SEBI’s Charges against Hindenburg Put the Spotlight Back on Its Own String of Questionable Actions in the Past
Which of the two is more embarrassing: The market regulator’s year-long investigation ending up targeting the messenger, and attempting to make a case of short-selling and violation of Indian laws against a foreign entity? Or that it draws a blank on the charge that the Adani group “engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades”, as alleged in Hindenburg’s report in January 2023?
Hindenburg Research, a US-based firm that specialises in forensic financial research, has made public the 46-page show-cause notice (SCN) it received from the Securities and Exchange Board of India (SEBI) on 27th June. It has also exposed the regulator's convoluted effort to establish jurisdiction over Hindenburg, which says it has “zero Indian entities, employees, consultants or operations.”
SEBI has accused Hindenburg of violating market regulations by making inaccurate statements on Adani. But Hindenburg was not alone. Its sensational 106-page report, that triggered severe volatility in Adani group stocks, has since been  expanded and corroborated by dozens of investigative articles in leading publications around the world. SEBI is silent on those. 
Meanwhile, SEBI has apparently found very little wrongdoing in the movement of billions of dollars through the ‘vast network of offshore shell entities controlled by Gautam Adani’s brother, Vinod Adani, and close associates’. Hindenburg cites a Reuters report quoting anonymous sources saying that SEBI found only ‘technical’ violations and may impose token monetary penalties on the group.
SEBI has also found nothing on the sustained price ramping in Adani stocks and would have us believe that their stratospheric valuations were justified by fundamentals alone. In effect,  investor believed that companies of one group alone, deserved to be valued on an entirely different and higher plane. For comparison, Debashis Basu wrote in February 2023 (The Adani Saga: Wilful Blindness):“At its peak, Adani Enterprises, a component of the Nifty 50, was valued at a price-to-earnings (P/E) ratio of 427. If Reliance Industries was valued at a P/E of, say, 400, its market-cap today would be 16 times what it is and Mukesh Ambani would be the world’s first trillionaire, with a net worth of US$1.38trn (trillion)!” If TCS and Infosys were similarly valued, he wrote, “The BSE Sensex would be 8-10 times higher at 480,000 to 600,000 instead of 60,000 or so!”
Moneylife has previously written how the stock price of Adani Enterprises rose 3,000% in the four years from 2004 to 2008 without attracting any regulatory action.
Coming to the SCN, will SEBI be able to establish its regulatory jurisdiction or justify its convoluted charges against Hindenburg? Perhaps not. But this won’t be the first time the Indian market regulator has launched a witch-hunt or issued orders devoid of logic or botched an investigation. In fact, it has happened repeatedly in high-profile cases that deal with powerful or politically-connected organisations. It has also sabotaged its own orders by making contradictory claims, as it did in the co-location scam at the National Stock Exchange (NSE).
Consider this: In January 2023, when the securities appellate tribunal (SAT) all but threw out SEBI’s initial order asking NSE to disgorge Rs625 crore with interest (What about National Pride When SEBI Is Repeatedly Embarrassed by Overturned Orders in Major Scams?) it said: “We find that SEBI had adopted a slow approach and, in fact, was placing a protective cover over NSE's alleged misdeeds” and that the regulator “woke up and instituted an investigation” only when questions were raised in Parliament.  SAT found it strange that “SEBI directed NSE to conduct an investigation against itself.” What took the cake is that SEBI’s whole-time member (WTM) “arrived at exactly opposite findings on the same issue, in two separate orders, on the very same date!” Predictably, one ruling favoured the NSE.
A typical pattern in high profile investigations is that SEBI quietly issues an SCN, which allows it to claim that an investigation has been opened. This then drags on endlessly, unless the ‘noticee’ company settles the issue. Otherwise, the cases can drag on for well over a decade. For instance, it took 21 years for SEBI to complete its investigation and impose a penalty on Reliance Industries Ltd., for violation of takeover rules (21 Years After: SEBI Imposes Rs25 Crore Joint Penalty on Ambani Family & Reliance Promoter Entities for Violation of Takeover Norms). Many investigations have dragged on for 10 to 15 years.
This time, Hindenburg’s decision to go public with the SCN and its analysis of SEBI’s charges gives the regulator no room to hide. The Adani group has business interests and controversies brewing in several countries and the quality of SEBI’s investigation is bound to come under international scrutiny. SEBI may also have to answer some questions posed by Hindenburg, such as (read: Hindenburg Makes SEBI Show-cause Notice Public. Calls It An Attempt To Silence and Intimidate Those Who Expose Corruption):
1. SEBI chairperson Madhabi Puri Buch’s two meetings with the Adani group chairman Gautam Adani in 2022 while the price rigging issue was being investigated.
2. The serious allegation that SEBI pressured brokers (behind the scenes) to close short positions in Adani companies under the “threat of expensive, perpetual investigations, effectively creating buying pressure and setting a ‘floor’ for Adani’s stocks at a critical time”. Former SEBI executives suggest that, if proved, this indicates that the regulator is guilty of manipulation to benefit one politically-powerful business house.
As far as SEBI’s SCN is concerned, the first challenge will be whether it is able to establish regulatory jurisdiction over Hindenburg. Secondly, when Hindenburg had disclosed its role as a ‘short-seller’ upfront and SEBI has not identified any ‘factual inaccuracies’ in the report, can it make a case on the basis of claims that a few facts were ‘cherry-picked’, ‘sensationalised’, ‘distorted’, ‘reckless’ or ‘contained certain misrepresentations/inaccurate statements’ in order to ‘mislead readers’?. SEBI also found issues with the report quoting a ‘banned’ broker, although the fact that he was banned is known because it was disclosed!
SEBI’s objection to Hindenburg’s language in describing regulatory action against Adani companies sounds like a lawyer making a defamation case on behalf of the corporate group.
Hindenburg says, “We expect SEBI may try to impose 'bans' or fines on us to clamp down on the prospect of more criticism of Indian companies.” If this is to be SEBI’s new standard for SCNs, in order to protect politically-powerful companies, then it is only a matter of time before media reports which expose corporate wrongdoing or fraud are served SCNs by picking on sources, language and assembly of facts while imputing motives to investigative work.
In the past, SEBI has faced no embarrassment or consequences. Questions in Parliament ended with bland, and even contradictory, replies and there was no pressure to ensure time-bound completion or prioritise important cases. On the contrary, pliant chairmen were retained for long periods by extending their term. Things may not be so simple this time. The changed composition of India’s Parliament may force more accountability from the government and the regulator.
Moreover, action against Hindenburg, especially since it involves one of the richest businessmen, will continue to attract global media attention. At stake is India’s credibility as the largest market in the world in terms of derivatives trading and an international trading centre (GIFT City), which will be judged by the quality of regulation.
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6 days ago
SEBI's downfall started with CB Bhave and I wouldn't have thought in a million of years that it would get this bad in 2024. It's exceedingly difficult to instil a "learning culture" in a bureaucratic organisation.

This underscores my earlier comments: SEBI culture has gone whack and ethos are completely out of place. It's not a question of competency or accountability although both are severely lacking, but a question of culture and talent shortage.

Reforms can only be possible by acknowledging deficiencies from within and the desire to learn from past mistakes. It can borrow a page or two from Monetary Authority of Singapore -- put accountability & responsibility at the forefront of culture & ethos. Accountability and responsibility are not part of SEBI's lexicon and vocabulary, sadly.

Alas, without this, there isn't much to expect from SEBI, quite frankly. It's quite sad, really.

Good write up btw.
1 week ago
The expose of the Adani group by Hindenburg Research that raises damning questions about the absence of regulation in the country - is getting murkier by the day. But the Belekeri port scam in which a colossal quantity of iron ore was stolen and shipped to China provides both evidence and perspective on how billionaires in India were built.
Kumar Swamy
1 week ago
Did you look at front running by Hindenburg's clients, Chinese connections, Kotak's involvement?
1 week ago
Best jobs in India with all perks and no accountability , sebi, rbi and sc..
1 week ago
SEBI is a national embarrassment.
1 week ago
If I were the PM i had put adani in jail for the lifetime..for money that guy would sell his soul..
2 weeks ago
SEBI like CBI, ED, CVC,CEC are wholly owned group companies of Modiji whose CEO is Mr Adani.
Naturally SEBI cannot conduct investigation against its boss. Great definition of Modiji’s Reforms.
We may see a few more Institutions joining the Group. Jayaho
Kamal Garg
Replied to tlrchandran49 comment 1 week ago
Ha ha. Nice comments. CEO of all the enforcement agencies is ......And then who is the boss.
Replied to Kamal Garg comment 1 week ago
He is obvious and omnipresent
2 weeks ago
Shows what value professional integrity gets among our regulators who are supposed to set an example. How do you expect integrity from the "regulated".
2 weeks ago
Hindenburg Makes SEBI Show-cause Notice Public. Calls It An Attempt To Silence and Intimidate Those Who Expose Corruption)-The link has some extra http letters. If removed , then works
2 weeks ago
Hindenburg Makes SEBI Show-cause Notice Public. Calls It An Attempt To Silence and Intimidate Those Who Expose Corruption)-Not possible to access this link. Is it deliberate attempt by any statutory authority to deny access?
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