John Davis
It has been nearly 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.
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.