The SEBI order on Monday restrained both from “accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, whatsoever, for a period of one year from the date of this order”.
During the period of restraint, the Kudvas would not be allowed liquidate their existing holding of securities including the units of mutual funds.
Franklin Templeton India on April 23, 2020, informed the unit holders of certain schemes of FT-MF that it was winding up the schemes in conformity with the provisions of SEBI regulations.
The schemes were Franklin India Low Duration Fund (FI-LDF), Ultra Short Fund/Ultra Short Bond Fund (FI-UST), Short Term Income Fund/Plan (FI-STIP), Credit Risk Fund (FI-CRF), Dynamic Accrual Fund (FI-DAF), and Income Opportunities Fund (FI-IOF).
Subsequent to the decision to wind up the schemes, the capital market regulator ordered a forensic audit in terms of Regulation 66 of the Mutual Fund Regulations of FT-MF, FTAMC and Trustees, particularly in respect to the impugned debt schemes.
The SEBI inspection found that during April 1, 2019 to April 23, 2020, Kudva, a Director of FT-AMC, his wife and mother Vasanthi Kudva had redeemed units in the impugned debt schemes during the period.
Kudva, allegedly, 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.
The SEBI order noted that allegedly the act of redemption of units by the notices in two of the impugned debt schemes — FI-IOF and FI-STIP, while in possession of non-public information with respect to stress in the debt schemes inspected, amounted to an unfair trade practice in securities market and a fraud on the other unsuspecting unit holders of said debt schemes who were not privy to such confidential information and therefore, could not redeem their investments.
The order said that the noticees had cumulatively redeemed units amounting to over Rs 30.70 crore while in possession of material non-public information.
Kudva had redeemed units worth over Rs 11.62 crore on his own behalf and units amounting to over Rs 85.15 lakh on behalf of his mother. Further, his wife redeemed units on her own account amounting to over Rs 18.22 crore.
The regulator directed that the couple should jointly and severally transfer the redeemed amount within a period of 45 days, from the date of receipt of this order. In case of failure to do so, simple interest at the rate of 12 per cent per annum shall be applicable from the expiry of the said 45 days till the date of actual transfer.
Further, Kudva would be be liable to pay a monetary penalty of Rs 4 crore for the redemptions undertaken on his own behalf and on behalf of his mother, and his wife would have to pay a fine of Rs 3 crore for the redemptions from her account.
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