Scam Alert: The Kudwa-Franklin Fiasco
A story of unwarranted greed.
It takes years to build a reputation, and a few moments for it all to go down the drain.
Such is the story of Kudvas, the power couple who has been charged by SEBI for fraudulent and unfair trade practices. They have been banned from the stock market for one year and have been asked to pay a penalty of Rs. 7 crores collectively.
But, how did this happen?
Owing to their “position of privilege”, the couple found out about a sinking ship before the rest of the world. So… like any opportunistic capitalist, they took their belongings and sneaked out in a rescue boat, while leaving the common folk to drown.
On 23 April 2020, Franklin Templeton informed the investors (unit-holders) of 6 of its mutual fund schemes that it was going to wind up (close) these schemes. Withdrawal of money from the schemes (redemption) was suspended for lakhs of unit-holders. But, three unit-holders got away with it even before the winding-up decision was made public.
The Kudva family collectively redeemed an amount of Rs. 30,70,30,048 (Yes. 30.70 crores!) from these schemes between March and April 2020. How?
Well, the family says that there was enough information in the public domain about the schemes based on which they arrived at their decision to redeem.
Also, the onset of the pandemic influenced their decision to liquidate the investments and instead hold it in the form of cash. And well, they had also made redemptions from other schemes during this time.
You can’t also look past the fact that they were not the only ones. Thousands of other unit-holders also redeemed from these schemes during that period. Then why single them out?
They look all too naive, but Vivek Kudva is the head of Franklin Templeton Asia Pacific region and SEBI went-
Vivek reached out to Santosh Kamath, the fund manager of these 6 funds on 18th March 2020:
“........do send me the liquidity profile of the 6 managed credit funds ASAP, ideally by EOD today, if possible. We are losing between 500-1000 crores per day from the funds and I want to make sure we are well prepared for different scenarios....”
More such emails seeking more such information followed. Could it be a mere coincidence that as Vivek gained more information, their redemption also went up?
The couple still argued that winding the schemes does not mean that unit- holders have lost their investments. And so, they felt that SEBI cannot simply arrive at the conclusion that they made any gains or averted any losses with their redemption.
In fact, as of date, Rs. 9,122 crores has been paid to the unit-holders of the six schemes under winding up. And, an additional sum of Rs.1,370 crores has been accumulated and is available for distribution.
SEBI be like,
It noticed that the other unit-holders have received only 25-27% of their investments so far. It was only fair to place the couple in a similar situation. So, out of Rs. 30.7 crores that they redeemed, SEBI has directed the couple to deposit Rs. 22.64 crores (73-75% of their investment amount) in an Escrow account (withdrawals from Escrow are based on the fulfillment of certain conditions). The amount will be released to them as and when the amount is released to other unit-holders by Franklin Templeton.
SEBI - 1, Kudvas - 0.
Fun Fact: This is not the first controversy that Mr. Vivek Kudva’s wife, Ms. Roopa Kudva has found herself in. She was an Independent Director on Infosys’ Board in 2017. At that time, Mr. Narayan Murthy accused her of corporate governance lapses, when a fat severance cheque was paid to the then CFO. Why so? Well, she asked Mr. Murthy to sign an NDA (non-disclosure agreement) if he wanted to know why.
The couple has worked with some big names in big roles over their career. Even then, they got tempted to do something that they did not need to, something they could have avoided. And, getting caught after all this trouble...
It takes years to build a reputation, and a few moments for it all to go down the drain. (Tweet this)
Until next time... read on.
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And by the way Vivek is still holds the position in Franklin Templeton and Roopa is the Director at Nestle and Principle Partner at Omidiyar Network. What steps did their employers take? Did they even make an independent investigation? Where’s the corporate governance? Well that is probably fodder for another article
Indian judicial system. A provision for appeal. It’s a tough case for SEBI. It’s one thing to order as a quasi judicial authority and another for that order to survive in the Tribunal & the court of law where veracity of intention, facts, law and process will be questioned.