Market regulator Sebi is taking steps to reassure investors and stabilise market sentiment following the latest report from Hindenburg Research.
The latest Hindenburg report alleged a conflict of interest between SEBI Chairperson Madhabi Puri Buch and her husband over their investments in entities linked to the Adani Group. The report also questioned the regulator’s handling of investigations into the Adani Group and its amendments to the SEBI (REIT) Regulations, 2014.
In response, Sebi affirmed its independence and transparency, saying that all necessary disclosures have been made and the chairperson has refrained from involvement in matters involving potential conflicts of interest. The market regulator has also reiterated its commitment to conducting thorough investigations, highlighting the completion of 23 of the 24 investigations related to the Adani Group.
On August 11, Sebi also issued a statement urging investors to remain calm and conduct due diligence in light of the report. “Investors should remain calm and conduct due diligence before reacting to such reports. Investors may also take note of the disclaimer contained in the report, which states that readers should assume that Hindenburg Research may have short positions in the securities included in the report.”
Despite Sebi’s efforts to reassure investors, the market remains cautious. The allegations have raised concerns about the regulatory environment and its impact on investor confidence.
Business Standard deciphers the latest controversy for you in detail:
The Sebi-Hindenburg controversy: a clash of titans
The controversy, which initially focused on the Adani Group, has now widened to include allegations against India’s own market regulator.
The contextHindenburg Research is an American investor and activist research firm founded in 2017. Hindenburg researchers use financial forensic tools to find potential accounting irregularities and other corporate governance issues in high-profile companies. The whistleblower has targeted companies such as Nikola, Clover Health, Block Inc, Kandi, and Lordstown Motors in the past.
Hindenburg initially accused the Adani Group of stock manipulation. They wanted a broader probe by the Central Bureau of Investigation (CBI) or a Special Investigation Team (SIT). The Supreme Court did not grant their plea, leaving Sebi to handle the investigation.
Adani Group share prices have recovered and recouped the losses they had suffered since the time of Hindenburg’s report. This undermines Hindenburg’s initial claims of manipulation. Now that its original objective appears to have not been met, Hindenburg might be changing tactics. Last month, Hindenburg wrote another blog post dragging Kotak Mahindra Bank into the controversy. They are now scrutinising Sebi and questioning whether the regulator is doing its job properly.
At the heart of the matter is the allegation that Sebi chairperson Madhabi Puri Buch and her husband had undisclosed investments in offshore funds linked to the Adani Group. Hindenburg claims that these funds were instrumental in the Adani Group’s alleged stock manipulation activities.
The short-seller has also accused Sebi of bias in its handling of the Adani Group investigations, pointing to the regulator’s alleged leniency towards the conglomerate. Further, Hindenburg has questioned Sebi’s decision to amend REIT regulations, suggesting that these changes benefited certain entities, particularly Blackstone.
Sebi has strongly denied these allegations, asserting the regulator’s independence and the transparency of the chairman’s financial dealings. The market regulator has stressed that it has conducted thorough investigations into the Adani Group, and that most of the probes have already been completed.
Highlight: The allegations come a month and a half after Sebi issued a show-cause notice to Hindenburg for violating Indian market regulations and making profits by taking short positions.
On June 26, Sebi had sent show-cause notices (SCNs) to Hindenburg Research, its founder Nathan Anderson and four others. In the notice, the regulator had alleged that Hindenburg had made misleading disclosure as part of a scheme to profit from short selling. In the SCN, the market regulator said it had also observed that Hindenburg’s report contained certain misrepresentations and inaccurate statements. Sebi has also alleged that Hindenburg violated regulations by providing research on Adani group companies listed in India without registering under the Research Analysts Regulations (RA). Sebi had given 21 days to submit responses. It is not clear whether Hindenburg has responded to the notices.
The Buch family has called the allegations “baseless accusations and insinuations” and claims that they are completely false. They claimed that their finances are “an open book” and that they had already submitted all the required information to Sebi over the years. They did not hesitate to disclose any additional financial documents, even those from before she became Sebi chairperson. The Buchs suggest that Hindenburg’s intention could be to damage their reputation rather than address the Adani Group investigation.
The Adani Group also joined the controversy, denying any connection with the alleged offshore fund and Madhabi Puri Buch’s family. Here’s what they said:
No commercial links: The Adani Group denies any “business relationship” with the Buch family. It dismissed the allegations as a “red herring” – a distraction from the real issue – and reaffirmed its commitment to transparency and compliance with all rules.
Hindenburg’s credibility: Hindenburg’s credibility is questioned, calling him a “discredited short seller.”
First published: August 12, 2024 | 09:28 IS
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