What’s latest: Swiss investigations find Adani group engaged in wrongdoings. Here’s how the story unfolded.
On September 12, the Hindenburg shared an investigation by news website Gotham City, Swiss authorities froze more than $310 million across multiple Swiss bank accounts as part of the investigation into entities allegedly linked to the Adani Group.
The probe dates back to 2021. It showed significant financial activity tied to investment structures in offshore tax havens, including the British Virgin Islands (BVI), Mauritius, and Bermuda that exclusively owned Adani stocks, the report by the Swiss media outlet said.
As per the report, a ruling by the Federal Criminal Court (FCC) reveals that the Geneva Public Prosecutor’s Office was investigating alleged wrongdoing by the Indian conglomerate Adani well before activist investors from Hindenburg Research made the first accusations.
It said more than $310 million belonging to an alleged front man for billionaire Gautam Adani is sequestered in five Swiss banks. The Office of the Attorney General of Switzerland (OAG) took over the investigation after the case was revealed in the press.
Adani group response
“We unequivocally reject and deny the baseless allegations presented. The Adani Group has no involvement in any Swiss court proceedings, nor have any of our company accounts been subject to sequestration by any authority. Furthermore, even in the alleged order, the Swiss court has neither mentioned our group companies, nor have we received any requests for clarification or information from any such authority or regulatory body. We reiterate that our overseas holding structure is transparent, fully disclosed, and compliant with all relevant laws. These allegations are clearly preposterous, irrational, and absurd. We have no hesitation in stating that this is yet another orchestrated and egregious attempt by the same cohorts acting in unison to inflict irreversible damage on our group’s reputation and market value. The Adani Group remains steadfastly committed to transparency and compliance with all legal and regulatory requirements.”
Timeline of the investigation as per the Swiss probe:
Facts:
- On December 28, 2021, the Public Prosecutor’s Office of the Canton of Geneva (hereinafter: MP-GE) opened criminal proceedings against B., beneficial owner of A. LTD, for suspicion of money laundering (art. 305bis CP) and forgery of documents (art. 251 ch. 1 CP) following a report from the Money Laundering Reporting Office (MROS) received on the same day.
- On July 20, 2023, the Swiss Federal Prosecutor’s Office (hereafter: MPC) took over the investigation of the case (act. 1.1, p. 1). As part of the investigation, the MP-GE, then the MPC, ordered the sequestration of several banking relationships opened in the name of A. LTD with various banking institutions.
- As a result – on December 28, 2021, USD 164,706 were sequestered on account no. 1 with bank C. (act. 21.1); – on May 18, 2022, USD 103,386,846 were sequestered on account no. 2 with bank D. (act. 21.2); – on April 26, 2023, USD 320,553. — on November 17, 2023, USD 207,317,298 were sequestered from relationship no. 4 with bank F. (act. 21.4); – on November 17, 2023, USD 76,894 were sequestered from relationship no. 5 with bank G. (act. 21.5).
- On October 7, 2022, A. LTD requested the lifting of the escrows ordered until then (act. 1.7). By order dated October 19, 2022, its request was rejected by the MP-GE (act. 1.8). Since then, A. LTD has renewed its request to lift the receivership on several occasions, most recently on March 4, 2024, threatening to lodge an appeal for denial of justice (acts 1.9, 1.13, 1.14, 1.15, 1.16, 1.17 and 1.18).
- By order dated March 11, 2024, the MPC rejected A. LTD’s request to lift the sequestration orders and maintained all the sequestration orders (act. 1.1). – 3 – F. On March 25, 2024, A. LTD lodged an appeal with the Complaints Court of the Federal Criminal Court (hereinafter: the Court) against the above-mentioned order.
- It claimed, subject to costs and expenses, that the order should be annulled and, in so doing, principally that the sequestration orders should be lifted, in the alternative that the sequestration orders should be lifted in part and, in the further alternative, that the MPC should be ordered to lift the sequestration orders (if necessary in part) (act. 1). G. Invited to respond to the appeal, the MPC stated its position on April 29, 2024, concluding that the appeal should be dismissed insofar as it was admissible (act. 7). H. I. J. K. L. On May 24, 2024, A. LTD replied, persisting in the conclusions reached in its appeal memorandum of March 25, 2024 (act. 13).
- On June 14, 2024, the MPC replied in duplicate, reiterating the conclusions reached in its reply of April 29, 2024 (act. 16). On June 30, 2024, A. LTD commented on the MPC’s rejoinder (act. 18). A copy of its observations was sent to the latter for information (act. 19). On July 4, 2024, at the request of the Court, the MPC sent
Background: This is the latest in a series of allegations against Adani group. The US short-seller alleged gross irregularities by the group including roundtripping of money. There are more angles to this story.
The Kotak link
On July 2, Hindenburg Research said Kotak Mahindra Bank and brokerage firms founded by Uday Kotak created and managed the offshore fund structure used by Hindenburg’s investor partner to short Adani stocks. The research firm made these allegations in an update.
Hindenburg stated, “While SEBI seemingly tied itself in knots to claim jurisdiction over us, its notice conspicuously failed to name the party that has an actual tie to India: Kotak Bank, one of India’s largest banks and brokerage firms founded by Uday Kotak, which created and oversaw the offshore fund structure used by our investor partner to bet against Adani. Instead, it simply named the K-India Opportunities fund and masked the ‘Kotak’ name with the acronym ‘KMIL.’”
Hindenburg further pointed out that Uday Kotak led SEBI’s 2017 committee on corporate governance, suggesting that SEBI’s omission of Kotak’s name might be intended to protect him from scrutiny. The US-based research firm revealed that it had received a show-cause notice from SEBI regarding its Adani Report. The 46-page notice was delivered on June 27.
On January 24, 2023, Hindenburg published a report accusing Adani group companies of stock manipulation and accounting fraud ahead of a proposed Rs 20,000 crore share sale by Adani Enterprises. The Adani conglomerate called the report malicious and baseless.
Meanwhile, India’s Supreme Court ruled in January that the Adani Group would not face any further investigations beyond SEBI’s current scrutiny, offering relief to the conglomerate. SEBI has been investigating the Adani group for tax haven use and stock manipulation. The verdict suggested no heightened regulatory risk for Adani, and the court decided against altering disclosure rules for offshore funds despite Hindenburg’s claims.
According to Hindenburg, the research firm was short on Adani shares “through a deal with an investor partner who was indirectly short Adani derivatives through a non-Indian, offshore fund structure.” Hindenburg reiterated that it had adequately disclosed its short position on Adani shares, allowing readers to consider potential bias due to its financial interest in a decline in Adani shares.
Hindenburg shared Adani report with client two months before publishing it
US short-seller Hindenburg Research had shared an advance copy of its damning report against Adani group with New York-based hedge fund manager Mark Kingdon about two months before publishing it and profited from a deal to share spoils from share price movement, according to market regulator Sebi.
The Securities and Exchange Board of India (Sebi), in its 46-page show cause notice to Hindenburg, detailed how the US short seller, the New York hedge fund and a broker tied to Kotak Mahindra Bank benefited from the over USD 150 billion routs in the market value of Adani group’s 10 listed firms post-publication of the report.
Sebi charged Hindenburg of making “unfair” profits from “collusion” to use “non-public” and “misleading” information and induce “panic selling” in Adani Group stocks.
Hindenburg, which made public the Sebi notice, in its response, has described the show cause as an attempt to “silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India” and revealed that the vehicle used to bet against Adani’s flagship firm Adani Enterprises Ltd belonged to Kotak Mahindra (International) Ltd, a Mauritius-based subsidiary of Kotak Mahindra Bank Ltd.
KMIL’s fund placed bets on Adani Enterprises Ltd for its client Kingdon’s Kingdon Capital Management.
Sebi notice includes extracts of time-stamped chats between an employee of the hedge fund and KMIL traders for selling future contracts in AEL.
Kotak Mahindra Bank has stated that Kingdon “never disclosed that they had any relationship with Hindenburg nor that they were acting on the basis of any price-sensitive information”.
Sebi — which last year told a Supreme Court-appointed panel that it was investigating 13 opaque offshore entities that held between 14 per cent and 20 per cent across five publicly traded stocks of the Adani group — has sent notices not just to Hindenburg but also to KMIL, Kingdon and Hindenburg founder Nathan Anderson.
Senior lawyer Mahesh Jethmalani, who had in the past spoken for the Adani group, in a post on X claimed that Kingdon had a Chinese link.
Kingdon is married to “Chinese spy” Anla Cheng, he claimed.
“Accomplished Chinese spy Anla Cheng, who along with her husband Mark Kingdon, hired Hindenburg for a research report on Adani, engaged the services of Kotak to facilitate a trading account to short sell Adani shares; made millions of dollars from their short selling; eroded Adani market cap enormously,” he alleged.
Kingdon, which had a controlling stake in KMIL’s K-India Opportunities Fund Ltd, had a pact to share with Hindenburg 30 per cent of profit made from trading in securities based on the report, the Sebi letter said, adding this profit share was cut to 25 per cent due to the extra time and effort needed to reroute trades via the K India fund.
The market regulator said Kingdon transferred USD 43 million in two tranches to build short positions in AEL. The K India fund built short positions for 8,50,000 shares ahead of the report release and squared off these positions soon after the report was released.
According to Sebi, Hindenburg published a report titled ‘Adani Group: How the World’s 3rd Richest Man is Pulling The Largest Con in Corporate History’ on January 24, 2023 (United States time – January 25, 2023, according to IST) during pre-market hours.
“Prior to the release of the Hindenburg Report, concentration in short-selling activity was observed in the derivatives of Adani Enterprises Ltd,” it said.
“Pursuant to the release of the said report, the price of AEL fell by around 59 per cent during the period from January 24, 2023 to February 22, 2023” — from Rs 3,422 to Rs 14,04.85 per share.
Sebi said K India Opportunities Fund Ltd – Class F (KIOF Class F) opened a trading account and started trading in the scrip of AEL just a few days prior to the publication of the report and then squared off its entire short position post-publication of the Hindenburg Report, making significant profits of Rs 183.23 crore (USD 22.25 million).
“The net profit after trading and legal expenses comes to USD 22.11 million,” Sebi said.
As part of the deal, Kingdon owned Hindenburg USD 5.5 million, of which USD 4.1 million had been paid as of June 1, the notice said.
In its response to Sebi, Kingdon Capital said it had got legal option that it could “enter into a research services agreement with a third-party firm that publicly releases short reports on companies, pursuant to which Kingdon Capital would be given a draft copy of the report before it is made publicly available and would have the opportunity to accordingly made investments before the report’s public dissemination”.
A show-cause notice is often a precursor to formal legal action that may include imposing financial penalties and barring participation in the Indian capital market. Sebi can also seek government help to geoblock the research firm’s website.
Sebi has given Hindenburg 21 days to respond to its allegations.
Hindenburg, which published the Sebi notice on its website, in its response stated that it made just USD 4.1 million from its declared positions on Adani stocks and criticised the regulator for not focusing its investigation into the January 2023 report “providing evidence” of the conglomerate creating “a vast network of offshore shell entities” and moving billions of dollars “surreptitiously” into and out of Adani public and private entities.
It said that while Sebi was seeking to claim jurisdiction over a US-based investor, the regulator’s notice “conspicuously failed to name the party that has an actual tie to India: Kotak Bank,” which created and oversaw the offshore fund structure used by Hindenburg’s investor partner to bet against Adani.
The regulator “masked the “Kotak” name with the acronym “KMIL”, it added.
KMIL refers to Kotak Mahindra Investments Ltd, the asset management company.
Allegations against Sebi chief:
The allegations essentially cast a shadow on the credibility of the top Indian markets regulator. The report broadly raises the following allegations:
One, citing documents from a whistleblower, Hindenburg report alleged that Sebi chief Buch and her husband, Dhaval Buch, held stakes in offshore Bermuda and Mauritius funds through complex structures.
Also, just weeks ahead of her appointment as a whole time SEBI member in 2017, Dhaval Buch had written to a Mauritius fund administrator to make him the “sole person authorised to operate the accounts”, Hindenburg report alleged.
“We suspect SEBI’s unwillingness to take meaningful action against suspect offshore shareholders in the Adani Group may stem from Chairperson Madhabi Buch’s complicity in using the exact same funds used by Vinod Adani, brother of Gautam Adani,” Hindenburg Research said.
Second charge relates to Buch’s ownership of offshore Singaporean consulting firm, Agora Partners, the ownership of which was transferred to the husband shortly after her appointment as Sebi chief.
The third allegation pertains to possible conflict of interest in Blackstone. Even when Buch was Sebi chief, her husband was appointed as a senior advisor to Blackstone, a major investor in Real Estate Investment Trusts (REITs).
As per Hindenburg, under Buch’s leadership, SEBI approved significant regulatory changes favouring REITs, hinting a possible conflict of interest.
Finally, the Sebi chief allegedly owns 99 per cent stake in a consulting business called Agora Advisory, where her husband is a director. At the end of financial year 2022, the firm generated Rs 19.8 million (US $261,000) in revenue from consulting, per its annual report. This was 4.4 times Madhabi Buch’s previously disclosed salary as a whole-time member of SEBI.
In response, Sebi Chief Madhabi Puri Buch and husband Dhaval Buch have issued the following statement.
“In the context of allegations made in the Hindenburg Report dated August 10,2024 against us, we would like to state that we strongly deny the baseless allegations and insinuations made in the report. The same are devoid of any truth. Our life and finances are an open book. 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. Further, in the interest of complete transparency, we would be issuing a detailed statement in due course. It is unfortunate that Hindenburg Research against whom SEBI has taken an Enforcement action and issued a show cause notice has chosen to attempt character assassination in response to the same.”
Is there a conflict of interest here?
Hindenburg’s allegations suggest possibility of conflict of interest. We don’t have any evidence to say whether the Sebi chief has officially misused the position yet. If yes, what are the tangible gains received needs to be ascertained. Only a detailed probe will unveil the truth.
Also, an investigation need to be conducted to assess the ultimate beneficiaries of the alleged Adani scam (as explained in the 2023 Hindenburg report)
The latest Hindenburg whistleblower allegations have some similarities with the 2012 quid-pro-quo allegations faced by former ICICI Bank chief executive officer Chanda Kochhar linked to the Videocon loan deal.
In the Videocon case case, the ICICI Bankz when Kochhar was the CEO, had sanctioned around Rs 3250 crores worth loans to NuPower Renewables Pvt Ltd, owned by Kochhar’s husband Deepak Kochhar. In return, Dhoot invested in the company of Chanda Kochhar’s husband Deepak Kochhar.
As the allegations were made public, Chanda Kochhar had to resign from the CEO post after the case emerged. Subsequently, Kochhar was arrested in the case by the Central Bureau of Investigation (CBI). The case is currently still in the courts.
Who will probe Sebi chief?
In the case of Madhabi Buch, the bigger question is who will probe the allegation against Sebi chief herself. Sebi is the top regulator to probe market manipulations in India. The Hindenburg’s first report on Adani was probed by Sebi, which gave a clean chit to the Adani group. Who will probe charges against Buch this time when she is the head of Sebi?
During the 2023 Hindenburg report, the charges or allegations were against the company and not regulator. This time, the US research firm has questioned the credibility of the markets regulator itself by raising allegations against Sebi Chief Madhabi Buch and her husband.
An impartial investigation is must into the charges raised by Hindenburg, particularly the ownership of offshore funds, Buch’s ownership of advisory business and whether the company has benefitted from Sebi’s policies under Buch etc.
Remember, in the ICICI Bank-Videocon case too, Chanda Kochhar didn’t personally sanction the loans to Videocon group. She was only part of a committee that approved the loan. Yet, there were allegations of misusing the official position as CEO and conflict of interest. Subsequently, Kochhar faced quid-pro quo allegations in the deal and had to eventually resign and face arrest.
Kochhar was a banker and Buch is a regulator. Yet, there are similarities in both cases. Going by that precedent, Buch has every reason to come clean of the quid-pro-quo charges. For the sake of safeguarding the credibility of the market regulator, Buch must step down and facilitate a fair probe into the Hindenburg’s allegations against her personal dealings.
Sebi’s refusal, in embracing an independent investigation and ask the Sebi chief to step aside during the period of the probe, sets a bad precedent. It raises serious questions on the very credibility of the regulator.