DBT Bureau
Bengaluru, 11 August 2024
US short-seller Hindenburg Research is at it again. On August 10, it released a new report alleging market watchdog Sebi chairperson Madhabi Buch. The report alleged that Madhabi and her husband Dhaval Buch were involved in Adani Group’s offshore funds. Obscure financial systems were allegedly used in the “money siphoning scandal,” the report alleged.
These are the reactions of various entities and persons concerning the allegations.
SEBI’s Statement:
“SEBI takes note of the report published by Hindenburg Research on August 10, 2024.”
“Investors should remain calm and exercise due diligence before reacting to such reports. Investors may also like to take note of the disclaimer in the report that states that readers should assume that Hindenburg Research may have short positions in the securities covered in the report.”
“The report inter alia claims that SEBI has not taken any action against the Adani Group. It questions SEBI’s action of issuing a show cause notice to Hindenburg Research on June 27, 2024.It further claims that SEBI has made changes to the SEBI (REIT) Regulations 2014, in order to benefit a diversified multinational financial conglomerate.”
“These issues warrant an appropriate response.”
“Notably, the allegations made by Hindenburg Research, against the Adani Group, have been duly investigated by SEBI.”
“Hon’ble Supreme Court in its Order of January 3, 2024 noted that SEBI had completed twenty–two out of twenty–four investigations into the Adani group. Subsequently, one more investigation was completed in March 2024, and one remaining investigation is close to completion. During the ongoing investigation in this matter, more than 100 summons, around 1,100 letters and emails have been issued to seek information. Further, more than 100 communications have been made seeking assistance from domestic/foreign regulators and external agencies. Also more than 300 documents containing around 12,000 pages have been examined.”
“It may be noted that pursuant to the completion of investigations, SEBI initiates enforcement proceedings which are quasi–judicial in nature. This comprises issuing of show cause notice and giving of opportunity of hearing which culminates in the passing of a speaking order. Such order is then made available in the public domain. Where investigations have been completed, enforcement proceedings initiated are ongoing and appropriate actions are being taken in accordance with the applicable securities laws. SEBI, as a matter of policy, refrains from commenting on any investigation/ongoing enforcement matter.”
“The report also seeks to question SEBI’s action in issuing a show cause notice to Hindenburg Research, on June 27, 2024. The show cause notice in question, alleging violations of securities laws by Hindenburg Research, has been issued by following the due process of the law. It is noted that Hindenburg Research has itself made the show cause notice issued to it available on its website. The show cause notice contains the reasons for its issuance. The proceedings in this matter are ongoing and the same is being dealt with in accordance with the established procedure and in compliance with the principles of natural justice.”
“The report has also stated that the implementation of the SEBI (REIT) Regulations 2014 as well as changes in such regulations had resulted in significant benefit to a large multinational financial conglomerate. In this regard, it may be noted that the SEBI (REIT) Regulations, 2014 has been amended from time to time.”
“As with all cases involving introduction of a new regulation or amendment to an existing regulation, a robust consultation process for seeking inputs and feedback of the industry, investors, intermediaries, relevant Advisory Committee and the public at large is in place. Only after consultation, a proposal for introduction of a new regulation or change in the existing regulation is placed for the consideration of and deliberation of the SEBI Board. Regulations are notified after approval of the SEBI Board. As a measure of transparency, the agenda papers for Board meetings and outcomes of Board discussions are also published on SEBI website. Hence, claims that such regulations, changes to regulations or circulars issued related to REITs were to favour one large multinational financial conglomerate, are inappropriate.”
“For the development of the Indian securities market, SEBI has at various times underscored the potential of REITs, SM REITs, InvITs and Municipal Bonds amongst other asset classes for democratisation of markets, financialisation of household savings and for capital formation through the capital markets. These are also highlighted in the latest SEBI Annual Report, as part of Chairperson’s Statement (see paragraphs titled ‘Financial Inclusion and Democratization of Markets’ and ‘New Avenues for Capital Formation’). Therefore, the claim that promoting REITs and SM REITs among various other asset classes by SEBI was only for benefitting one large multinational financial conglomerate, is inappropriate.”
Lastly, it is emphasized that SEBI has adequate internal mechanisms for addressing issues relating to conflict of interest, which include disclosure framework and provision for recusal. It is noted that relevant disclosures required in terms of holdings of securities and their transfers have been made by the Chairperson from time to time. Chairperson has also recused herself in matters involving potential conflicts of interest.”
“SEBI, over the years, has built a robust regulatory framework that not only aligns with best global practices but also ensures protection of investors. SEBI remains committed to ensuring the integrity of India’s Capital markets and its orderly growth and development.”
Adani Group’s Statement:
The latest allegations by Hindenburg are malicious, mischievous and manipulative selections of publicly available information to arrive at pre-determined conclusions for personal profiteering with wanton disregard for facts and the law. We completely reject these allegations against the Adani Group which are a recycling of discredited claims that have been thoroughly investigated, proven to be baseless and already dismissed by the Hon’ble Supreme Court in January 2024.
SEBI Chairperson’s Statement:
In the context of allegations made by Hindenburg on 10th Aug 2024 against us, and in line with our commitment to complete transparency, we are issuing a detailed statement as below.
There are certain allegations made against SEBI which would be addressed by the institution independently. We would like to address the issues pertaining to us in our personal capacity.
We would like to state the following:
- Madhabi is an alumnus of IIM Ahmedabad and has had a corporate career of over two decades in banking and financial services, largely in the ICICI Group.
- Dhaval Buch is an alumnus of IIT Delhi and has had a corporate career of 35 years in Hindustan Unilever Limited in India and then in Unilever globally as part of its senior management team. During this long period, Madhabi and Dhaval have accrued their savings through their salaries, bonuses and stock options. Insinuations about their net worth and investments referencing Madhabi’s current government salary are malicious and motivated.
- From 2010 to 2019, Dhaval lived and worked in London and in Singapore – both with Unilever.
- From 2011 to March 2017, Madhabi lived and worked from Singapore, initially as an employee of a Private Equity firm and subsequently as a consultant.
- The investment in the fund referred to in the Hindenburg report was made in 2015 when they were both private citizens living in Singapore and almost 2 years before Madhabi joined SEBI, even as a Whole Time Member.
- The decision to invest in this fund was because the Chief Investment Officer, Mr Anil Ahuja, is Dhaval’s childhood friend from school and IIT Delhi and, being an ex-employee of Citibank, J.P. Morgan and 3i Group plc, had many decades of a strong investing career. The fact that these were the drivers of the investment decision is borne out by the fact that when, in 2018, Mr. Ahuja, left his position as CIO of the fund, we redeemed the investment in that fund.
- As confirmed by Mr. Ahuja, at no point in time did the fund invest in any bond, equity, or derivative of any Adani group company.
- Dhaval’s appointment, in 2019, as Senior Advisor to Blackstone Private Equity was on account of his deep expertise in Supply Chain management. Thus, his appointment pre-dates Madhabi’s appointment as SEBI Chairperson. This appointment has been in the public domain ever since. At no time has Dhaval been associated with the Real Estate side of Blackstone.
- On his appointment, the Blackstone Group was immediately added to Madhabi’s recusal list maintained with SEBI.
- Over the last two years, SEBI has issued more than 300 circulars (including “Ease of Doing Business” initiatives in line with the developmental mandate of SEBI) across the entire market eco-system. All regulations of SEBI are approved by its Board (and not by its Chairperson) after extensive public consultation. related to the REIT industry were favours to any specific party are malicious and motivated.
- The two consulting companies set up by Madhabi during her stay in Singapore, one in India and one in Singapore, became immediately dormant on her appointment with SEBI. These companies (and her shareholding in them) were explicitly part of her disclosures to SEBI.
- After Dhaval retired from Unilever in 2019, he started his own consultancy practice through these companies. Dhaval’s deep expertise in Supply Chain allowed him to work with prominent clients in the Indian industry. Thus, linking accruals in these companies to Madhabi’s current government salary is malicious.
- 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.
- 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.
- Hindenburg has been served a show cause notice for a variety of violations in India. It is unfortunate that instead of replying to the Show Cause Notice, they have chosen to attack the credibility of the SEBI and attempt character assassination of the SEBI Chairperson.
