SEBI-Hindenburg-Adani: How Not To Handle a Credibility Crisis
The manner in which India’s market regulator, the Securities & Exchange Board of India (SEBI), has gone about investigating the astounding rise in share prices of the Adani group has been troubling for independent observers, even before Hindenburg Research, a US-based firm that specialises in forensic financial research, released its explosive report 18 months ago. This harks back to the tenure of another chairman who is now associated with the concerned industry group, but it was always assumed that SEBI’s reluctance was primarily due to political compulsions.
 
Having ignored the inexplicable price run-up, SEBI,  under the present chief, framed its post-Hindenburg investigation primarily on short-selling activities. Even a novice investor understands that short-selling opportunities emerge only when stock prices soar far beyond a company’s fundamentals or future prospects. The explosive new ‘whistle-blower’ documents released by Hindenburg Research on 10th August give a new twist to the issue and have led to a full-blown credibility crisis at the market regulator. They question chairperson Madhabi Puri Buch's (MPB) personal integrity and ‘disclosures’ with a set of facts and documents.
 
As one of the top-5 capital markets in the world and a key resource mobiliser for the Indian economy, restoring confidence in the independence of our regulatory mechanism is of paramount importance today. What we are witnessing, instead, is a textbook example of how not to handle such a situation. In the 36 hours since Hindenburg released its sensational allegations, there was complete silence from the government and the finance ministry which oversees SEBI. Instead, we have seen a series of statements from those involved which raise more questions than they answer.
 
SEBI’s response, issued late on a Sunday night, is particularly disappointing. It claims to address issues that “warrant an appropriate response.” However, when serious allegations are made against the chairperson and the regulator itself, an ‘appropriate response’ cannot be anonymous. It should come from those in a position to speak for the regulator—which is either the board of directors or the finance ministry. Was there a board meeting? Who has assumed responsibility for statements made in the press release?
 
Exhibiting a poor understanding of the gravity of the crisis, its various actions in the Adani matter suggest that the issue is done and dusted barring one case. It also appears to defend the chairperson without any semblance of inquiry and states that she had “recused herself in matters of potential conflicts of interest.” Whether she did so in the Adani investigation is not clarified.
 
Meanwhile, the ruling party appears to have deployed a host of influencers to question Hindenburg’s credibility and to silence or discredit anyone attempting a serious analysis or comment. The strategy is unlikely to work. Unless the government takes responsibility and shows a willingness to conduct a fair inquiry, the pressure will only mount, it will also harm India’s credibility as an investment destination and hurt investors.
 
Despite the clarifications offered by various parties, including SEBI, many key issues warrant further scrutiny.
 
It is now an indisputable fact that MPB and her husband had investments in an offshore entity (Global Dynamic Opportunities Fund Ltd), which were nested in the same “obscure Bermuda/Mauritius fund structure” used by Vinod Adani, the brother of Gautam Adani, and was under SEBI’s investigation. They warranted clear disclosure, especially when the redemption process was rather strange.
 
Remember, SEBI itself has set a high bar for disclosure and compliance by regulated entities and their employees. A chairperson who tells influencers “You open your mouth and utter a single name (of securities), you stop being an educator and start being an adviser,” ought to play by similar rules. This means that an investigation that has dominated headlines, been reported around the world, and involved an unprecedented Supreme Court-appointed committee warranted disclosure and recusal.
 
Moreover, SEBI already has a precedent of CB Bhave being ring-fenced from a SEBI investigation into the National Securities Depository Ltd (NSDL) when he was appointed chairman, even though it did not involve personal investments. A board-monitored committee, perhaps comprising the three whole-time members (WTMs) could have been set up to handle the Adani investigation in consultation with the finance ministry.
 
Not only did it not happen, but it is clear that MPB led the investigation. She had two meetings with Gautam Adani while the investigations were ongoing. No disclosure of any recusal was made to the Supreme Court or to the expert committee that was specifically appointed to examine if there was  “regulatory failure in contravention of laws pertaining to the securities market in relation to the Adani group.”
 
Subsequently, in April 2024, there were media leaks that investigations against 12 offshore funds that invested in Adani stocks would be settled while, in June 2024, SEBI sent a show-cause notice to Hindenburg (SEBI’s Charges against Hindenburg Put the Spotlight Back on Its Own String of Questionable Actions in the Past), despite questionable jurisdiction.
 
MPB’s dealings with Trident Trust Company are strange. First, there is a letter from Dhaval Buch asking their joint ’accounts be registered solely in his name’; yet, the email registered to the account remains that of MPB, who continues to receive investment details.
 
 
Redemption of Offshore Units: It probably explains why she sent a redemption request from her email in 2018 for redemption of Dhaval’s holding. How and why did the email not change? In India, this would have fallen foul of compliance requirements and possibly attracted penal action by SEBI. It also raises red flags about the real ownership of the accounts. As a WTM of SEBI and someone familiar with compliance rules, MPB was surely aware of this.
 
Agora Consultancy: MPB and her husband have confirmed their holdings in two separate consultancy companies with the name Agora. MPB says she transferred her entire holding in Agora Partners Singapore to her husband, in March 2022. This was two weeks after she became SEBI chairman and in her second stint as regulator. She continues to hold a 99% stake in the India-registered Agora Advisory Pvt Ltd. In a public statement, the couple says the two entities “became immediately dormant on her appointment with SEBI” in 2017, but Hindenburg has released documents showing that the Indian entity is active and generating revenue.
 
In another contradiction, they say,  Dhaval Buch started his own consultancy practice through these companies after retiring from Unilever. This not only confirms that Agora India is not dormant but it is unclear whether ‘prominent clients in the Indian industry’ that it does business with, are SEBI-regulated entities. This information is relevant since the SEBI chairperson remains a 99% owner of the firm, even if the consultancy is run by her husband.
 
FPI Ownership Disclosure: 360 One Wam Ltd (formerly IIFL Wealth Management) issued a statement revealing investment details of MPB and her husband, raising a crucial question from MP (member of Parliament) Mahua Moitra: if foreign portfolio investment (FPI) records down to the last natural person were made available so quickly by one entity, why did SEBI ’hit a wall’ in its investigation, as noted by the Supreme Court?
 
Even without going into the conflict issue raised by Hindenburg over Dhaval Buch’s consulting assignment with the Blackstone group, these allegations warrant clarity to restore the regulator’s credibility.
 
A small joint parliamentary committee (JPC) invariably turns into a political circus without the intended results. Former revenue secretary EAS Sarma has a better suggestion in his letter to the finance minister (FM). He suggests that the chief justice of the Supreme Court (which has not closed the Adani cases) could nominate a senior member of the judiciary to head an inquiry commission under the Commissions of Inquiry Act, 1952. It would make sense to accept this suggestion at the earliest.
 
India’s national interest is not served by defending one business group. With a market capitalisation of several lakh crores and the savings of countless ordinary people riding on the market, it is imperative that SEBI remains credible and is seen to adhere to the rules and compliance standards it imposes on all stakeholders.
 
 
Comments
angelo.extross
2 months ago
While on one hand, SEBI, under MPB, has framed its investigation primarily on "short selling", I am told that SEBI's recent Consultancy Paper on the new proposed Asset Class has a provision for "short selling"
hchulani
2 months ago
Sorry Mr Sashidc, SC judges do not have knowledge on economics. They just manage to give judgments which have to be accepted by us because it comes from the Supreme’ Court!
shashidc
2 months ago
While the central premise of the article is indisputable (that SEBI needs to handle this matter credibly), some of the statements in this article by the senior reputed financial journalist are less than sound.
1) How does she expect that the Finance Ministry should hastily come to defend MPB? If the ministry did that, won't people say the Government acted with alacrity to protect Adani?
2) Whether GDOF (the fund tainted by Adani involvement) invested only through IPE Plus or used other vehicles also is a key question that Dalal ignores. If it did use other vehicles too, then alleged Adani-MPB connection is at best a conjecture.
3) Dalal questions jurisdiction of SEBI to send show-case notice to Hindenburg. That's funny when on the other hand you expect SEBI to run rigorous worldwide probe into mysterious holding structures. How does SEBI have jurisdiction to do that?
4) One comment by Dalal citing Mahua Moitra is plain illogical. To paraphrase, "How come IPE Plus Fund so quickly managed to 'trace' ultimate natural persons who were beneficial holders!". If the natural persons directly hold the investment in a fund, they don't need to be traced. They are there as themselves, not hiding behind some Bermuda or Cayman company. It's that simple. We can pardon Mahua-the-politician for making that kind of illogical statement. But a reputed financial journalist does not see that insinuation does not hold water?

One suggestion of Dalal is absolutely right though. Instead of JPC, let the SC appoint an enquiry committee of senior member(s) of judiciary.
Kaushik.jayaram
Replied to shashidc comment 2 months ago
ON your first point. Ms. Dalal said that the response should come from an authorized source, either the Finance Ministry or the SEBI Board, not an unsigned Press note from SEBI. Finance Ministry MPB,. They are not asked to defend but clarify the correct position, or alternatively announce an inquiry. These disclosures are typically made at the time of her appointment so the Finance Ministry should have the details.
On your second point about GDOF and IPE Plus and Adani connection, even Hindenburg does not say that IPE Plus or MPB investments were made in Adani firms. The fact that the same nested funds in which MPB had investments also invested in Adani stocks and were under SEBI investigations is a glaring red flag and MPB should have at the very outset disclosed her connection to the Supreme Court. This is the bare minimum in any regulatory regime. On your point 4, the comment cited by Dalal is not only logical but goes to the core of SEBI investigation. It is no one's case that every fund knows the natural persons who have invested in them. But the very suspicious amendment to PMLA, which SEBI has used as a convenient shield, does not require ultimate beneficiaries to be disclosed and only the Asset Manager is shown as the primary beneficiary. This enabled SEBI to claim that they could not find the ultimate beneficiaries. But in this case, either SEBI asked or IPE Plus voluntarily disclosed MPB's investment. The question is why this could not be done in the 22 out of 24 investigations launched by SEBI. A perfectly logical question.
Kaushik.jayaram
Replied to Kaushik.jayaram comment 2 months ago
Unfortunately, there are a couple of typos in my reply and there is no edit function to correct them. Sorry for this.
atugadesunil1282
2 months ago
Investigation is needed in this case. Also main conflict of interest is, MPB is on a good position in SEBI which is regulating the markets and protecting investors interest, and her husband is in Blackstone which is "investment management company" also running an "agora" again this is also a management consultancy and investment banking adviser firm.

So investigation is must needed here, specifically companies connected with Dhaval buch.
Kaushik.jayaram
2 months ago
Brilliant analysis as usual. You are absolutely the best among the financial journalists along with Debashis. What I find surprising when I listen to many of the debate on TV is how little of the basics these anchors know or understand. They would do well to read your articles. On Hindenburg , no one seems to actually check their website or see how many reports there are and that too mostly on Nasadq and NSYSE listed companies. Adani was the only one on India, yet these people see it as though Hindenburg was set up to attack India.
prembajaj
Replied to Kaushik.jayaram comment 2 months ago
Isn’t it? Why only Adani? And what’s their concern to damn amongst the biggest corporations competing at global level! Where’s the problem? They don’t like Adani. Don’t invest. They don’t like India. Don’t invest. FO.
impaddi
Replied to prembajaj comment 2 months ago
Adani is not India / Bharat.
vram2311
2 months ago
An investigation is needed. Am sure SEBI must be having disclosure norms for its employees. It must put out the documents in public domain. The email mentioned is a personal email & in India its a norm to give the email account of someone close (this seems to be a miss by MPB). Its important for our market regulator to respond & not react
alexanthony1966
2 months ago
Very informative article giving information about the whole Hindenburg accusations on Adani and Sebi Chairman.
tweetobserver862
2 months ago
Ignore Hindenburg and invoke nationalism is visible on social media. Barring a paltry few like Moneylife; no one seems to take Hindenburg accusations seriously. Someday this is going to hurt really bad. As Buffet says ''A pin lies in wait for every bubble and when the two eventually meet, a new wave of investors learns some very old lessons." We have had ''pied pipers'' in the past like Harshad Mehta or KP etc. This is not even like 1992 when not many knew what HM was doing, but followed him. Seeing the Adani stocks priced so high and promoters holding 75% stake and some unknown FII's propping it up; this is one day coming home to roost. In the end you will need to pay the piper..
ahluwalia.hari
2 months ago
Nathan Anderson of Hindenberg Research is one smart cookie. If you've read his other reports on companies, this one seems out of character. Maybe he is still holding back some critical information to "smoke out" MPB/ SEBI/ Government Once they respond, he will disclose more. This definately is not a Hindenberg style report
shankarmes
2 months ago
good article
bookjohn1984
2 months ago
The "influencer" you are referring to, being deployed to defend Madhabi Buch is none other than the stuttering Madhu Kela! I mean the guy has NO BUSINESS to jump in and start making stupid statements like "its an attack on India's financial markets" etc. Instead, he should have welcomed the incisive investigation being made by Hindenburg. This Madhabi Buch story is playing out like the Chanda Kochchar story - she too went down hiding her husband's shenanigans. All these so-called "financial" type husbands seem to be a real liability!
Kamal Garg
Replied to bookjohn1984 comment 2 months ago
For successful professionals and even politicians, husbands are always a "liability". Ha ha.
hchulani
2 months ago
Did any of these MCB investments buy the now discredited bonds issued by the government?
vrvedula
2 months ago
It is a fact that political governance in India is poor. Political parties dependant on corporate funding which is on quid pro quo basis. Financial Institutions are at back and call of the government of the day. In India, anyone seeking to contest elections be it at grassroot Panchayat level, municipal corporation, legislature or parliament expends far beyond parameters laid by Election Commission of India in reality. Accounting and Accounts are 'cooked' and even certified by statutory or regulatory authority right from simple vendor to corporates, associations, philanthropic organisations, commercial corporation and political parties. Cash flows easily during elections temporarily catalyse the economy with ease of availability of goods and services necessary to encash votes.
adityag
2 months ago
I have absolutely no sympathy for either Hindenberg or MPB (and SEBI by extension). Both the parties are equally bad. I'd like both SEBI and Hindenberg to dish it out for all of us to watch. It's a delight. We might be fools and taken for a ride, but at this point it doesn't matter much. I want to see both of the parties wrestle until there is a clear winner. That's how MMA works. Someone ought to satirise this whole thing. At the very least the taxpayers deserve some quality entertainment. Having said this, I still have full faith in the markets as a whole. It's working pretty OK, I think.
bookjohn1984
Replied to adityag comment 2 months ago
Instead, you need to have GRATITUDE for Hindenburg. For whatever reasons (short selling may be) they are taking a real scalpel to the "So-called" Indian regulatory framework, and they are doing the job of the financial press in India, which has abdicated its responsibility after their ownership went to one of the two "knees". Not surprising, because today's India has two "knees" that drive everything.
dockbillin
2 months ago
" if foreign portfolio investment (FPI) records down to the last natural person were made available so quickly by one entity, why did SEBI ’hit a wall’ in its investigation(?)"

Lol, this is country where "absconders" who are "untraceable" by police routinely appear in the stage at public functions with celebrities and politicians. Does Ms Moitra even need to ask?
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