The Economic Times (ET) has reported
on the first page that Franklin Templeton (FT) is trying the time-tested trick of US-based businesses to apply diplomatic pressure whenever they find themselves in hot water with any foreign governmental agencies.
To give the devil its due, the US diplomatic corps and the consultancies run by former diplomats and ex-senior officials, who served in the US government anytime in the past, constitute a formidable caucus. This caucus quite effectively plays the advocacy card with any foreign government to pull out any specific US company that has got into a mess in a foreign jurisdiction.
FT has every reason to press the panic button as skeletons are tumbling out of its cupboard based on the excerpts from the forensic audit reported leaked out by one of the media agencies recently. In fact, more than once in the past few months, I have been writing that Securities and Exchange Board of India (SEBI) has an obligation to make the report public as is where is and the specious plea that FT has not accepted some or all of the findings is not anybody’s concern.
There has been no suggestion from SEBI that publicising the report will prejudicially affect its investigations.
Anyway, SEBI has been most lax in pursuing the investigation as it is almost 340 days since the debacle of the six mutual fund schemes became public. In my view, this investigation should not have taken anything more than a couple of months.
SEBI has every reason to worry about its own status in this imbroglio as, in my view, expressed in multiple articles and mails to SEBI chairman, more than anyone else the market regulator has to be blamed for the mess it has landed about 300,000 hapless investors of FT in.
As repeated ad nauseum SEBI could have very easily identified that the six schemes were headed for illiquidity situation even as early as October 2019, based on information available at its end. The suspicion that I expressed in an article published in June 2020 that there were possible signs of informed redemptions on a large scale could have been easily ascertained by SEBI with minimum efforts in nothing more than a month’s time.
Unfortunately, the courts spent time on interpreting rules that had little to do with fixing the problem on hand and, in my view, it is a criminal waste of time and money and little knowledge gained or any new legal doctrine unearthed after all the lawyers’ and judges’ time expended on this matter.
To come back to the issue on hand, the threat commonly held out in such diplomatic initiatives is that penalising a US-based company may send out wrong signals and create panic among other US investors and India will be deprived of possible future investments by them.
This argument may be valid where there is obvious and serious miscarriage of justice in an administrative or legislative process.
In this case, no investigation has been completed and the most affected parties, the investors, are yet to know the full details of the alleged wrongdoings.
Panic at this stage is a clear sign of weakness in the stated position of the fund house and the role of its senior management, trustees and directors.
FT management has been stonewalling investor queries and has been repeatedly blaming the COVID-19 development for its mess. I have more than once written to the FT management that COVID had nothing to do with the mess because they had put unannounced restrictions on redemption even sometime in first week of April 2020.
No other mutual fund (MF) put any restrictions on redemptions after the lock-down was announced on 23 March 2020.
As an investor, who made online redemptions in the first and second week of April, I can confirm this but, unfortunately, I did not take screen shots of the messages that appeared. I am sure, any audit of the IT system and changes made in the software can detect this. FT denied this when I wrote to them.
In effect and in conclusion, this case has to be probed at rocket speed and all details should be publicised. Since I hold the view that SEBI is guilty of serious negligence, its failure should also be probed parallelly.
If FT wishes to leave the country because it feels badly about the treatment given by the regulator, it should not be stopped but the loss to the investors should be scientifically calculated and recompensed before they are allowed to pack their bags.
It is no comfort that the net asset value (NAV) today in the schemes is higher than the NAV on 23 April 2020 to advance the argument that investors cannot complain.
India is demonstrably atmanirbhar in the area of mutual funds and stand-alone foreign fund houses have made little dent in the market in the past 26 years of their presence of this industry.
(The author is a CA and CS and retired as a partner at EY, Chennai heading tax and regulatory advice.)