New Hindenburg report targets Indian market regulator chief Madhabi Buch: All you need to know

India’s stock market regulator is in the eye of a storm following allegations of connections with the Adani Group, which is under investigation. On August 3, US-based investment firm Hindenburg Research released a report accusing Madhabi Puri Buch, the chief of the Securities and Exchange Board of India (Sebi), of having links with offshore funds used by the Adani Group, founded by Indian billionaire Gautam Adani. Both Puri Buch and the Adani Group have vehemently denied these allegations.

Last year, Hindenburg accused the Adani Group of stock manipulation and accounting fraud spanning decades, causing billions to be wiped off its market value, though much of it has since been recovered. Sebi is continuing its investigation into these claims. Hindenburg’s latest report alleges that Sebi’s investigation may have been influenced by Buch’s connections with funds associated with the Adani Group.

Here’s what we know about the new controversy.

Who is Gautam Adani?

Gautam Adani is the founder and chairman of the $32 billion Adani Group, which has interests in ports, airports, power generation, transmission, and green energy, among other sectors. Born in 1962 in Gujarat, India, Adani started in the diamond industry before joining his brother’s plastic factory. The family business expanded, and Adani became one of the world’s wealthiest individuals and briefly the richest person in Asia in 2022.

What is the Adani Group?

Founded in 1988 as a commodities trading firm, the Adani Group has expanded through acquisitions into a conglomerate with 10 publicly listed entities. Its businesses include commodities trading, airports, utilities, ports, renewable energy, mining, gas, defence, aerospace, and more. As of August 29, 2022, the group had a combined market capitalisation of over $242.73 billion.

What is Hindenburg Research?

Founded in 2017 by Nathan Anderson, Hindenburg Research is a US-based investment research firm known for its investigative reports and short-selling strategies. Named after the 1937 airship disaster, the firm analyses equities, credit, and derivatives and is noted for uncovering corporate wrongdoings and betting against companies.

Who is Madhabi Puri Buch?

Madhabi Puri Buch became the first woman chairperson of India’s Securities and Exchange Board of India (Sebi) on March 1, 2022. An IIM-Ahmedabad alumna, she is the youngest Sebi chief and the first from the private sector. A career banker, Buch worked at ICICI Bank and its broking arm ICICI Securities before co-founding Agora Advisory, a financial services consultancy, with her husband in Singapore. Hindenburg claims Puri Buch was initially the sole shareholder of Agora Advisory.

Who is Dhaval Buch?

Dhaval Buch, Madhabi Puri Buch’s husband, is an IIT Delhi alumnus and a senior adviser at private equity firm Blackstone and consultancy firm Alvarez & Marsal. He is also a non-executive director at the sports apparel brand Gildan. His extensive corporate career includes roles in India, the UK, and Singapore.

Who is Anil Ahuja, and what’s his link with the Adani Group?

Anil Ahuja, Dhaval Buch’s childhood friend from school, is the chief investment officer at the Mauritius-based IPE Plus Fund. Puri Buch said it was her husband’s association with Ahuja that prompted them to invest in the fund. The Hindenburg report said IPE Plus Fund was set up by Ahuja through India Infoline (IIFL), a wealth management firm.

An IIT Delhi alumnus and a former employee of Citibank and JP Morgan, Ahuja has several decades of experience in investment. During his stint with 3i Infrastructure, Ahuja was one of the first to make a private equity bet on the Adani Group, according to a report in Indian daily Economic Times. In 2007, 3i Infrastructure paid $227 million for an undisclosed stake in Adani Power Ltd, a fully-owned subsidiary of flagship Adani Enterprises Ltd at the time, the report said.

The Adani Group said Anil Ahuja was a nominee director at Adani Power and Adani Enterprises until 2017.

What did Hindenburg Research’s report say?

The Financial Times and the Organised Crime and Corruption Reporting Project had previously linked funds in Bermuda and Mauritius to the Adani Group. Hindenburg’s report alleges that Madhabi Puri and Dhaval Buch invested in these funds from 2015 to 2018. The report suggests that Sebi’s reluctance to act against offshore shareholders in the Adani Group might be due to Puri Buch’s involvement with similar funds used by Adani’s brother, Vinod Adani.

How the funds were routed, according to Hindenburg?

The Hindenburg report mentions the Bermuda-based Global Opportunities Fund of 360 One WAM (formerly IIFL Wealth Management), which had a sub-fund Global Dynamic Opportunities Fund. Hindenburg claimed that a company controlled by Gautam Adani’s brother, Vinod Adani, invested in the sub-fund.

Global Dynamic Opportunities Fund is said to have invested Adani Group’s funds in IPE Plus Fund (where the Buchs invested), an obscure offshore a sub-fund registered in Mauritius. The money is reported to have been ploughed into the Indian stock market and traded in equities, derivatives and other financial instruments..

The founder and Chief Investment Office of the IPE Plus Fund was Anil Ahuja, who was a director in Adani Power and Adani Enterprises.

Did Madhabi Puri Buch take action to divest funds in the Adani Group?

Before Madhabi Puri Buch became a full-time Sebi member in 2017, her husband Dhaval Buch arranged for himself to be the sole authorised person for their fund accounts. Puri Buch reportedly asked the wealth management firm to redeem her husband’s investment in the fund. The Buchs stated that their investment was made since the fund’s Chief Investment Officer Anil Ahuja is a long-time friend of Dhaval Buch, and that the fund did not invest in Adani Group assets.

What was the Mauritius-based fund’s response?

360 One WAM stated that the IPE-Plus Fund 1, focused on debt investments, did not make any direct or indirect investments in Adani Group shares during its operation from October 2013 to October 2019. The fund’s peak assets under management reached about $48 million, with over 90% consistently invested in bonds. The firm clarified that no investor influenced the fund’s operations or investment decisions, and the Buchs’ holdings constituted less than 1.5% of total inflows.

The Financial Services Commission (FSC) of Mauritius said the offshore fund is not domiciled in the island nation and it does not permit the creation of shell companies.

What was Hindenburg’s allegation against Buch’s husband?

Hindenburg claimed that regulatory changes during Madhabi Puri Buch’s tenure at Sebi benefited firms like Blackstone, where Dhaval Buch became a senior adviser in 2019. The report noted Dhaval’s lack of experience in capital markets or real estate as unusual.

What was Sebi chief Madhabi Puri Buch’s response?

Madhabi Puri Buch denied any conflict of interest, stating that the investment was made before she took over as Sebi’s chief and had made all required disclosures. She asserted there is no evidence linking her investments to Adani stocks or Sebi’s investigation. The Buchs also noted that Dhaval’s appointment at Blackstone occurred before Puri Buch’s Sebi chairmanship and that his role focuses on supply chain management, not real estate.

What did Sebi say about the allegations?

Sebi stated it had “duly investigated” Hindenburg’s allegations against the Adani Group. The regulator confirmed that Puri Buch had made necessary disclosures regarding securities holdings and transfers and had recused herself from matters with potential conflicts of interest.

What was Adani Group’s response?

The Adani Group dismissed the allegations as a “recycling of discredited claims” and stated that their overseas holding structure is fully transparent. The group emphasised that it has no commercial relationship with the individuals or matters mentioned in the report. It noted that Anil Ahuja had been a nominee director at Adani Power and Adani Enterprises until 2017.

What was the fallout from the new allegations?

The fresh allegations led to a $2.43 billion drop in the Adani Group’s market value at the end of trading on Monday, though the group later recovered substantial losses.

Why did Hindenburg question the Buchs’ investment?

Madhabi and Dhaval Buch were Singapore-based Non-Resident Indians when they opened accounts in the fund in 2015. Although it is a common practice among NRIs to use such investment vehicles, Hindenburg queried the Buchs’ decision to use an offshore fund (Foreign Portfolio Investment structure) rather than a renowned onshore mutual fund. FPIs are better regulated and more trustworthy, a report in Indian newspaper Business Standard said, adding that NRIs can also invest in domestic mutual funds compliant with the Foreign Exchange Management Act.

What were Hindenburg’s allegations last year?

In January 2023, Hindenburg accused the Adani Group of stock manipulation, accounting fraud, and misuse of tax havens. The group lost nearly $150 billion in market value but has since recovered much. In this instance, Hindenburg earned $4.1 million from short-selling.

In June, Sebi issued a “show-cause notice” to Hindenburg, alleging violations of US securities laws related to a short bet against the Adani Group, which Hindenburg denied.

What happens next?

Hindenburg has indicated that Puri Buch’s response to the allegations raises “numerous new critical questions,” potentially setting the stage for further developments.