Sebi Chairperson Madhabi Puri Buch and her husband on Sunday dismissed allegations made by US-based short-seller Hindenburg Research, which claimed the couple held stakes in offshore entities connected to the Adani Group.
Buch called these claims as "baseless" and accused Hindenburg of attempting character assassination in retaliation for enforcement actions taken against the firm by Sebi. "Our life and finances are an open book," Buch stated, emphasizing willingness to disclose all her financial records.
How it all started
Earlier this year, the Supreme Court upheld Sebi's investigation into accusations of share price manipulation and non-disclosure of transactions involving the Adani Group, initially raised by Hindenburg Research. Despite a review petition challenging the court's January 3, 2024, verdict, the court, led by Chief Justice D.Y. Chandrachud, dismissed the plea, affirming the thoroughness and legitimacy of Sebi's probe.
The court expressed confidence in Sebi's handling of the investigation, describing it as comprehensive and "inspiring confidence."
The judgment: The Supreme Court's ruling was rooted in petitions that argued the Hindenburg report caused a "precipitate decline" in investor wealth and led to market volatility, particularly affecting Adani Group stocks. The court, however, concluded that while the Adani stocks experienced significant fluctuations, the broader market remained stable, and the impact was confined to the Adani Group rather than posing a systemic risk.
Chief Justice Chandrachud noted that "while shares of the group fluctuated, it did not pose any systemic market-level risk." An Expert Committee, chaired by Justice A.M. Sapre, found that the volatility observed in Adani stocks was consistent with global trends and did not indicate any underlying systemic issues within the Indian market.
What the court observed: The court emphasized that transferring the investigation to another agency could only be justified in extraordinary circumstances, such as "glaring, willful, and deliberate inaction" by the current investigating body. Finding no such circumstances, the court reinforced Sebi's mandate to continue its probe. Additionally, the court directed Sebi to expedite its pending investigations related to the Adani Group, urging the regulator to complete them within three months to avoid an "open-ended and indeterminate" timeline.
About investor losses: The Supreme Court directed Sebi and other central investigating agencies to investigate whether the losses triggered by the Hindenburg report were the result of any legal infractions, particularly focusing on Hindenburg's short-selling activities. The court expressed concern that Hindenburg's actions might have caused unnecessary market panic, potentially leading to significant financial harm to investors.
Enforcement action: The court's judgment scrutinized the conduct of Hindenburg Research, instructing Sebi and central investigating agencies to determine whether the losses inflicted on Indian investors due to Hindenburg's activities involved any violations of the law. This directive stemmed from concerns that Hindenburg's short-selling strategies, particularly those executed through U.S.-traded bonds and non-Indian traded derivative instruments, might have contributed to market manipulation and financial damage.
The Sebi action that followed
Sebi issued a show cause notice to Hindenburg Research, accusing the firm of colluding with a hedge fund manager, Mark Kingdon, to profit from the $150 billion market rout of Adani Group stocks. The 46-page notice detailed how Hindenburg allegedly provided an advanced copy of its report to Kingdon two months before its public release, allowing for strategic short-selling of Adani stocks.
Sebi claimed that Hindenburg used "non-public" and "misleading" information to induce panic selling, leading to unfair profits.
Hindenburg denied the allegations, describing the notice as an attempt to "silence and intimidate" those exposing corruption.
In its response to Sebi, Kingdon Capital stated that it had the legal right to "enter into a research services agreement with a third-party firm that publicly releases short reports on companies." This agreement allowed Kingdon Capital to receive a draft copy of the report before its public release, providing them the opportunity to make investments based on the information before the report's official dissemination.