Hindenburg puts SEBI chief under scanner over conflict of interest: All you need to know

The matter has taken a political turn, with opposition parties calling for a parliamentary probe and demanding Madhabi Puri Buch’s resignation.

SEBI chairperson Madhabi Puri Buch. Buch was appointed to the top post in March 2022 after spending five years as a whole-time member, the second-highest position at the regulator. | Photo Credit: PTI

In a report published on August 10, US-based firm Hindenburg Research alleged that Madhabi Puri Buch, the chairperson of the Securities and Exchange Board of India (SEBI), and her husband previously held investments in offshore funds also used by the Adani Group. It says the Bermuda-based Global Opportunities Fund, which the Financial Times said was used by entities connected to Adani Group to trade in the shares of group companies, had sub-funds.

Citing whistleblower documents, Hindenburg alleges Buch and her husband, Dhaval Buch, invested in one of these sub-funds, IPE Plus Fund 1, in 2015 and exited in 2018. Hindenburg is trying to link this investment to what it argues is the slow pace of action against the Adani Group and offshore funds used by it.

Hindenburg accused Madhabi Puri Buch of conflicts of interest that the US-based firm said prevented a thorough examination of allegations of manipulation and fraud at the Adani Group. “We find it unsurprising that SEBI was reluctant to follow a trail that may have led to its own chairperson,” the short-seller said in its report.

In January 2023, Hindenburg disclosed it held short positions in Adani companies through US-traded bonds and non-India-traded derivatives. It released a report that alleged Adani improperly used tax havens and flagged concerns about high debt levels at the company. Though the Adani Group called the report baseless and termed the allegations “unsubstantiated speculations”, Hindenburg’s report sparked a $150 billion meltdown in shares of Adani’s publicly listed companies last year.

The report also revealed that Buch owned a 100 per cent stake in a Singaporean consulting firm called Agora Partners from 2013 to 2022, transferring it to her husband shortly after becoming SEBI chairperson. It noted that Buch currently owns 99 per cent of an Indian consulting business, Agora Advisory, which in 2022 reported revenue 4.4 times her disclosed SEBI salary.

Hindenburg also raised questions about the SEBI chairperson promoting real estate investment trusts (REITs) as a promising asset class without disclosing that Dhaval Buch is now an adviser to Blackstone Inc., which has sponsored two of the four listed REITs in India.

SEBI chief denies allegations

Buch denied the allegations. In two separate statements issued, she said the investments were made in a personal capacity before she took over as chief of SEBI and that all necessary disclosures had been made.

“We would like to state that we strongly deny the baseless allegations and insinuations made in the report,” the couple wrote in a statement shared by a representative for SEBI. “All disclosures as required have already been furnished to Sebi over the years. We have no hesitation in disclosing any and all financial documents, including those that relate to the period when we were strictly private citizens, to any and every authority that may seek them.” They said a more detailed statement would be issued in due course “in the interest of complete transparency”.

A formal statement from the regulator’s spokesperson reiterated Buch’s position and asked investors to remain calm and exercise due diligence before reacting to reports such as that by Hindenburg.

Updating on the status of the investigation into the Adani Group, the regulator said that it had concluded its probe into 23 out of 24 matters. Six Adani Group companies have disclosed to stock exchanges that they have received show-cause notices from the regulator. A show-cause notice signals an intention to take disciplinary action if satisfactory explanations are not provided. A show cause notice has also been issued to Hindenburg for violating Indian rules, which was made public by the short-seller in July.

The fund in which Buch invested, IPE-Plus Fund 1, issued a separate statement saying it had not invested in any shares of the Adani Group.

Hindenburg’s accusations against SEBI and its chair follow its campaign against the Adani Group, which it accused in January 2023 of share manipulation and accounting fraud. The Adani Group has labelled the latest allegations by Hindenburg as “malicious”, and said it has “absolutely no commercial relationship with the individuals or matters mentioned in this calculated deliberate effort to malign our standing”.

The Adani Group’s stocks fell after the release of the Hindenburg report. Shares of Adani Enterprises Ltd, the group’s flagship, slid as much as 5.5 per cent in early trading on August 12. Adani Energy Solutions Ltd plunged as much as 17 per cent before paring the bulk of the loss, with all but one of the conglomerate’s 10 stocks trading lower.

Who is Madhabi Puri Buch?

Madhabi Puri Buch is renowned as a no-nonsense leader who is used to difficult situations. The first woman at the helm of SEBI, Buch has a tough, businesslike approach to her work, people who know her say.

Buch was appointed to the top post at SEBI in March 2022 after spending five years as a whole-time member, the second highest position at the regulator. She completes her three-year term in March 2025.

A career banker, Buch spent her early working years at India’s second-largest private lender, ICICI Bank, later heading its broking arm ICICI Securities. She also dabbled in private equity as part of the Singapore office of Greater Pacific Capital.

She is known by SEBI insiders as a demanding leader whose decisions are led by data. Buch is a frequent speaker at industry forums, armed with data-packed presentations.

She has faced pushback on a number of issues partly due to her style of operating but also because she has attempted to shake the status quo, according to industry insiders. She has enforced stricter disclosures on corporations for related party transactions and on foreign investors for concentrated holdings in Indian stocks, public documents show.

She planned to lower fees for India’s $770.77 billion mutual fund industry, but the proposal was put on hold because of opposition from asset management firms, Reuters reported. Buch was also forced to stagger the implementation of optional same-day settlement for India’s stocks after opposition from foreign investors. Most recently, she has proposed tighter rules to cool the frenzy in India’s options markets.

Buch has faced opposition within SEBI too in her attempts to professionalise the organisation, including by raising performance targets, said five SEBI officials declining to be named as they were not authorised to speak to the media. A few junior employees staged a “silent protest” earlier this month against some of these HR policies. “There is a general sense of mistrust and discontent,” said one of the five officials.

Political uproar

Hindenburg’s allegations may prove to be Buch’s toughest challenge yet with the matter taking a political turn and opposition political parties calling for a parliamentary probe and asking her to resign.

Leader of the Opposition in the Lok Sabha Rahul Gandhi said in a statement on August 11 that the integrity of SEBI had been “gravely compromised by the allegations against its chairperson”.

“Honest investors across the country have pressing questions for the government: Why hasn’t SEBI Chairperson Madhabi Puri Buch resigned yet? If investors lose their hard-earned money, who will be held accountable—PM Modi, the SEBI Chairperson, or Gautam Adani?” the senior Congress leader said. “It is now abundantly clear why Prime Minister [Narendra] Modi is so afraid of a JPC [joint parliamentary committee] probe and what it might reveal.”

“Her guilt is there for everyone to see,” Trinamool Congress MP Mahua Moitra said. “India’s reputation as a global market investment is at stake. We cannot be seen to be non-transparent, we cannot be seen to be opaque, we cannot be seen to be slow, we have to take quick action and clean up the system.”

Gandhi and Moitra have been fierce critics of billionaire Gautam Adani and his closeness to Prime Minister Narendra Modi. Moitra was expelled in 2023 from Parliament for sharing sensitive information from her official parliamentary account. On her way out, Moitra claimed that her critique of Adani and his dealings were a reason behind her expulsion. She was re-elected in June.

The BJP on August 12 rejected the Congress’ demand for a JPC probe, saying it is a sham with an eye on weakening the Indian economy and destroying investment in the country. BJP leader and former Union Minister Ravi Shankar Prasad reiterated the party’s line that the short-selling firm’s charge and the opposition’s criticism of the market regulator are part of a wider conspiracy.

“After being rebuffed by people, the Congress, its allies, and its closest ally in the toolkit gang have conspired together to usher in economic anarchy and instability in India... The Congress party leadership is involved in creating economic anarchy based on this fictitious report,” he said. He, however, asserted that investors have come to realise the “conspiracy” and rejected the attempts to jolt the market.

(with inputs from agencies)