SEBI chief should have recused herself from Adani investigation, say experts

A day after Hindenburg Research alleged that Securities and Exchange Board of India chairperson Madhabi Puri Buch and her husband had “hidden stakes” in offshore entities linked with the Adani Group, experts told Scroll that Buch should have recused herself from the investigation into allegations of stock price manipulation by the conglomerate.

In January 2023, US-based Hindenburg Research had accused the Adani Group of pulling off “the largest con in corporate history” through accounting fraud and money laundering using opaque offshore funds in tax havens.

A petition led the Supreme Court to appoint a panel to investigate the allegations. The panel asked the Securities and Exchanges Board of India, the stock market regulator, to examine suspected violations in foreign investments by the Adani Group. In May, the panel said that the Securities and Exchanges Board of India had “drawn a blank” in the inquiry.

In a fresh report released on Saturday, Hindenburg Research alleged that the markets regulator’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”.

Madhabi Buch and her husband Dhaval Buch have denied the allegations made by Hindenburg. A statement they released said: “All disclosures as required have already been furnished to SEBI over the years.”

However, not everyone is convinced. Market observers told Scroll that Buch should have recused herself from the investigation. “We do not know enough yet, so it should be made public what are the disclosures that have been made, when, and to whom,” veteran finance journalist Sucheta Dalal said.

Former Union Finance Secretary Subhash Garg said that when a whole-time member or chairperson of the Securities and Exchanges Board of India is appointed, the individual needs to disclose all her holdings and those of her relatives. “If there is some conflict of interest in these disclosures, it should be made public,” he said.

A senior capital markets analyst registered with the Securities and Exchanges Board of India, who requested anonymity, pointed out that according to media reports, Buch herself briefed the Supreme Court panel on the Adani investigation. “If you have made the disclosure internally, you cannot go on record about the investigation,” he said.

What are the Adani-related allegations against the Buchs?

The Hindenburg report says that in December 2023, an investigation by the non-profit Adani Watch claimed that a firm called Global Dynamic Opportunities Fund based in the tax haven Bermuda was one of the entities used by Adani Group chief Gautam Adani's brother Vinod Adani to allegedly manipulate the stock market. In turn, Global Dynamic Opportunities Fund invested in IPE Plus Fund 1, a fund registered in Mauritius, another tax haven country, the investigation showed. The Mauritius fund then invested money in the Indian financial markets.

Citing documents obtained from a whistleblower, Hindenburg has claimed that Madhabi and Dhaval Buch first invested in IPE Plus Fund in June 2015. This was before Madhabi Buch was appointed a whole-time member of the Securities and Exchanges Board of India in 2017. But just weeks before the appointment, Dhaval Buch wrote to a Mauritius fund administrator requesting to “be the sole person authorised to operate the accounts”. This moved “the assets out of his wife’s name ahead of the politically sensitive appointment”, Hindenburg Research said.

Subsequently, in February 2018, Buch wrote to a fund manager from her private Gmail account, seeking to redeem the units her husband was holding in the Global Dynamic Opportunities Fund.

In a statement issued on Saturday, the Buchs said they had invested in the fund while living in Singapore as private citizens. They had decided to invest in the fund because a friend of Dhaval Buch, Anil Ahuja, was its chief investment officer, the statement said. The fund did not make any investments in Adani Group, the Buchs claimed, citing the friend.

The Hindenburg report pointed out that Ahuja was “a director of Adani Enterprises where he served three terms spanning nine years ending in June 2017, per his biography and exchange disclosures. Prior to that he was a director of Adani Power”.

Many have argued that Buch should have recused herself from the probe into the Adani Group once she discovered she had held stakes in the same fund under investigation.

“We do not know all details of the matter yet, but judges recuse themselves from cases all the time, here she [Buch] was in the position of a judge,” said Dalal. “It is possible that she did not know who the other investors [in Global Dynamic Opportunities Fund] were, but the moment she came to know that this offshore entity was under investigation and was part of her [investment] portfolio, she should have recused herself.”

The capital markets analyst, who declined to be identified, concurred, adding that the government also had the responsibility to ensure that an individual holding shares of an entity does not get to investigate it.

The analyst asked why Madhabi Buch had emailed the manager of the Global Dynamic Opportunities Fund in February 2018, asking for the shares held by her husband to be redeemed. “It is very unusual for her to ask the fund manager to divest the shares after she has transferred them,” he said. “This shows that effectively she was still controlling the shares.”

What are the other allegations against Buch?

Besides the alleged connection to offshore funds linked to the Adani Group, the Hindenburg report released on Saturday has also put under the scanner another instance of alleged lack of transparency on Buch’s part, related to Singapore-based consulting firm Agora Partners.

In 2013, when the firm was registered in Singapore, Madhabi Buch held 100% stakes in the firm. Two weeks after she was appointed as the markets regulator chairperson, she transferred the shares to her husband, according to the Hindenburg report.

Agora Partners is exempt from disclosing the revenue it generates and its beneficiary, which the Hindenburg report said was crucial for “those assessing the probity of the Chairperson’s external business interests”.

The report also says that Madhabi Buch continues to hold 99% stakes in another consultancy firm, Agora Advisory Private Limited, based in India. Dhaval Buch is the director of the firm. In the financial year 2021-’22, the firm generated Rs 1.98 crore as revenue, which is 4.4 times Madhabi Buch's salary, which she cited as the source for her investment.

In this case, the Buchs’ statement said that the two consulting companies set up by Madhabi Buch became dormant after her appointment at the markets regulator and that she had disclosed her shareholding at the time of appointment.

Responding to the statement, Hindenburg Research said: “Per its latest shareholding list as of March 31st, 2024, Agora Advisory Limited (India), is still 99% owned by Madhabi Buch, not her husband.”

It added: “Buch’s statement promised a ‘commitment to complete transparency’. Given this, will she publicly release the full list of consulting clients and details of the engagements, both through the offshore Singaporean consulting firm, the Indian consulting firm and any other entity she or her husband may have an interest in?”

The Hindenburg report also insinuates that there was a quid pro quo arrangement between the Securities and Exchanges Board of India and private equity group Blackstone, where Dhaval Buch was appointed as an advisor in 2019 even as he did not have experience of working in the capital markets.

The Hindenburg report says that during the period when Madhabi Buch’s tenure at the Securities and Exchanges Board of India coincided with Dhaval Buch’s time at Blackstone, the private equity firm sponsored the initial public offering of two of India's four Real Estate Investment Trusts, or REITs, to get the market regulator’s approval. The report flagged this because after Madhabi Buch took over as chairperson of the markets regulator, she introduced a number of legislations to encourage investments in REITs.

The Buchs have countered this allegation stating that Dhaval Buch had been appointed to Blackstone on account of his “deep expertise in supply chain management” and he was not involved in the firm’s real estate section. Unidentified personnel in Blackstone have also confirmed this claim.

Moreover, the Buch statement claimed that after Dhaval Buch’s appointment, the Blackstone Group had been added to Madhabi Buch’s recusal list at the Securities and Exchanges Board of India.

Are there any other concerns?

Garg also pointed at a possible departure from the usual selection review process in case of Buch’s appointment.

Outlining the process of appointments to the markets regulator, Garg said that the selection panel, Financial Sector Regulatory Appointments Search Committee, shortlists a certain number of applicants. The panel could also recommend someone who has not applied, but is eligible in the eyes of the panel, Garg said.

Central government employees applying for the post of whole-time member or the chairperson of the Securities and Exchanges Board of India need to submit copies of their annual confidential reports and annual performance analysis reports along with their application, according to the government notification. However, since Buch was the first private sector employee to have been appointed to the markets regulator, this was not possible, he said.

“In such a case the appointment will be based on interview and reports from the Intelligence Bureau,” Garg said, pointing out that Buch did not go through the level of scrutiny that her predecessors were subjected to.

Corrections and clarifications: An earlier version of the story incorrectly stated that Madhabi Buch had made statements to the press about the Adani investigation.