Hindenburg Accuses SEBI Chief of Conflict of Interest in Adani Investigation

Madhabi Puri Buch and Adani Group Refute the Allegation

Newsreel Asia Insight #309
August 14, 2024

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At a time when SEBI, India’s market regulator, is investigating the Adani group for alleged fraud, Hindenburg Research—a U.S.-based firm known for its investigative reports—has accused SEBI’s chief, Madhabi Puri Buch, of having financial ties with offshore funds connected to the Adani conglomerate. Although both Buch and the Adani group have denied these allegations, the potential impact of these claims on the investment climate and market stability should not be underestimated.

Hindenburg’s latest investigative report follows up on its January 2023 allegations against the Adani group, a giant conglomerate involved in everything from trading commodities to running airports. That report claimed that the Adani group manipulated the stock market using offshore shell companies—fictitious entities created to conceal their true ownership. These shell companies allegedly traded Adani’s stocks among themselves, creating the illusion of high demand and driving up stock prices artificially, despite the lack of genuine buyer interest.

Furthermore, Hindenburg claimed at the time that the Adani group made their financial health appear stronger than it actually was by using complicated transactions between companies within the group. This was done allegedly to fool investors, the people who regulate the markets and the public about how much money the companies were really making. Because of these alleged deceptive practices, the value of Adani’s companies was pumped up much higher than it should have been, involving possibly tens of billions of dollars.

Hindenburg’s latest accusation is that Buch has financial ties with the offshore funds that allegedly supported the Adani group.

SEBI’s primary role is to protect investors by ensuring they have access to accurate, comprehensive and timely information to make informed decisions. As the regulatory body, SEBI is investigating the allegations against the Adani group. The accusation that SEBI’s chief has invested in the same conglomerate raises concerns about a potential conflict of interest, casting doubt on the impartiality of SEBI’s ongoing investigation, the report points out.

Buch has denied any wrongdoing, stating that her investments were made long before her SEBI tenure, and asserts that there’s no evidence linking her actions as a regulator to any benefit for the Adani group. SEBI has stood by Buch, affirming that all proper disclosures and ethical guidelines were followed.

The stock market is like a thermometer for a country’s economy. When the stock market is doing well, it often indicates that the country’s economic health is strong. However, if people start losing trust in the market’s regulatory body—the organisation responsible for making sure everything in the market is conducted fairly—it can lead to big problems. Investors from other countries might think twice before putting their money into the market, fearing unfair practices or instability.

If foreign investors pull back, this can ripple through the economy in several ways. First, it can cause the stock market to drop, which affects the value of companies and can lead to less money for them to spend on expanding their business or hiring new people. This slowdown can then lead to fewer jobs, which means people have less money to spend. Less spending by the public can further slow down the economy.

Further, it might lead to inflation, making daily life more expensive. This cycle can negatively impact public services and overall spending, affecting everything from roads to schools.