ED Registers Money Laundering Case against Franklin Templeton & Senior Officials

The Enforcement Directorate (ED) has registered money laundering case against Franklin Templeton, an asset management company, and its senior officials. It is the first case by an investigating agency against Franklin Templeton after it unexpectedly closed six debt schemes in April 2020, reports Money Control.

Based on the FIR filed at the Chennai Police Economic Offences Wing, ED has registered an Enforcement Case Information Report (ECIR) against Franklin Templeton. The FIR was registered on September 29, 2020 in Chennai under section 420.

The mutual fund and its CIO have been charged with cheating and hatching a criminal conspiracy to defraud innocent investors. This caused a wrongful loss to investors, while the fund and CIO made unlawful gains themselves.

The forensic audit report by Choksi and Choksi weighs heavily on Franklin Templeton. The audit stated that there were 23 instances of top executives and entities withdrawing Rs.53 crore between March and April 2020, just before the winding up of the six debt schemes.

A person familiar with the matter said the forensic audit report showed that Franklin Templeton officials sold their investments just before the six debt mutual fund schemes were closed. The person further said that the investigation will check if the gains from this sale can be treated as proceeds of crime under the Prevention of Money Laundering Act. “The ED may also look into why the FT officials didn’t use put options when the investment was in a loss. In addition, the directorate will investigate if FT officials got any monetary benefit by not executing the put options”.

A put option is a contract that gives the holders the right to sell a certain number of securities at a predetermined price, called the strike price, before the option’s expiry.

ED’s action is the latest setback for FT as it already faces cases in the Karnataka High Court and the Supreme Court.
Even SEBI has issued show cause notices to key management personnel of the fund and its trustees in this case. Post the final report submitted by Choksi and Choksi, even the capital markets regulator issued notices. This indicated that the fund favoured certain companies it had invested in by not exercising the put option. This was despite its risk management committee advised the CIO to do so.

Franklin Templeton officials have so far declined any wrongdoing.