It has been over two weeks since a Hindenburg Research report revealed serious conflicts of interests vis-a-vis the chairperson of the Securities and Exchange Board of India (SEBI). Two separate responses to the report were issued on August 11 — an unsigned statement from SEBI and a joint statement issued by Madhabi and Dhaval Buch. These statements in effect confirmed the veracity of Hindenburg’s revelations, casting more doubts over the regulator’s integrity. As the appointing authority of SEBI’s whole-time members, the Central government owes explanations to all stakeholders.

Did the government know?

The first conflict of interest revealed by Hindenburg relates to an investment worth $8,72,762 (over ₹5.6 crore at the 2015 exchange rate) made by Madhabi and Dhaval Buch in Bermuda based Global Dynamic Opportunities Fund [GDOF Cell 90 (IPEplus Fund 1)] through Mumbai-headquartered IIFL Wealth & Asset Management Limited (now renamed 360 One).

Madhabi and Dhaval Buch’s joint statement confirms the investment made in 2015 and clarifies that it was driven by the fund’s Chief Investment Officer (CIO), Anil Ahuja, who was “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 statement says that the investment was redeemed in 2018 when Anil Ahuja left his position as CIO of the fund. The joint statement, however, fails to mention that Anil Ahuja also served as a director of Adani Enterprises Limited when that investment was made, and remained in that position until May 31, 2017. An email revealed by Hindenburg shows that it was Madhabi Buch who sent the redemption request to GDOF on behalf of Dhaval Buch on February 25, 2018, when she was already a whole-time member of SEBI (appointed on April 5, 2017).

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Therefore, two obvious questions arise: first, was Madhabi Buch’s investment in an offshore fund operated by a director of Adani Enterprises disclosed to the Central government prior to her appointment as a whole-time member of SEBI? Second, did her shareholding in the offshore fund after her appointment in April 2017, till its redemption in February 2018, have the approval of the Board? The Central government must clarify this.

Relevance to the Adani Group probe

The Hindenburg revelations are of vital consequence to the ongoing SEBI investigation into the Adani group companies as well as the Supreme Court order of January 3, 2024. While ruling that the investigation into the Adani group companies did not warrant a transfer from SEBI to a Special Investigation Team (SIT) or the CBI, the Supreme Court had held that the “threshold for such a transfer of investigation has not been demonstrated to exist”. The Supreme Court appointed Expert Committee had elaborated in its report on how the SEBI (Foreign Portfolio Investors) Regulations, 2014 were diluted in 2018 and 2019 to enable the concealment of “ultimate beneficial owners” of offshore funds. The Expert Committee demonstrated that these regulatory amendments made it difficult to establish the ultimate beneficial owners of the 13 offshore funds that were suspected by SEBI for being fronts of the Adani promoter group.

The funds under the SEBI investigation include the Emerging India Focus Funds and EM Resurgent Fund, which were managed by IIFL Wealth & Asset Management Limited (360 One), as revealed by the Organized Crime and Corruption Reporting Project (OCCRP). Was the Expert Committee made aware of Madhabi Buch’s investment in such an opaque offshore fund through IIFL Wealth & Asset Management Limited (360 One), which was also managed by a director of Adani Enterprises, even after joining SEBI as a whole-time member? This evident conflict of interest remained unreported in the Expert Committee report as well as the top court order.

Moreover, SEBI had approved the acquisition of Ambuja Cements and ACC by the Adani group in August 2022 during Madhabi Buch’s tenure as chairperson. In response to a RTI query in April 2023, SEBI disclosed that its chairperson had a meeting with the Adani group Chairman on August 11, 2022 at the SEBI headquarters to “discuss open offer applications of Ambuja Cements and ACC”. There was a second meeting between the two on October 3, 2022 on an unspecified agenda.

The Adani group disclosed on August 23, 2022 that the acquirer of the controlling stakes in these cement companies was a Mauritius based company whose ultimate beneficial owner was Vinod Adani, establishing him as part of the promoter group. Despite this, the Adani group has continued to maintain that Vinod Adani is not a “related party” when it comes to the suspicious transactions in Adani shares by FPIs or offshore funds linked to him.

This obfuscation by the Adani group was enabled by successive amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR) since 2018, redefining “related party” and “related party transactions”. While the Expert Committee flagged the LODR amendments as regulatory dilutions, SEBI’s approval of the Adani group’s acquisitions of Ambuja Cements and ACC acquisitions was never examined.

SEBI’s investigation into the violation of promoter shareholding regulations by listed Adani group companies had started in October 2020. Despite the Supreme Court prodding it to complete the probe by April 2024, SEBI’s statement on August 11, 2024 describes the probe status as “close to completion”.

In the light of the SEBI chairperson’s conflict of interests, it not only appears to be a “glaring, wilful and deliberate inaction” on the part of the regulator but a calculated cover up operation. This warrants a transfer of the investigation to a SIT or the CBI. The role of the current SEBI chairperson and IIFL Wealth & Asset Management Limited (360 One) in all investigative matters related to the Adani group companies since 2018 also needs to be brought under the probe’s ambit.

Other conflicts

Hindenburg has also raised concerns over the SEBI chairperson’s shareholding in two consulting companies, namely India-based Agora Advisory and Singapore-based Agora Partners. Madhabi and Dhaval Buch’s clarification that these companies “became immediately dormant on her appointment with SEBI”, is prima facie false. The statement itself makes the self-contradictory claim that “after Dhaval retired from Unilever in 2019, he started his own consultancy practice through these companies” which allowed him to “work with prominent clients in the Indian industry”.

Madhabi Puri Buch had served as a whole time member of SEBI between April, 2017 and October, 2021 and was subsequently appointed as its chairperson in March 2022. Documents from India’s Corporate Affairs Ministry show Ms. Buch as the owner of 99% shares of Agora Advisory Private Limited as on March 31, 2024. This private company, active as on date, made over ₹3.6 crore in revenues between 2017 and 2024. The SEBI chairperson, who was a whole-time board member since 2017, has continued to occupy another office of profit, in violation of SEBI’s “Code on Conflict of Interests for Members of Board” (Section 5.1). This not only makes her position as SEBI chairperson untenable but also implicates the entire Board along with its appointing authority, for allowing such subversion of its own code of conduct. There should be an immediate disclosure of all the clients of the Agora Advisory Private Limited and Agora Partners and a probe into probable quid pro quo.

Hindenburg has also revealed that Dhaval Buch’s current employer, multinational private equity firm Blackstone, directly benefited from the SEBI chairperson’s aggressive promotion and regulatory decisions vis-a-vis Real Estate Investment Funds (REITs). In response, SEBI states that “the claim that promoting REITs...among various other asset classes by SEBI was only for benefiting one large multinational financial conglomerate, is inappropriate”.

Thus, there is neither a denial of SEBI chairperson’s promotion of REITs nor of the fact that her husband’s employer, Blackstone, made thousands of crores in profit through three out of four REIT IPOs, that have been approved by SEBI till date. The Securities and Exchange Board of India Act, 1992 mandates SEBI to protect the interests of the investors, and promote the development of and regulate the securities market. Promoting individual asset classes like REITs is not a function of SEBI, as defined under the laws. Rather, such favouritism towards a specific asset class by SEBI chairperson, particularly when her spouse is employed in a major player benefiting from such preferential treatment, amounts to a possible violation of the Securities and Exchange Board of India (Terms and Conditions of Service of Chairman and Members) Rules, 1992.

The SEBI Rules prohibit the chairperson or whole-time members to have any financial or other interests which are likely to prejudicially affect their functioning.

What next?

The conflicts of interests vis-a-vis the SEBI chairperson are borne out through her own statements and actions, which is why SEBI’s citation of Hindenburg’s own conflict of interest in the matter as a short-seller in order to undermine the latter’s revelations, does not hold much water. They must be addressed systemically in order to restore the regulator’s credibility.

There has been a surge in retail investor participation in the Indian securities market in the past few years. The latest Economic Survey estimated that around 20% of Indian households may now be channelling their household savings into the financial markets. A compromised securities market regulator only enhances the risks to their financial security and overall financial stability.

Prasenjit Bose is an economist and activist.