Adani shares fall as Hindenburg takes aim at Sebi chief

Shares of most Adani group firms came under pressure on Monday after US short-seller Hindenburg Research accused Securities and Exchange Board of India (Sebi) chairperson Madhabi Puri Buch of conflicts of interest and instances of financial impropriety linked with the conglomerate.

Flagship Adani Enterprises declined 1%, Adani Ports and Special Economic Zone dropped 2%, Adani Energy Solutions fell 3.7%, Adani Total Gas dipped by 3.8%, and Adani Wilmar fell 4.1%. The only stock to end in the green was Adani Green, which rose .2%. The benchmark Sensex and Nifty were little changed from the previous session’s close.

On Saturday, the US short-seller, citing whistleblower mails and documents, alleged that Buch and her husband, Dhaval Buch, had invested in offshore entities, allegedly part of a fund in which billionaire Gautam Adani’s brother, Vinod Adani, also had investments.

In its original January 2023 report, the short-seller had accused Adani of pulling the largest con in corporate history–charges that had dragged down the group’s market cap by about $150 billion.

India’s Supreme Court had asked Sebi to probe Hindenburg’s charges of undisclosed related-party transactions, stock price manipulation, and violation of minimum public shareholding norms, all of which were refuted by the Adanis.

Conflict of interest

The short-seller has now claimed that a conflict of interest hindered a proper probe into the fraud allegations facing the conglomerate.

Buch and her husband have, in turn, denied Hindenburg’s claims, calling them baseless “allegations and insinuations,” and an attempt at “character assassination.”

Citing whistleblower documents, the Hindenburg report said that the Buchs’ investments appeared to have been made in 2015, two years before Buch joined Sebi as a whole time director.

Sebi appointed Buch as a full-time member in 2017, and in 2022 she took over as the first woman to head India’s capital markets regulator.

Buch, who rose to become the chief executive at ICICI Securities in 2009, moved to Singapore to join Greater Pacific Capital in 2011 and worked in various capacities across companies until 2017 when she joined Sebi.

The short-seller said that weeks before his wife became a member at Sebi in April 2017, Dhaval had written to Mauritius fund administrator Trident Trust, requesting that he be made the sole operator of the “accounts, seemingly moving the assets out of his wife’s name ahead of the politically sensitive appointment.”

Almost a year later, in February 2018, Madhabi wrote to wealth manager India Infoline (now called 360 One WAM) from her private Gmail account, instructing the $872,762 investment be redeemed.

360 One WAM on Sunday claimed that the Mauritius fund did not invest in Adani Group’s shares and over 90% of its assets were consistently in bonds.

‘Malicious, mischievous and manipulative’

Adani group, in a statement on Sunday, said Hindenburg’s latest report is a “malicious, mischievous and manipulative” selection of publicly available information.

To a question on why the Buchs “had stakes in a multi-layered offshore fund structure with miniscule assets, traversing known high-risk jurisdictions,” the Sebi chief and her husband said that the fund’s chief investment officer, Anil Ahuja, was Dhaval’s childhood friend, and that they redeemed their shares when he stepped down as CIO.

Between April 2017 and March 2022, during her tenure as a regulator, Buch owned a Singapore-based consulting firm called Agora Partners, with a 100% stake in it. A couple of weeks following her appointment as Sebi chairperson, Buch transferred these shares to her husband, Hindenburg said.

Buch said that upon her appointment at Sebi, the consulting operations in Singapore and India became inactive. However, her husband, Dhaval, reactivated them, taking on “prominent clients in Indian industry” after his 2019 retirement from Unilever Plc. The couple has disclosed all these activities to SEBI, as noted in their joint press statement.

Sebi probe status

Meanwhile, Sebi, in its response to Hindenburg’s allegations said it has completed 23 out of 24 investigations into the Adani group.

“Supreme Court in its order of 3 January noted that Sebi had completed 22 out of 24 investigations into the Adani group. Subsequently, one more investigation was completed in March, and one remaining investigation is close to completion,” the regulator said in a statement.

In response to Hindenburg questioning the issue of a show cause notice in June, the regulator said: “The show cause notice in question, alleging violations of securities laws by Hindenburg Research, has been issued by following the due process of law. It is noted that Hindenburg Research has itself made the notice available on its website. The show cause notice contains the reasons for its issuance. The proceedings in this matter are ongoing and the same is being dealt with in accordance with the established procedure and in compliance with the principles of natural justice.”

Sebi also refuted allegations that the Sebi (REIT) Regulations 2014 and subsequent amendments were “designed to benefit a large multinational financial conglomerate” (Blackstone Private Equity), a firm where Dhaval is an advisor.

The regulations were developed through a transparent, consultative process involving industry, investors, and the public, Sebi said, adding that its initiatives, including REITs, aim to democratize markets and promote capital formation, not to favor any single entity.

‘Recusal list’

Buch, in their statement on Sunday, said Blackstone was on Sebi’s ‘recusal list’, implying that she was not involved in decisions impacting affecting Blackstone.

“Insinuations that a handful of these matters related to the REIT industry were favors to any specific party are malicious and motivated,” the couple said in their statement.

The Buchs further said Dhaval was never associated with the real estate business of Blackstone, and that his appointment at Blackstone pre-dated Madhabi’s appointment as Sebi chair.

Sebi also said it has adequate internal mechanisms for addressing issues relating to conflict of interest, which include disclosure framework and provision for recusal.

“It is noted that relevant disclosures required in terms of holdings of securities and their transfers have been made by the chairperson from time to time. Chairperson has also recused herself in matters involving potential conflicts of interest,” it said.

Hindenburg’s counter

Countering Buch’s statement, the US short-seller on Monday raised questions over potential conflicts of interest and the transparency of Buch’s financial dealings in a post.

Hindenburg’s post challenges Buch’s claims, particularly her investments and consulting entities during her tenure at Sebi, highlighting discrepancies and the need for further scrutiny.

“Sebi chairperson Madhabi Buch’s response to our report includes several important admissions and raises numerous new critical questions,” it said in the post.

“Sebi was tasked with investigating investment funds relating to the Adani matter, which would include funds Ms. Buch WAS PERSONALLY INVESTED IN and funds by the same sponsor which were specifically highlighted in our original report. This is obviously a massive conflict of interest,” it said.

The Buch’s are yet to respond to Hindenburg’s latest allegations.

Opposition parties in India, meanwhile, have demanded Buch’s resignation in the wake of the Hindenburg allegations of impropriety in its probe against the Adani group.

Rahul Gandhi, leader of opposition from the Congress, on Sunday said Sebi’s integrity has been “gravely compromised by the allegations against its chairperson.”

The opposition has demanded a parliamentary probe into the charges made by Hindenburg and is also hoping for direct intervention from the Supreme Court to re-open its earlier probe.