Understand Why Madhabi Puri Buch Has Not Taken Any Action On Adani Group Companies; Instead Sent Show Cause Notice To Silence Hindenburg

The Adani Group and Hindenburg Research

The Adani Group is an integrated business conglomerate and is among the largest in India, with a business spanning sectors such as energy, resources, logistics, and agriculture. While it has left its footprint, literally like a giant, across the Indian economy, the group has rarely been out of controversy for various reasons, particularly with respect to its financial practices.

It all began when a financial research firm in the U.S., Hindenburg Research, which came into the limelight for its expose on some companies engaging in corporate fraud that led to their dissolution, released a damning report on the Adani Group. It accused the group of financial irregularities such as stock manipulation, money laundering, and offshore companies to inflate the price of stocks.

The Hindenburg report had come after tons of research and independent investigations. According to the report, the Adani Group has been promoting the stock price of listed companies through a network of shell companies in the offshore tax haven of Mauritius, seriously questioning the financial integrity of the group and risk it posed to investors.

While allegations of this nature are serious, nothing has been done by the regulatory body that oversees the Indian financial markets: SEBI. Instead, SEBI targets the whistleblower, which makes the whole controversy even deeper.

SEBI Response: Targeting the Whistleblower Instead of the Accused?

Everybody had expected SEBI to take up a serious probe into the financial practices of the Adani Group following the Hindenburg Report. Contrary to all such expectations, the kind of response that came from SEBI surprised everybody and raised several eyebrows across the financial community.

Instead of doing anything over the allegations levelled against Adani Group, SEBI sent a show-cause notice to Hindenburg Research. It charged Hindenburg with inadequate disclosure regarding their short positions in Adani stocks, a position which the research firm had openly acknowledged multiple times.

The show-cause notice by SEBI termed the Hindenburg report as “reckless” and chided the firm for quoting a banned broker who had earlier blown the lid off SEBI’s alleged complicity in similar financial schemes. Many saw this act by SEBI as discrediting the whistleblower rather than taking seriously the accusations against the Adani Group.

What has happened is that the response of SEBI has thrown up questions about its priorities. Many believe that it amounts to diverting attention from the basic allegations against Adani group and turning the limelight on silencing the whistleblower. Now, there is a lot of speculation as regards the motives behind SEBI’s move and if there is something more than meets the eye.

The role of Madhabi Puri Buch: A case of conflict of interest?

At the eye of this storm is the chairperson of SEBI, Madhabi Puri Buch. Buch was appointed chairperson of SEBI after a long and distinguished career in the financial sector. She had generated a lot of optimism about ushering in an era of transparency and accountability into the country’s financial markets. Recent revelations now suggest that Buch may have a conflict of interest that could explain the SEBI’s inaction against the Adani Group.

Whistleblower documents now come to the fore that can establish a possible conflict of interest between Buch and her husband, Dhaval Buch, over investments in offshore funds reportedly used by the Adani Group for money laundering and stock manipulation.

Whistleblower documents now reveal that Madhabi Buch and her husband had opened an account with IPE Plus Fund 1, a Mauritius-based fund, in the year 2015. IPE Plus Fund 1 is one of the many offshore entities connected with the financial activities of the Adani Group. The timing of this investment is what is important here as it happened two years before Buch joined as a Whole Time Member of SEBI in the year 2017.

Documents suggest it was only weeks before she was appointed to SEBI that Dhaval Buch removed the assets from his wife’s name. Obviously, this smacks of a sinister motive to conceal a potential conflict of interest. If these allegations are proved true, this would mean Madhabi Buch had a pecuniary interest in the very entities she was supposed to regulate as Chairperson of SEBI.

SEBI’s Inaction: A Deliberate Cover-Up?

The allegations against Madhabi Puri Buch only give credence to the theory floating in many minds that the inaction of SEBI is something intentional against the Adani Group. Critics argue that Buch’s alleged conflict of interest could be a reason why SEBI has not conducted a full-scale investigation into the financial practices of Adani Group.

It is also the reluctance of SEBI to act against the Adani Group that goes a long way in explaining its inaction against other suspect offshore funds connected to the conglomerate. Funds like the EM Resurgent Fund and Emerging India Focus Funds, managed by India Infoline, clearly having links with the notorious Wirecard scandal, have obviously been nailed for manipulating the stock prices of Adani with no notable action against them by SEBI.

This has fueled accusations that SEBI is deliberately avoiding an in-depth probe into the financial activities of Adani Group. Many even believe that SEBI is shielding Adani Group from investigation, perhaps to keep Madhabi Buch outside of the realm of accusation.

Things only went chaotic when Blackstone, a global private equity firm and one of the largest REIT sponsors in India, made Dhaval Buch, husband of Madhabi Buch, a senior adviser. A spate of regulatory changes brought in by SEBI since her tenure ended up largely helping the REITs particularly those sponsored by Blackstone.

This apparent conflict of interest raises serious doubts about the integrity of regulatory decisions taken by SEBI. There is a lingering doubt also regarding whether the Buchs have been misusing their positions for personal gain.

Defence of Madhabi Puri Buch

Responding to these charges, the Buchs issued a statement outlining their stance on August 11, 2024, in which they have categorically denied these allegations of impropriety. They had invested in these entities when both of them were private citizens and residents of Singapore, way before Madhabi Puri Buch joined SEBI.

The Buchs then pointed to their illustrious careers—Madhabi Puri Buch, alumnus of IIM Ahmedabad with decades of experience in banking and financial services, while Dhaval was an alumnus of IIT Delhi and had spent several years in senior management at Hindustan Unilever Limited.

The Buchs had consistently declared that all their investments were legitimate, coming from the salary, bonuses, and stock options the couple had made in the course of their corporate career. They dubbed as “malicious and motivated” the insinuations related to the net worth of the couple and how they had invested it, brushing off the allegations against them as an attack on their reputation. 

They also clarified that the decision for investment in the portfolio managed by Anil Ahuja was taken because of his considerable experience in the financial sector and had nothing to do with undue influence or inside information.

On the consulting companies in Singapore which Madhabi had set up, the Buchs claimed that these firms have remained dormant from the day she was appointed by SEBI way back in 2017. They further revealed that Dhaval took over the shareholding of these companies after retiring from Unilever in 2019 and the same is fully reported to SEBI, the Singaporean authorities, and the Indian tax authorities. Tying these companies’ earnings to Madhabi’s government salary was another baseless attempt at marrying their financial integrity, the Buchs argued.

Hindenburg’s Reply, Raising New Questions

Contrary to efforts put in by the Buchs to clear their names, Hindenburg was quick to respond, pointing major inconsistencies in their defence. Hindenburg further stated that Madhabi Puri Buch’s statement confirmed her investment in a Bermuda/Mauritius fund, which Hindenburg alleges is linked to money syphoned by Vinod Adani.

It also brought to notice the admission by Buch that the fund was managed by her husband’s childhood friend, Anil Ahuja, who simultaneously happened to be an Adani director at the time, raising deep questions about the integrity of the investigation into the matter of Adani by SEBI.

Another such claim by Buch that Hindenburg took exception to was about the dormant status of her consulting companies. It is now brought out that the firm has come up with records showing that one of the companies set up by her, Agora Advisory Limited (India), was still 99 percent owned by her as on March 31, 2024. 

More significantly, reports indicate that this firm was earning a large amount of consulting fees during her chairmanship at SEBI, which places a question mark on whether Buch has rid her interests in these companies wholly as she claimed. Further, the Singaporean entity, Agora Partners Singapore, also came into the spotlight as Hindenburg noted that till March 16, 2022, well into her time as a whole-time member of SEBI, Buch retained ownership before transferring it to her husband.

Whistleblower documents alleging that Buch used her personal email for conducting business in the name of her husband while being SEBI Whole Time Member were part of Hindenburg’s response. It insinuated that Buch might have camouflaged her financial interests by passing on the assets to her husband, which Hindenburg argued was for evading scrutiny.

Consequences for SEBI and India’s Financial System

The allegations against Madhabi Puri Buch raise serious questions about the integrity of the financial regulatory system of India. Buch is chairman of the SEBI, the most powerful position in the country’s financial sector mandated to maintain the integrity of markets and protection of interests of investors. Any hint of a conflict at this level can have far-reaching implications and may go on to undercut public trust in the regulatory framework that oversees India’s capital markets.

Probably the most bothersome thing in this whole controversy is the fact that the timing of the investment decisions of Buchs, vis-à-vis their relationship with Anil Ahuja, goes against them. 

While the Buchs say their investments were made in good faith and against the professional credentials of Ahuja, the fact that they chose to redeem their investments shortly after Ahuja left his position is suspicious. It would mean that the Buchs were using personal contacts to move financial markets; considerations like these place them in a different category than the ordinary investor.

The allegations pertaining to the consulting companies set up by Madhabi Puri Buch add yet another layer of complexity to the issue at hand. If these companies continued to earn money while Buch was Chairperson of SEBI, she has a duty to raise questions about full compliance with the disclosure and recusal norms supposed to prevent conflicts of interest. 

The fact that Buch continued to be the owner of the Singaporean entity till 2022, long after she was inducted into SEBI, suggests that she likely failed to exercise due care in disengagement from her private business interests.

Most damning of all is the accusation by Hindenburg that Buch used her personal email to conduct business in her husband’s name while serving in an official capacity. If proved true, that would mean there is an evident case of concealment of financial transactions. That would point to impaired credibility of judgement as chairperson of SEBI. It would amount not just to a breach of ethics but could also amount to criminality if it is established that Buch willfully misled the regulatory authorities.

Frustration of the Supreme Court: SEBI’s Investigation Draws a Blank

The judiciary in India has not remained immune to the controversies related to the case of the Adani group either. “The Supreme Court of India expressed its exasperation with an investigation being carried out by SEBI into a conglomerate, stating that the regulator has ‘drawn a blank’ in its probe into offshore shareholders funding Adani’s stock.”.

The criticism of the apex court thus sums up the hollowness of the efforts taken by SEBI and goes on to further indicate that it is willfully trying to avoid a proper investigation. Demands for an independent investigation into the matter by SEBI have been raised to ensure that justice be meted out.

It is therefore a damning irony that on one hand, SEBI is trying to take refuge behind the claim that it struggles to identify which offshore entities are actually linked to Adani, while whistleblower documents suggest Madhabi Buch need look no further than the mirror. Her direct financial relationship with the very same offshore funds now under investigation makes SEBI’s lack of action highly suspicious and arguable as corrupt.

There is an imperative need for an independent investigation. The allegations against chairperson Madhabi Puri Buch are serious, to say the least. When proved, they would mean that India’s financial regulator was compromised by the financial interests of its own head. It has indeed raised big questions regarding the integrity of SEBI’s regulatory framework and how hazardous it is to investors.

Given the seriousness of these allegations, it follows as a matter of necessity that SEBI’s actions or lack thereof are investigated by some independent institution. That investigation would have to be conducted without any influence or bias so that truth may come out and those responsible for the wrong must be brought to book.

Integrity of India’s financial markets depends on it. It is every investor’s and member of the public’s right to know whether SEBI itself has been compromised by those very persons who were given the charge to safeguard it. Till these questions are answered, the credibility of SEBI as an objective arbiter in the Adani matter shall be called into grave doubt.

Credibility of SEBI 

The Madhabi Puri Buch controversy, along with her husband, has brought to the fore once again that SEBI faces an unprecedented credibility crisis due to its response to the probe into the Adani group. Allegations of conflict of interest involving SEBI’s top officials only add to the perception that the regulator may not be full-bodied or independent and impartial in its dealing with powerful corporate entities.

This is a very difficult situation for SEBI in terms of credibility. Not only does the regulator need to respond to the specific allegations against its Chairperson, but it also needs to reassure the public and markets that nothing shall come in the way of its commitment to upholding the highest standards of integrity. It may be time for a review of SEBI’s internal policies on disclosure and recusal, and its adoption of a more open approach to dealing with the potential conflicts of interest of its senior officials.

The allegations against Madhabi Puri Buch and the way SEBI has handled the case of the Adani Group snowballed into a full-blown confidence crisis in the financial markets of India. If SEBI, mandated to regulate and protect the markets themselves, comes under suspicion, then the whole system is in jeopardy.