Regulators are often known for cracking the whip on erring companies. But in an unexpected turn of events last week, capital markets watchdog Securities and Exchange Board of India (Sebi) and its chief Madhabi Puri Buch found themselves in a pickle.
Thanks to the latest allegations made by US short-seller and activist-investor Hindenburg Research, both the integrity and the credibility of the esteemed institution and the person leading it have come under focus.
A counter and counter-to-counter followed like night follows day, but each raised more questions than clarifications.
At the heart of the matter are two key issues concerning Madhabi Buch and her husband Dhaval Buch. The first involves an investment in an offshore fund allegedly having links to the Adani Group and Madhabi's ownership in consulting entities. The second includes Dhaval's appointment as Senior Advisor to Blackstone Private Equity in 2019.
Hindenburg flagged both as 'massive conflict of interest,' while the Buchs dismissed the allegations as an attack on the 'credibility of Sebi' and an attempt at the 'character assassination of its chairperson.'
It all started 18 months ago, when Hindenburg accused the Adani Group of stock manipulation and an accounting fraud, which the company duly denied. The sensational report not only wiped off about $150 billion in market value from the 10 publicly-traded Adani group companies, but also led to a broader market crash. Surprisingly, both the markets and the Adani group stocks met the latest round of allegations with shrugs.
Sebi, which has been probing the matter, is yet to conclude its investigation, which isn't unusual as such inquiries stretch for years. But Hindenburg's latest accusations cast fresh suspicions on the role of the regulator. Hindenburg believes that Sebi's unwillingness to take meaningful action against suspect offshore shareholders in the Adani Group may stem from Buch's complicity using the 'exact same funds used by Vinod Adani, brother of Gautam Adani.'
Sebi dismissed the charges and maintained that it had 'duly investigated' Hindenburg's allegations against the Adani Group. It also added that its chairperson had made the required disclosures in terms of holdings of securities and their transfers and that she had recused herself in matters involving potential conflicts of interest.
Citing whistleblower documents, the short-seller, in its latest report, alleged that the Buchs first appeared to have opened their account with the controversial offshore investment vehicle named IPE Plus Fund 1 in June 2015, in Singapore. A declaration of funds with the asset management firm India Infoline (now 360 ONE) states that the source of the investment was salary and the couple's net worth was estimated at $10 million.
Hindenburg charged at the Buchs for choosing an offshore fund despite the existence of thousands of mainstream, reputable onshore Indian mutual fund products. Instead, the report alleged that the Sebi chief and her husband held stakes in a multi-layered offshore fund with miniscule assets, traversing known high-risk jurisdictions, overseen by a company with reported ties to the Wirecard scandal, in the same entity run by an Adani director and significantly used by Vinod Adani in the alleged Adani cash siphoning scandal.
The Buchs clarified that the investments were made as private citizens in Singapore, and almost two years before Madhabi joined Sebi as a whole-time member in 2017. The investment, they reasoned, was made because of Dhaval's childhood friend Anil Ahuja, who was the fund's then chief investment officer.
The Buchs redeemed the investment in 2018 when Ahuja left his position at 360 ONE, while the latter denied any connection between its IPE-Plus Fund 1 and the Adani Group, stating that the fund did not invest in Adani Group shares, either directly or indirectly, at any point during its operation from October, 2013-2019. The Financial Services Commission (FSC) of Mauritius too clarified last week that the fund named IPE Plus, was neither a licensee of the FSC, nor domiciled in Mauritius.
To which, Hindenburg stated that the Buchs' statement indeed confirms the investment in the Bermuda/Mauritius fund, allegedly linked to Vinod Adani, raising concerns of a massive conflict of interest. It also questioned Madhabi Buch's undisclosed income and potential conflicts with Sebi's regulatory duties insisting that Madhabi holds 99% ownership in her India consulting firm Agora Advisory.
Hindenburg's report notes that the Sebi chief transferred all her shares in her Singapore consulting entity Agora Partners to her husband only in March, 2022, and continues to hold stakes in the Indian consulting firm.
Public documents reviewed by Reuters show that Madhabi continued to earn revenue from Agora Advisory Pvt Ltd, where she holds 99% stake, while continuing her tenure at Sebi. As per Sebi norms, holding stake in itself may not be in violation of good practices, but earning revenue/profit does lead to potential conflict of interest.
During her seven-year tenure between April, 2017 and March, 2022, Agora Advisory generated Rs 3.7 crore revenue. For the fiscal year FY24, it reported revenue of Rs 14 lakh, with a net profit of Rs 809,882, according to Reuters data.
Madhabi stated that both Agora Advisory and its Singapore-based counterpart became dormant after her appointment at Sebi and that all her shareholdings and disclosures were made to Sebi, the Singapore authorities and even the Indian tax authorities. They also assert that insinuations about their net worth and investments, based on Madhabi's government salary, are malicious and motivated and that they accrued savings through salaries, bonuses and stock options.
Hindenburg has called for Madhabi to release a full list of consulting clients and details of engagements through her offshore Singaporean firm, the Indian consulting firm, and any other related entities, to maintain the transparency. It also demanded a full, transparent and public investment into these matters, questioning whether she has engaged in any other undisclosed investments or business activities through her husband while serving as Sebi chairperson.
The second allegation pertains to Dhaval's 2019 appointment in Blackstone Private Equity, which is one of the leading players in real-estate investment trusts (Reits), a nascent asset class in India. Hindenburg questioned the motive behind the appointment citing Dhaval's expertise in supply-chain management, while the latter clarified that it predated Madhabi's Sebi stint and that he was never associated with Blackstone's Real Estate entity.
The opposition is pounding the drums, and called for a parliamentary inquiry into the accusations, which gravely compromise the integrity of Sebi, which is entrusted with safeguarding the wealth of investors. It has asked the government to eliminate all conflicts of interest in the Sebi investigation of Adani.
Till date, Sebi said it has completed 23 inquiries against Adani and the last one was close to completion. In June, it also issued a show-cause notice to Hindenburg, accusing it of violating US securities laws by colluding with an investor who made a short bet against the Adani group ahead of the report's release. Hindenburg dismissed the allegation.
