Franklin Fund Official Says Sebi Exceeded Authority In Banning Him

A senior executive of US money manager Franklin Templeton (FT) told an appeals tribunal that the Securities and Exchange Board of India "overstepped" its powers by banning him from the securities market for unfair trade practices, a filing showed.

Vivek Kudva, head of Asia Pacific distribution at FT, was barred last month by the Sebi, which said he and his family members used non-public information to sell holdings worth about $4 million in Franklin debt funds that were shut down weeks later and caused investor panic.

In an appeal filed at the Securities Appellate Tribunal, Mr Kudva argued that Indian law prohibits unfair trade practices, but mutual fund redemptions were not a "trade" and were akin to withdrawing one's own money from a bank.

When contacted on Thursday, Mr Kudva said in a statement he had always acted in accordance with Indian regulations and that his “personal transactions” had been “conducted in good faith and with no intent to gain unfair benefit”.

Sebi did not immediately respond to a request for comment.

The regulator had imposed a one-year market ban on Mr Kudva and his wife and fined them $1 million. It said it was not "fair conduct" as Mr Kudva was privy to non-public information.

Arguing he acted only on public information, Mr Kudva said there was no reasoning in Sebi's decision "to justify the draconian directions and restrictions," according to his 232-page filing which was seen by Reuters and is not public.

Sebi had "overstepped its authority and misused the discretion," said Mr Kudva, who has worked at FT for more than 15 years and is a former HSBC executive.

His appeal will be heard by the tribunal later on Thursday.

The filing comes when FT India is locked in a broader legal battle with Sebi after the fund house, considered a fixed income heavyweight, was barred from launching any new debt schemes for two years following a probe into closure of six credit funds in 2020 that the regulator said found "serious lapses and violations".

The securities tribunal put the Sebi order on hold this week after hearing Franklin's appeal, but still ordered the fund house deposit about half of the $68.5 million it had been asked to refund.

In FT's appeal filing, seen by Reuters, the fund house argued it acted in investor interest and followed Indian regulations in winding up the funds, and has distributed nearly three quarters of the assets to the unitholders as of mid-June.

The filing adds FT used "business judgement in good faith" to close the funds and that it should not be penalised for it.

Franklin, part of Franklin Resources Inc, manages more than $8 billion for more than 2 million people in India, and has said it is committed to the market.