What are the new allegations Hindenburg has levelled against Sebi chief and Adani?

Hindenburg Research became a big talking point last year when it released a report — Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History — about wrongdoing and stock price manipulation within the Adani group of companies.

The report triggered reactions, counter-reactions and a meltdown of stock prices of Adani Group companies. And it seems that the saga continues after the small US-based investor-activist firm made new allegations that Securities and Exchange Board of India (Sebi) chief Madhabi Puri Buch and her husband had a stake in offshore entities linked to the Adani family.

As this new controversy takes over, we get you everything on the matter so far — from the main persons involved, to what are the allegations and the consequent counters.

The Hindenburg and Adani clash

Before we delve into the Hindenburg-Adani case, here’s some context. Hindenburg Research is a US-based investor-activist firm founded in 2017 by Nathan Anderson. With the help of a handful of researchers, Hindenburg uses financial forensic tools to find potential accounting irregularities and other corporate governance-related issues in mostly high-profile companies.

Previously, it has targeted companies like Nikola, Clover Health, Block Inc, Kandi, and Lordstown Motors.

On January 25, 2023, Hindenburg Research released a report titled – ‘Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History’, which threw light on alleged financial fraud and stock manipulation by the conglomerate. The report came a few days before Adani Enterprises company was supposed to make a Rs 20,000 crore follow-on public offer (FPO).

Hindenburg had then wanted a bigger probe by the Central Bureau of Investigation (CBI) or a Special Investigation Team (SIT). However, the Supreme Court left Sebi to handle the investigation.

In the meantime, the stocks of Adani Group recovered, weakening Hindenburg’s initial claims of manipulation.

Hindenburg comes after Sebi chief

On August 10,
Hindenburg Research posted on X saying, “Something big soon India”. This post on the social media platform, interestingly, came after Sebi issued a show-cause notice to Hindenburg for violating Indian market regulations and profiting by taking short positions.

Later, on the same day, the US firm released a report that claimed that the Sebi chief Madhubi Buch and her husband
Dhaval Buch had investments since 2015 in offshore firms owned by Vinod Adani, Gautam Adani’s brother.

In a blog post, Hindenburg said 18 months since its damning report on Adani, “SEBI has shown a surprising lack of interest in Adani’s alleged undisclosed web of Mauritius and offshore shell entities.” Citing “whistleblower documents”, it said, “Madhabi Buch, the current chairperson of Sebi, and her husband had stakes in both obscure offshore funds used in the Adani money siphoning scandal.” Obscure offshore Bermuda and Mauritius funds, allegedly controlled by Vinod Adani — elder brother of group chairman Gautam Adani — are alleged to have been used to round-trip funds and inflate stock price.

The report adds: “Despite the existence of thousands of mainstream, reputable onshore Indian mutual fund products, an industry she now is responsible for regulating, documents show Sebi chairperson Madhabi Buch and her husband had stakes in a multi-layered offshore fund structure 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 report goes on to add that “Sebi’s unwillingness to take meaningful action against suspect offshore shareholders in the Adani Group may stem from Chairperson Madhabi Buch’s complicity in using the exact same funds used by Vinod Adani, brother of Gautam Adani”.

Sebi’s Buch responds

A day after Hindenburg made the explosive allegations against the Buchs, the Sebi chief Madhabi and her husband Dhaval denied all allegations against them, and said that their finances are an open book.

Madhabi Buch hit out at the US firm for “attacking” Sebi’s credibility and indulging in character assassination of its chairperson.

The couple wrote, “In the context of allegations made in the Hindenburg Report dated August 10, 2024 against us, we would like to state that we strongly deny the baseless allegations and insinuations made in the report. The same are devoid of any truth.”

“Our life and finances are an open book. All disclosures as required have already been furnished to SEBI over the years. We have no hesitation in disclosing any and all financial documents, including those that relate to the period when we were strictly private citizens, to any and every authority that may seek them.”

The Buchs also issued a second statement, which was a point-by-point rebuttal. In this, they mentioned, “The investment in the fund referred to in the Hindenburg report was made in 2015 when they were both private citizens living in Singapore and almost two years before Madhabi joined Sebi, even as a whole time member.

“The decision to invest in this fund was because the chief investment officer, Mr Anil Ahuja, is Dhaval’s childhood friend from school and IIT Delhi and, being an ex-employee of Citibank, JP Morgan and 3i Group plc, had many decades of a strong investing career. The fact that these were the drivers of the investment decision is borne out by the fact that when, in 2018, Ahuja, left his position as CIO of the fund, we redeemed the investment in that fund.”

The statement added at the end: “Hindenburg has been served a show cause notice for a variety of violations in India. It is unfortunate that instead of replying to the show cause notice, they have chosen to attack the credibility of the Sebi and attempt character assassination of the Sebi chairperson.”

Hindenburg’s counter

However, the matter hasn’t ended with Buch’s response. Following clarification from the Sebi chief, Hindenburg on X wrote that her response raises numerous new critical questions.

It wrote: “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 further points out, “Buch’s statement also claims that the two consulting companies she set up, including the Indian entity and the opaque Singaporean entity ‘became immediately dormant on her appointment with SEBI’ in 2017, with her husband taking over starting in 2019. Per its latest shareholding list as of March 31, 2024, Agora Advisory Limited (India), is still 99 per cent owned by Madhabi Buch, not her husband. This entity is currently active and generating consulting revenue.”

Experts speak

Amid the allegations and counter-allegations, former Sebi members have also voiced their opinion on the matter. They have noted that it is important to note if Buch had made complete disclosures to the government.

A former head of Sebi told Indian Express, “What is important to know is her conduct as a whole time member or the chairperson of Sebi when Adani-related complaints or investigations came to her desk. Did she recuse herself?”

Another Sebi chief speaking to the newspaper added that it wasn’t clear from the statement made by the Buchs if she recused herself from the Adani Group investigations

Adani stock tumbles

The Adani group has also denied the allegations made by Hindenburg, terming the allegations to be “red herrings thrown by a desperate entity with total contempt for Indian laws.”

The conglomerate led by Gautam Adani described the claims as “malicious, mischievous and manipulative selections of publicly available information to arrive at pre-determined conclusions for personal profiteering with wanton disregard for facts and the law”.

But despite the clarifications from Sebi chief Madhabi Buch and from the Adani group, the Hindenburg report has resonated in the stock market. All 10 Adani group stocks dropped in early trade, with Adani Energy tumbling 17 per cent. As per tradings report, Adani Energy Solutions plummeted 17 per cent, Adani Total Gas tanked 13.39 per cent, NDTV plunged 11 per cent and Adani Power dropped 10.94 per cent. Stocks of Adani Green Energy declined 6.96 per cent, Adani Wilmar slumped 6.49 per cent, Adani Enterprises tumbled 5.43 per cent, Adani Ports dived 4.95 per cent, Ambuja Cements skidded 2.53 per cent and ACC dipped 2.42 per cent.

An Hindustan Times report said that investors lost around Rs 53,000 crore as the combined market capitalisation of 10 Adani stocks fell to Rs 16.7 lakh crore.