A fine of Rs 4 crore has been slapped on Vivek Kudva and Rs 3 crore on his wife.
They have also been asked to return an amount of Rs 22.64 crore in an escrow account to the SEBI, which will be released to them along with the cash being disbursed to other investors. This is the amount they received on redemption before the six schemes of Franklin Templeton Mutual Fund were shut last year.
The issue that arises for consideration in the present matter is whether the redemption of units in some schemes of a mutual fund by a director of the Asset Management Company of the Mutual Fund, and his immediate family, at a time when the said schemes were facing significant redemption pressure (the schemes were later wound up) and the Director was allegedly in possession of material non-public information relating to the same, would fall within the scope of ‘fraudulent’ or ‘unfair trade practice’ as defined under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003, the SEBI said.
The order, passed by SEBI Wholetime Member G. Mahalingam, said the data regarding the purchases and redemptions of units in the schemes by the key personnel of FT-AMC during the period April 1, 2019 to April 23, 2020 was also examined by the auditor and it was observed that Noticee no 1 – Vivek Kudva (Director of FT- AMC), Noticee no 2 – Roopa Kudva (Wife of Vivek Kudva) and Noticee no 3 – Vasanthi Kudva (Mother of Vivek Kudva) (collectively referred to as ‘Noticees’) had redeemed units in the impugned debt schemes during the period.
Upon consideration of the Auditor’s observations on the transactions by the noticees, the chronology of events and FT-AMC/Trustees’ reply to the said observations, the SEBI issued a show cause notice to the noticees. The notice said that Kudva, in his capacity as a Director of FT-AMC, was privy to information such as concerns of redemption, concentration and liquidity risk pertaining to the stress in the impugned debt schemes, most of which was not in public domain.
In an e-mail dated March 18, 2020, Kudva had recognised and admitted that the stress in debt funds may need preparation for different scenarios and had requested FT-AMC to share the liquidity profile, stating: “Do send me the liquidity profile of the 6 managed credit funds ASAP, ideally by EOD today, if possible. We are losing between 500-1,000 Crores per day from the funds and I want to make sure we are well prepared for different scenarios…”
Thereafter, on March 19, 2020, FT-AMC had shared the information on negative return of the schemes with Kudva, which included the debt schemes inspected. Subsequently, Kudva and his mother started redeeming their investments from debt schemes from March 20, 2020.
On March 23, 2020, Kudva’s wife redeemed all her investments from FI-STIP and a portion of her investments from FI-IOF. Further, on March 24, 2020, Kudva’s wife and mother redeemed all their remaining investments from FI-IOF.
“In view of the above, Vivek Kudva, being Director of FT-AMC, after recognising and admitting the stress in debt funds, had continued to seek and receive information from FT-AMC, which was not available in the public domain and upon receipt of the said information, had along with the other Noticees started redeeming their investments from debt schemes inspected,” the SEBI said.
“In view of the same, given the facts and circumstances under which Noticee No 2 had redeemed the units, it leads me to conclude that such redemptions were done on the basis of material non-public information Noticee No. 1 had in respect of the Impugned Debt Schemes,” the order said.
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