose the Franklin Templeton move to abruptly close its six debt schemes and filed a PIL in Madras High Court which then issued notices to Franklin Templeton and SEBI on May 26, 2020.

According to the research report, the US SEC has also reprimanded Franklin Templeton several times in the past. As per the US SEC Report of 2019, three global regulators, the Financial Supervisory Service (FSS), Korea; the Securities and Futures Commission, Hong Kong; and the Ontario Securities Commission, Canada, have severely castigated and fined the Franklin Templeton group for serious regulatory violations over the past decade.

Last year, as per the report, the FSS, Korea, imposed an institutional caution and fine of KRW 50 million, ultimately reduced to KRW 40 million (approximately $34,036 at the time of payment) for timely payment against Franklin Templeton Investment Trust Management Co. LTD.

In 2010, the Securities and Futures Commission issued a public censure of Templeton Asset Management Ltd (TAML) in connection with its finding that TAML breached Rule 22 of the Hong Kong Takeovers Code as a result of TAML's inadvertent failure to disclose its dealings in the shares of a Hong Kong company between January 26, 2010 and April 15, 2010. TAML cooperated with the SFC and consented to the censure in connection with its inadvertent failure to make disclosures required by the Takeovers Code.

Similarly, in 2005, the Ontario Securities Commission (OSC) had censured Franklin Templeton Investment Corp (FTIC) after its investigation into the latter's market timing activity found several anomalies.

In sharp contrast to the prompt and diligent action taken by world regulators, the CFMA pointed out, the Securities and Exchange Board of India (SEBI) fined Franklin Templeton a mere Rs 10 lakh, despite that the violations were of much graver scale and implications in this case.

The SEBI's order indicting Franklin Templeton stated that as an India-domiciled mutual fund, it did not operate in accordance with the SEBI regulations that stipulate the form of the fund's investment committee (IC) and require that the fund carry out all of its operations, including location of IC members, within India, said the CFMA.

In such a scenario which smacks of a cover-up, it remains to be seen whether such remote operations were the cause of the nature of investments made by Franklin Templeton which eventually led to their six schemes being illegally wound up, the CFMA said, adding that the global operation of critical decision making of Indian investment may also require an assessment of what should be the responsibility of the parent company against the losses incurred on account of such a winding up.

"By allowing Franklin Templeton to close these debt schemes, the SEBI is legalising an anticipated loss of Rs 23,000 Crore on around 40,000 unit holders, causing them to receive only Rs 5,000 crore over an indefinite period of time. This is criminal on the part of SEBI as its duty is to protect and not sabotage the interests of investors," the CFMA noted.

"The irony of the situation is, both Franklin Templeton and SEBI are silent on who is going to bear the Rs 23,000 crore loss due to this abrupt closure of these 6 debt schemes. Investors are demanding that SEBI declare Franklin Templeton ‘not fit and proper' since it manages a total investment of Rs 1.16 Lakh Crore in its other schemes which could be similarly at risk to approximately 38 lakh investors if the closure of these 6 schemes is permitted. Instead of siding with Franklin Templeton, SEBI needs to safeguard the interest of investors and save the mutual fund industry," it added.

The CFMA said if Franklin Templeton is allowed to illegally close these 6 debt schemes, in theory, it extrapolates to other mutual funds also. Then, tens of crores of investors are estimated to have loss of Rs 20 lakh crore out of total investment of Rs 25 lakh crore.

Meanwhile, the Supreme Court has ruled that all cases related to Franklin Templeton India shutting down six of its debt schemes being heard in various high courts -- Gujarat, Madras and Delhi -- will be transferred to the Karnataka High Court where the fresh hearing will start early next month.