Fresh Controversy Hits India’s Stock Market: Hindenburg Accuses Regulator Chief of Conflict of Interest

India’s stock market has been abuzz recently, with hashtags about it trending on social media. The surge in attention is not just due to investor activity but rather due to issues surrounding its regulator, the Securities and Exchange Board of India (Sebi). Here’s a detailed look at the situation.

The controversy began when Hindenburg Research, a US-based activist-investor firm, hinted at a major development over the weekend via X (formerly Twitter). Shortly after, it published a report alleging that Madhabi Puri Buch, the chairperson of Sebi, had connections with offshore funds associated with the Adani Group. Both Ms. Buch and the Adani Group have denied any wrongdoing.

Hindenburg had previously accused the Adani Group, founded by Indian billionaire Gautam Adani, of extensive stock manipulation and accounting fraud. The group, which encompasses ten publicly traded companies across diverse sectors like commodities, airports, utilities, ports, and renewable energy, had firmly rejected these allegations. Despite this, the scandal significantly impacted its market value, although it has since largely recovered. Sebi is continuing its probe into these claims.

According to Hindenburg, Ms. Buch’s connections with the offshore funds have influenced Sebi’s investigation. Ms. Buch, however, has refuted any conflict of interest, stating that the investment in question was made before she joined Sebi. Furthermore, there is no concrete evidence linking her investment with Adani Group stocks or Sebi’s investigation.

The latest allegations resulted in a $2.43 billion drop in Adani Group’s market value by the end of trading on Monday, although it managed to recover from earlier losses.

Hindenburg’s report referenced previous articles by the Financial Times and the Organized Crime and Corruption Reporting Project that connected obscure offshore funds in Bermuda and Mauritius to Adani’s business associates. The firm claimed that Ms. Buch and her husband, Dhaval Buch, invested in these sub-funds in 2015. It alleged that before Ms. Buch joined Sebi as a whole-time member in 2017, her husband requested to be the sole person authorized to operate these accounts. The report also noted that Ms. Buch used her personal email to seek redemption of her husband’s entire investment in the fund.

Hindenburg suggested that Sebi’s reluctance to take decisive action against the Adani Group’s offshore shareholders might be due to Ms. Buch’s involvement with the same funds used by Vinod Adani, Gautam Adani’s brother. The report also criticized Ms. Buch’s husband for becoming an adviser to US investment manager Blackstone in 2019, alleging that Sebi’s regulatory changes under Ms. Buch’s tenure directly benefited firms like Blackstone.

In response, Ms. Buch and her husband have stated that their investments were made in 2015 when they were private citizens in Singapore, almost two years before Ms. Buch joined Sebi. They attributed their investment to Mr. Buch’s longstanding friendship with Anil Ahuja, the fund’s then-chief investment officer. They also clarified that the fund did not invest in any Adani group securities. The couple criticized Hindenburg’s report as an attack on Sebi’s credibility and a character assassination of its chairperson. They asserted that Blackstone was listed on Ms. Buch’s recusal list maintained with Sebi.

Sebi has responded by asserting that it has thoroughly investigated Hindenburg’s allegations against the Adani Group. The regulator also stated that Ms. Buch had made all necessary disclosures regarding her securities holdings and recused herself from matters involving potential conflicts of interest.

The Adani Group, in a statement, labeled the allegations as recycled and discredited claims. It emphasized that its overseas holding structure is transparent and all relevant details are regularly disclosed. The group clarified that Anil Ahuja had been a nominee director of its 3i investment fund and a director of Adani Enterprises but had no commercial relationship with the individuals or issues mentioned in the allegations.

Hindenburg’s previous report had led to a significant decline in the Adani Group’s market value, though it has largely rebounded. In January, India’s top court had dismissed requests for an additional investigation into these allegations and gave Sebi three months to complete its probe. Despite the deadline passing, Sebi reported that it had completed 23 inquiries and was nearing completion of the final one.

In June, Sebi issued a “show-cause notice” to Hindenburg Research for allegedly violating US securities laws by collaborating with an investor who shorted the Adani Group before the report’s release. Hindenburg dismissed these allegations.

The controversy has sparked a political debate. Rahul Gandhi, the leader of India’s opposition, claimed that the allegations have severely undermined Sebi’s integrity, which is tasked with protecting small investors. The Congress party has called for a parliamentary inquiry into the accusations and urged the government to eliminate any conflicts of interest in Sebi’s investigation of the Adani Group.

Adani is seen as close to Prime Minister Narendra Modi, and opposition politicians have long alleged that he has benefited from political ties, which he denies. The BJP has accused Congress of creating economic chaos and harboring anti-India sentiments.

A top finance ministry official stated that the government had no additional comments as Sebi and Ms. Buch had already addressed the issue.

Moving forward, Hindenburg has reiterated its accusations, suggesting that Ms. Buch’s responses raise new critical questions. Sebi, Ms. Buch, and the Adani Group have yet to react to these latest comments. The opposition is expected to continue raising the issue, indicating that the controversy is far from over.