Will Sebi’s Madhabi Puri Buch step down and face an independent probe?

John Davis

On 6 September, the Congress party raised a fresh set of allegations against the Securities and Exchange Board of India (Sebi) chief Madhabi Puri Buch saying the Sebi chief rented out her properties to Carol Info Services, a firm part of Wockhardt and against which is facing probe by the market regulator.

“Madhabi Puri Buch ji had become the whole-time member of Sebi in 2018. Now after becoming a whole-time member, she rented out one of his properties. In the financial year 2018-19, she received a rent of Rs 7 lakh on it.”

“She received rent of Rs 36 lakh for the same property in 2019-20, which increased to Rs 46 lakh this year. The name of the company to which Madhabi Puri Buch gave her property is Carol Info Services Limited, which is a part of Wockhardt company,” Congress leader Pawan Khera said in a statement.

Khera said the same company is being probed by Sebi for various charges. “So we want to know where did you give this information? Is it right that you rent your property to a company whose cases you are handling? Is this ethically and legally correct?”

“Crores of people of the country trust Sebi. If a question mark is raised on this, then the investment of the public will be put into question. At the same time, the Prime Minister of this country is not worried about the country’s reputation – this is our biggest concern.”

Khera further questioned the government asking if there was any agreement that the government won’t interfere in companies linked to Sebi chief. “What boon did Prime Minister Narendra Modi give to Madhavi Buch ji that whatever she does is forgiven?,” Khera asked.

This is the second major allegation against Buch from the principal opposition party.

Earlier, the Congress party had raised serious concerns about Buch. In a press conference, Khera accused Buch of receiving remuneration not only from the government but also from private entities, including ICICI Bank and ICICI Prudential, while serving in her official capacity, marking this as a serious conflict of interest.

On 3 September, ICICI Bank said the bank or group hasn’t paid any salary or ESOPs to Sebi Chief Madhabi Puri Buch other than her retiral benefits.

“ICICI Bank or its group companies have not paid any salary or granted any ESOPs to Ms. Madhabi Puri Buch after her retirement, other than her retiral benefits,” the bank said.

Further, ICICI Bank said it may be noted that she had opted for superannuation with effect from October 31, 2013. During her employment with the ICICI Group, she received compensation in the form of salary, retiral benefits, bonus and ESOPs, in line with applicable policies.

Unanswered questions

But there are two critical questions here:

One, Did Buch disclose the ESOP details from the ICICI group at the time of taking over as Sebi chairman in March, 2022. This is critical as exercising stock options is a price sensitive action.

Typically, when former executives are appointed as regulators, they have to disclose all details of income including stock options and have someone else manage the investments to ensure the individual has no direct control over the assets. This is to ensure no conflict of interest.

In this case, it is not clear whether Buch received ESOPs and potentially profited from the difference between the ESOP grant price and the market price. Here, the important question is whether these ESOPs were disclosed to SEBI at the time of her appointment. If not, the question arises whether this non-disclosure could affect the validity of certain approvals, such as the merger between ISEC and ICICI Bank.

Second, even more critical question is Buch’s involvement with Agora consultancy. 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.

If Buch didn’t disclose these two at the time of her appointment as Sebi chief, there is a clear case of conflict of interest here.

During her stint as Sebi chief, Buch has presided over many regulatory decisions that may or may not have direct implications on the stock price of the entities where she has financial interests. Sebi is the guardian of public trust when it comes to stock market investments. The body cannot seek public disclosure from every stakeholder but bunk the rules when it comes to its own chief.

Sebi chief must step down and facilitate an impartial probe into the allegations against her if she has any sense of responsibility and ethics. Nothing less than this will suffice.

Employee protests

On 5 September, around 400 employees of the Securities and Exchange Board of India (Sebi) protested silently at the organisation’s headquarters in Mumbai. The employees were protesting the Sebi’s clarification that their earlier letter to the finance ministry on unprofessional work culture is ‘misguided by external elements’. Earlier, Sebi had said that the allegations of toxic work culture in Sebi is misguided by external elements.

“The claims of unprofessional work culture in the letter dated August 6, 2024, are misplaced,” Sebi had said in a statement.

The regulator suspects that junior officers have been receiving messages from outside parties encouraging them to “go to the media, the Ministry, or the Board,” possibly for the outsiders’ own agendas.

“Sebi apprehends that the junior officers have been receiving messages from external elements outside their group, effectively instigating them to ‘go to media, go to the Ministry, go to Board’, perhaps to serve their own purpose. In fact, the letter of August 06, 2024, was not sent by the Sebi employee associations to the Government (and a section of the media),” the statement noted.

In response, the protesting employees shared an internal message where they said their protest is for the purpose of showing dissent and unity against the arm-twisting exercise done by the top management in the garb of a press release. The immediate demand is withdrawal of press release and resigning of SEBI chairperson for spreading lies against SEBI’s employees.

This is the first time in the history of Sebi employees are holding a protest and seek the resignation of the top boss. It also shows how serious is the issue the employees are raising. In the letter sent to finance ministry, the employees had alleged that there was “immense pressure” at the office, amounting to a “stressful and toxic work environment”.

Employees had raises issues like mistrust and lack of trust shown at work, name callings and scolding/ public humiliation in meetings. Even officers at the highest levels. In a letter, titled ‘Grievances of SEBI officers-A Call for Respect’, the employees complained about “harsh and unprofessional language used by top management for the members.”

“Sometimes it is the point wise KRA systems with unrealistic targets with changing goalposts, the other time it’s the monitoring of minute-by-minute movement of SEBI employees.”

Regulator facing scrutiny

Sebi employee protests are happening at a time when the regulator is already in the headlines for all the wrong reasons– a range of allegations raised against its chief Madhabi Puri Buch by US short-seller Hindenburg and charges against Buch on the grounds of conflict of interest.

Remember, it has been over a month since US short seller Hindenburg raised serious allegations against Sebi chief Madhabi Puri Buch and her husband regarding stake in offshore funds used in Adani money laundering scandal are damning.

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.

(This is part of a series of stories Biznewsweek will be publishing in the context of the allegations against Sebi Chief.)