Adani-Hindenburg Saga Continues with SEBI Chief being accused
STORIES, ANALYSES, EXPERT VIEWS
Just as the Adani-Hindenburg saga was nearing its end, new allegations have revived the episode. According to a new report by Hindeburg Research, Securities and Exchange Board of India (SEBI) chairperson Madhabi Puri Buch and husband Dhaval Buch allegedly made investments in an offshore fund which is linked to the Adani Group.
What started off in January 2023 for the Adanis with the first report of allegations from the US short-seller, which the Indian conglomerate has called 'baseless', the latest allegations have once again stirred havoc.
Hindenburg disclosures
In it's latest report, Hindenburg Research has expressed 'surprise' on SEBI's lack of interest in Adani's alleged undisclosed web of Mauritius and offshore shell entities.
It claims that the Buchs reportedly opened an account with IPE Plus Fund 1 on June 5, 2015, in Singapore. This IPE fund is a minor offshore Mauritius fund established by Vinod Adani through India Infoline (IIFL), a wealth management firm connected to the Wirecard embezzlement scandal.
In January 24, 2023, US-based short-seller Hindenburg Research had accused the Adani Group of fraud and “brazen” stock price manipulation. Following the release of the report, Adani Group stocks tanked up to 10% on January 25 and ended the day with a market cap erosion of Rs 96,672 crore across 10 counters.
On March 2, 2023, the Supreme Court ordered setting up of a committee headed by ex-SC judge AM Sapre to probe the recent Adani Group shares crash triggered by the Hindenburg Research's fraud allegations. The apex court also asked market regulator SEBI to investigate whether there has been a violation of SEBI rules, and whether there was any manipulation of stock prices.
The investigations revealed no malpractices.
Political war of words
While the government has strongly stood by the Buchs, the Opposition in crying foul and seeking resignation of the SEB regulator.
According to Economist Sugata Ghosh “stung by a rebuff from the Indian market regulator, Hindenburg has cobbled together a sensational retort that could only have a limited collateral damage. It's a desperate, though understandable, attempt by the Wall St firm to link Sebi's supposed inaction to certain past 'associations' between the Adanis and the Sebi chairperson and her husband Dhaval Buch, a senior corporate chieftain. While these links traced by Hindenburg on the basis of whistleblowers' reports are legally tenuous, they may not go unnoticed.”
Disclosures important
The key questions, according to P Vaidyanathan Iyer (executive editor, national affairs, Indian Express) are: “Did Buch disclose her investment in the sub-fund of the foreign portfolio investor, to which a company set up by Vinod Adani also subscribed? What did she do when the Adani Group investigation first came to her table, when she was a whole-time director and later as chairperson? Did she offer to recuse herself when there were allegations relating to other investors in this sub-account? Did she tell the board or the court that the ambit of the probe that Sebi had been asked to conduct covered the period when she and her husband were involved in an investment transaction that had a dotted line link to Vinod Adani?”
The confidence of common investors in the securities market “rests squarely on Sebi’s professional competence and institutional credibility as much as it does on the integrity of the person helming the regulatory body. And the regulator must not only be of impeccable integrity but also be seen to be above board.”
The revelations, writes Iyer “have put the onus on the market regulator to clear the haze around allegations of market manipulation by the Adani Group, which the latter has consistently maintained are baseless….The need to make this disclosure is seen to be critical by many in the regulatory circles because this is unlike a Systematic Investment Plan in a mutual fund which a common person puts her money in. Investments in offshore funds by high net worth individuals (HNIs) are managed by portfolio managers. In a normal mutual fund, an investor has zero say in how her money is invested by the fund manager. In most Portfolio Management Schemes, the HNI has greater interaction with the portfolio fund manager and more knowledge about the investment. This then begs a question: Did she and her husband have ‘constructive knowledge’ about the deployment of funds?”
Buch could she have disclosed this first, “to the Supreme Court….Second, to the six-member expert committee set up by the SC in March 2023…..
“A voluntary disclosure about investments to the Sebi board alone may not suffice when it comes to the head of a market regulator. Yes, telling the board, in one way, means keeping the government informed, since at least two Government of India secretaries and an RBI nominee sit on the board of the regulator. The government, for all practical purposes, would be seen as having all information. Before looking for a foreign hand and a conspiracy to undermine Indian institutions, maybe these three should also look within.
