Hindenburg Research Alleges Conflict of Interest in India’s Market Regulator; SEBI Chief Denies Claims

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On Saturday, U.S.-based short-seller Hindenburg Research made a serious allegation against Madhabi Puri Buch, the head of India’s Securities and Exchange Board of India (SEBI). Hindenburg claimed that Buch had previously held investments in offshore funds that were also used by the Adani Group, raising concerns about potential conflicts of interest. In response, Buch firmly denied these allegations, describing them as baseless and asserting that all necessary disclosure requirements had been adhered to.

In a statement released late Saturday, Buch clarified that the investments in question were made in 2015, in a private capacity, and two years before she assumed her role at SEBI. She stressed that her investment activities were fully transparent and compliant with relevant regulations. SEBI also advised investors to remain calm and conduct their own due diligence before reacting to such reports.

The Hindenburg report has intensified scrutiny and criticism from India’s opposition political parties. These parties have called for a parliamentary investigation into the matter. According to Hindenburg’s report, which is based on whistleblower documents, Buch and her husband had stakes in an offshore fund. This fund, Hindenburg alleges, was utilized by associates of Vinod Adani, the brother of Adani Group Chairman Gautam Adani, to invest substantial amounts of money.

In response, Adani Group rejected these allegations, stating that their overseas holding structure is completely transparent. A spokesperson for the conglomerate dismissed the Hindenburg report as an attempt to distract and undermine the company’s credibility. The spokesperson described the allegations as “red herrings” from a “desperate entity” and denied any commercial relationship with the individuals or matters mentioned.

The controversy surrounding the Adani Group began in January 2023 when Hindenburg released a report accusing the conglomerate of misuse of tax havens and stock manipulation. This report led to a significant sell-off of Adani Group shares, although the shares have partially recovered since then. The ongoing inquiry by SEBI, led by Buch, is part of this broader investigation into the group. In May, six Adani Group companies revealed they had received notices from SEBI alleging violations of Indian stock market regulations.

Additionally, SEBI has issued a “show cause” notice to Hindenburg, accusing the short-seller of violating Indian regulations by using non-public information for short-betting. Hindenburg has dismissed these allegations as “nonsense.”

In its latest report, Hindenburg attempted to link offshore funds involved in Adani Group share trades with personal investments made by Buch and her husband. The report claimed that the Bermuda-based Global Opportunities Fund, which had sub-funds associated with Adani Group trading activities, included investments from Buch and her husband. It was noted that in 2017, Buch’s husband requested to manage the account independently, and in 2018, Buch sought to redeem the investment.

The sub-fund in question, IPE-Plus Fund 1, has stated that it did not invest in Adani Group shares, directly or indirectly. The fund’s asset manager confirmed that Buch and her husband’s holdings constituted less than 1.5% of the total inflow into the fund, and they had no influence over the fund’s investment decisions.

The Adani conglomerate, with interests in sectors like airports, ports, electricity, and gas, has seen significant growth due to support from Prime Minister Narendra Modi’s government, which has focused on infrastructure development. The Congress party has previously alleged a close relationship between the Adani Group and the ruling Bharatiya Janata Party, which both parties deny.

In response to the latest allegations, the Congress party has called for a parliamentary inquiry to thoroughly investigate the matter and ensure there are no conflicts of interest in the SEBI investigation of Adani.