In January 2023, US-based short-seller Hindenburg Research came out with a report accusing the Adani Group of indulging in billions of dollars’ worth of undisclosed related party transactions, investment and stock manipulation. Now, the controversy has reached the doorstep of India’s capital markets regulator, the Securities and Exchange Board of India (Sebi).
Hindenburg has launched a direct attack on Sebi Chairperson Madhabi Puri Buch and the regulatory body, alleging that Sebi has shown a lack of interest in probing the Adani Group’s alleged undisclosed network of shell entities. Sebi, Buch, and the Adani Group have all refuted the latest allegations.
In its latest report, Hindenburg has connected the alleged links of the Sebi chief’s family with the Adani Group as reason for the delay in the investigation. “We suspect Sebi’s unwillingness to take meaningful action against suspect offshore shareholders in the Adani Group may stem from [the] Chairperson’s complicity in using the exact same funds used by Vinod Adani, brother of Gautam Adani,” the US-based short-seller states. “To date, Sebi has taken no action against other suspected Adani shareholders operated by IIFL: EM Resurgent Fund and Emerging India Focus Funds,” it adds.
It alleges Buch and her husband, Dhaval Buch, had stakes in the same offshore funds—Global Dynamic Opportunities Fund (GDOF) and IPE Plus Fund 1—found in the same complex nested structure used by Vinod Adani.
Sebi’s probes focussed on three areas: alleged violations of minimum public shareholding norms; disclosure of related party transactions; and share price manipulation. Its probe into public shareholding is dependent on whether 13 overseas entities, which hold stakes in Adani Group companies, are compliant with Sebi norms on disclosure of beneficial owners. Sebi had launched an investigation into the shareholding structure of Adani Group firms as far back as October 2020. It is not known if any of these 13 FPIs has approached Sebi for a settlement.
Hindenburg claims that in its original report it had identified, among other funds, two Mauritius-based entities called EM Resurgent Fund and Emerging India Focus Funds. These two funds were disclosed as related parties of IIFL (now called 360 One) and overseen by its employees. “Vinod Adani… used this structure to invest in Indian markets with funds allegedly siphoned from over-invoicing of power equipment to the Adani Group,” Hindenburg alleges.
The Adani Group has called the latest allegations malicious, mischievous, and manipulative selections of publicly available information for profiteering. “We completely reject these allegations… which are a recycling of discredited claims that have been thoroughly investigated, proven to be baseless and already dismissed by the Supreme Court in March 2023,” it said in a statement.
Quoting whistle-blower documents, Hindenburg has alleged that the Sebi Chairperson and her husband Dhaval Buch held stakes in obscure multi-layered offshore funds involved in the Adani “money siphoning scandal”. One of them refers to IPE Plus Fund 1, a small offshore fund set up by former Adani director Anil Ahuja and backed by GDOF, a Bermuda-based fund allegedly linked to Vinod Adani. This fund was managed by IIFL (now 360 One), a wealth management firm.
The IPE Plus Fund 1, a fully compliant and regulated fund, was launched in October 2013 and operated until October 2019. The investment in the fund mentioned in the report was made in 2015, when Buch and her husband were private citizens residing in Singapore, almost two years before she joined Sebi. Buch was appointed as a Whole-Time Member of Sebi in April 2017, and became Chairperson on March 1, 2022, for a period of three years.
The Hindenburg report has made two serious allegations: the couple’s investment in Ahuja’s fund and that this fund was used to invest in Adani firms. The Adani Group has responded by saying that Ahuja was a nominee director of 3i, an investment firm that had invested in Adani Power (2007-2008) and, later, a director of Adani Enterprises until 2017.
Buch has said the decision to invest was driven by the fact that Ahuja, its Chief Investment Officer, is Dhaval Buch’s childhood friend and had an extensive investing career with Citibank, JP Morgan, and 3i Group plc. “The fact that these were the drivers of the investment decision is borne out by the fact that when Ahuja left his position as CIO of the fund in 2018, we redeemed the investment,” she said in a statement issued by the couple.
As confirmed by Ahuja, at no point did the fund invest in any bond, equity, or derivative of any Adani Group company, the Buch couple said in their statement. At its peak, the fund’s assets under management (AUM) were around $48 million (nearly Rs 400 crore), with over 90% of the fund consistently invested in bonds, according to a declaration by 360 One to Indian exchanges.
The Buchs’ holdings in the fund were less than 1.5% of its total inflows. There are some unanswered questions, such as why Buch used her private Gmail account to request the redemption of units in the fund from IIFL in February 2018, while she was a Whole-Time Member at Sebi, and whether she had informed the regulator about this.
“Sebi has strong institutional mechanisms of disclosure and recusal norms as per the code of conduct applicable to its officers. Accordingly, all disclosures and recusals have been diligently followed, including disclosures of all securities held or subsequently transferred,” the Sebi chief said in their statement.
Hindenburg also mentions Buch’s interest in Singapore-based consulting firm Agora Partners, which was registered in 2013 as a business and management consultancy. It alleges that from April 2017 to March 2022, while Buch was at Sebi, she held a 100% interest in the firm.
Buch has refuted this, saying that after Dhaval Buch resigned from Unilever in 2019, he started his own consultancy practice through these companies. The two consulting companies set up by Buch during her stay in Singapore—one in India and one in Singapore—became dormant upon her appointment to Sebi. These companies (and her shareholding in them) were explicitly part of her disclosures to Sebi, she claims. “When the shareholding of the Singapore entity moved to Dhaval, this was once again disclosed, not just to Sebi, but also to the Singapore authorities and the Indian tax authorities,” she says in her rebuttal. What remains unanswered is whether Buch had disclosed the client list of her husband’s consultancy firm to Sebi to avoid any conflict of interest. The question also remains why, given her position, the Sebi chief did not recuse herself from the Adani probe.
Meanwhile, Sebi has said it has investigated the allegations made by Hindenburg against the Adani Group. In fact, the Supreme Court in its order in January noted that Sebi had completed 22 out of the 24 investigations into the group. In a release, Sebi has disclosed that one more investigation was completed in March 2024, and one remaining investigation is “close to completion”. The last probe is at the centre of the allegation by Hindenburg. It is pending because Sebi is waiting for inputs from foreign regulators. A court-appointed committee had earlier told the Supreme Court that Sebi had “drawn a blank” in its probe into the 13 FPIs.
Sebi continues to follow up on the overseas FPIs for beneficial ownership. There has never been a requirement to disclose the ultimate person behind every entity holding an economic interest in the FPI. That poses a challenge for the regulator to get to the bottom of the case. Sebi has information about 42 investors in the FPIs who have invested in these funds. These investors are spread across seven jurisdictions. This information will establish the violations of minimum shareholding guidelines if Sebi finds a link to the promoters of the Adani Group. These FPIs and the Adanis have already denied any connection. “We find it unsurprising that Sebi was reluctant to follow a trail that may have led to its own Chairperson,” said Hindenburg in its report.
Shriram Subramanian, Founder and MD of InGovern Research Services, admits that figuring out the ultimate beneficial owner is a challenge for regulators globally, and one reason why there are restrictions on foreign ownership in sensitive sectors. “That said, regulators need to collaborate with other regulators for quid pro quo disclosures and transparency,” he says.
The Opposition, as earlier, has been targeting the government and Sebi over the new disclosures, while industry bodies such as AMFI and IVCA have stood by the Sebi chief. The final chapter of the saga is still unfolding, and the last leg of the 24 investigations is yet to reach its conclusion.
