Stung by a rebuff from the Indian market regulator, Hindenburg has cobbled together a sensational retort that could only have a limited collateral damage. It’s a desperate, though understandable, attempt by the Wall St firm to link Sebi’s supposed inaction to certain past ‘associations’ between the Adanis and the Sebi chairperson and her husband Dhaval Buch, a senior corporate chieftain. While these links traced by Hindenburg on the basis of whistleblowers’ reports are legally tenuous, they may not go unnoticed.
The basic findings:
The Buchs had invested in offshore funds allegedly used by the Adanis to move around money. But they had redeemed their investments in early 2018. However, these were public funds, and the exits happened before Sebi began its probe on Adani. And, if the Buchs were residing abroad at the time of investment, it should not necessarily arouse any suspicion as NRIs freely invest in overseas funds having predominant exposure to Indian securities.
A fortnight after her appointment as Sebi chairperson, Madhabi Puri Buch transferred her stake in a Singapore consulting outfit to her husband, but continued to own an eponymous unlisted advisory firm in Mumbai. A legitimate foreign consulting business owned by an NRI power couple is perfectly normal while a large ownership in an unlisted local firm, which is outside the domain of Sebi, is no violation of rules.
While Madhabi Puri Buch was a wholetime Sebi member, her husband Daval joined the private equity biggie Blackstone as a senior adviser. The high-profile hire, according to Hindenburg, benefitted Blackstone as Sebi changed the rules of REITS (real estate investment trusts) -entities managing portfolios of high-value realities and mortgages.
Here again, it would be unfair to conclude anything. The real estate and financial markets had been long lobbying for friendlier REIT regulations, and it’s normal for a large PE house to hire a domain expert like Dhaval, an engineer who was executive director and chief procurement officer at Unilever.
Even a law undergraduate would pick holes in Hindenburg’s recent round of charges. The question, however, may have little to do with laws. It’s about standards of probity.
Disclosure matters
Did the chairperson and Sebi tell the Supreme Court and the apex court-appointed panel that looked into the Adani matter about her family’s earlier investments in offshore funds that were allegedly connected to the same group that was under the lens? Just as a lawyer or a judge is expected to put the cards on the table to disclose any perceived conflict.If it was not, it was probably out of fear that information of investments sold long ago were no longer relevant, and such details could only muddy the waters in a hostile political environment. But if she did share the details, she would be Caesar’s wife, and thus beyond reproach.
Notwithstanding the present political arithmetic, New Delhi is unlikely to attach much significance to Hindenburg’s claims. Doing so could mean giving credence to the shortseller’s original January 2023 report where it accused the Adani group of share price manipulation and accounting chicanery.
Sebi, which has received settlement applications from certain parties and was, perhaps, hoping for the Adani story to fizzle out, had apparently hit walls of secrecy during the probe with multiple jurisdictions refusing to part with identities of real owners of the overseas funds that had acquired Adani stocks. This could well be true, though many may find it a bit rich in times where countries, including tax havens, exchange information on tax evaders and money launderers.
Now, chances are that an emboldened opposition, baying for blood and simply looking for a scalp to prove their point, would turn the focus on the personal and sensational nature of Hindenburg’s allegations. Politicians know more than others that such allegations-even if they lack legal legs-can colour the optics. But that would be barking up the wrong tree.
Hindenburg, of course, has no choice. A nasty counterattack and casting aspersions on Madhabi Puri Buch is a reckless strategy to protect its currency as a fearless shortseller and defend the 2023 Adani report. From time to time, it could kick up dirt to assert itself. Such stunts would only sporadically annoy and embarrass authorities, regale the opposition and thrill the media. But it won’t take us to the truth.
Indeed, Hindenburg’s latest exploit and the opposition’s clamour could mean a hurried, incomplete closure to a complex saga that tramples on multiple laws. Today, we run the risk where the Hindenburg-Adani story may die before it ends.
