Franklin Templeton Has A New Problem — A Money Laundering Case

Why did the Enforcement Directorate register a money laundering case against Franklin Templeton Mutual Fund?

Just In

The Enforcement Directorate (ED) has launched a money laundering investigation against Franklin Templeton and its senior officials. The case has been registered on the basis of an FIR registered by the Chennai Police Economic Offences Wing (EOW) in September 2020.

But Why?

The mutual fund house is accused of planning a criminal conspiracy to fraud its investors for its own unlawful gains. How did they find that out? A forensic audit by Choksi and Choksi indicated that there were many instances of top executives and entities withdrawing ₹53 crore between March and April 2020, just before the shutting down of the six debt schemes. Sources told Business Today that ED will probe if the gains made by the officials can be treated as proceeds of crime under the Prevention of Money Laundering Act (PMLA).

The Backstory

In case you are hearing about the news of Franklin shutting down its debt schemes for the first time, then read on: Earlier on April 23, 2020, Franklin Templeton shut down six debt mutual funds.

When the fund was wound up, it was told that investors could not make any transactions or withdrawals. It was said, the day the fund house gets any interest or maturity proceeds from any of the holdings in these schemes as and when they mature, it will be distributed equally to all investors.

But now, the report shows that the top executives withdrew money just before the shut-down of the schemes and that’s why this investigation is being done to see whether they have wronged the investors.

Zooming Out

When they were shut down, the schemes had an estimated ₹25,000 crore as assets under management (AUM). These schemes have received total cash flows of ₹14,391 crore from maturities, pre-payments and coupon payments until January 29, 2021. So, the schemes have been receiving money to pay back the investors but with this new development, the question now everyone has is that, will this investigation affect the distribution of proceeds?

According to Livemint, the answer is No. The probe may not impact the distribution of proceeds and winding up of the six schemes. Franklin Templeton has expressed confidence in being able to liquidate a large portion of the schemes within a few weeks’ time once SC approves a liquidation plan.

On the other hand, this probe comes as a further setback for the AMC. The mutual fund company is also facing cases in the Karnataka High Court and the Supreme Court. Besides, the Securities and Exchange Board of India has issued show cause notices to key management personnel of the fund.

The one thing we have to keep in mind is that it is still too early to say what shape this investigation will take in the future.

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