The market regulator, SEBI, is actively working to reassure investors and stabilize market sentiment in response to the latest report by Hindenburg Research. The report alleges a conflict of interest involving SEBI Chairperson Madhabi Puri Buch and her husband, citing their investments in entities connected to the Adani Group. Additionally, the report raises concerns about SEBI’s management of the Adani Group investigations and its recent amendments to the SEBI (REIT) Regulations 2014.
In response, SEBI affirmed its independence and transparency, stating that all necessary disclosures have been made and that the Chairperson has recused herself from matters involving potential conflicts of interest. The market regulator also reiterated its commitment to conducting thorough investigations, highlighting that 23 out of 24 probes related to the Adani Group have been completed.
On August 11, SEBI issued a statement urging investors to remain calm and exercise due diligence in light of the report. “Investors should remain calm and exercise due diligence before reacting to such reports. Investors may also want to note the disclaimer in the report, which states that readers should assume Hindenburg Research may have short positions in the securities covered.”
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.
Hindenburg Research, a US-based investor-activist firm founded in 2017, employs financial forensic tools to uncover potential accounting irregularities and corporate governance issues, primarily in high-profile companies. The firm has previously targeted companies such as Nikola, Clover Health, Block Inc, Kandi, and Lordstown Motors.
Hindenburg initially accused the Adani Group of stock manipulation and called for a more extensive investigation by the Central Bureau of Investigation (CBI) or a Special Investigation Team (SIT). However, the Supreme Court did not grant this request, leaving SEBI to manage the investigation.
The Adani Group’s stock prices have rebounded, recovering the losses incurred following the Hindenburg report. This development weakens Hindenburg’s initial claims of manipulation. With their original objective seemingly stalled, Hindenburg appears to be shifting tactics. Last month, the firm published another blog post, this time implicating Kotak Mahindra Bank in the controversy. Now, they are scrutinizing SEBI, questioning whether the regulator is fulfilling its duties properly.
Central to the issue 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 played a crucial role 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, alleging that the regulator has shown undue leniency towards the conglomerate. Additionally, Hindenburg has questioned SEBI’s decision to amend REIT regulations, suggesting that these changes disproportionately benefited certain entities, particularly Blackstone.
SEBI has vehemently refuted these allegations, asserting the regulator’s independence and the transparency of the Chairperson’s financial dealings. The market regulator has emphasized that it has conducted thorough investigations into the Adani Group, with the majority of the probes already completed.
On June 26, SEBI issued show cause notices (SCNs) to Hindenburg Research, its founder Nathan Anderson, and four others. The regulator alleged that Hindenburg had made misleading disclosures as part of a scheme to profit from short-selling. The SCN stated that SEBI observed certain misrepresentations and inaccurate statements in the Hindenburg report. Additionally, SEBI accused Hindenburg of violating regulations by providing research on Adani Group companies listed in India without registering under the Research Analysts (RA) Regulations. SEBI had given Hindenburg 21 days to respond to the notices. It remains unclear whether Hindenburg has submitted a response.
The Buch family has termed the accusations as “baseless allegations and insinuations” and claims they are completely untrue. They asserted that their finances are “an open book” and that all required disclosures have already been submitted to Sebi over the years. They expressed no hesitation in disclosing any additional financial documents, including those from before she became Sebi Chairperson. The Buchs suggest that Hindenburg’s intent might be to damage their reputation rather than address the Adani Group investigation.