SC panel says ‘no artificial trading’ found in Adani stocks’ run-up before Hindenburg report

Adani stock trading: An expert committee, led by Justice AM Sapre, appointed by the Supreme Court to investigate allegations leveled by the Hindenburg Research around the Adani Group said it has not found any pattern of “artificial trading” or “wash trades” with the Adani stocks.

In its report, the panel added that in one of the patches, where the price rose, the Foreign portfolio investments (FPIs) under investigation were net sellers. “In a nutshell, there was no coherent pattern of abusive trading that has come to light,” the six-member panel said in its tabled report.

"Furthermore, in the Adani-Hindenburg case, the report pointed out that the chain of ownership of 13 overseas entities is not clear. Also, the ultimate owner of economic interest in an FPI couldn't be ascertained. And that's why, Sebi's suspicion can't be put to rest in the absense of FPI ownership details," the report stated.

Not just that, the report also mentioned Sebi has observed six entities took short positions before Hindenburg Report, and they profited by squaring off their positions after the Nathan Anderson-backed short seller's scathing report against the conglomerate.

But information on 42 investors in the FPIs category is available under PMLA Rules.

The report added that Sebi also found that six entities, including four FPIs, have taken short positions prior to the publication of the Hindenburg report and have profited from squaring off their positions after the price crashed upon publication of the report.

“Suffice to say it would not be possible to return a finding of regulatory failure on this count since Sebi has an active and working and surveillance framework,” the report said.

The panel report noted: "The committee is of the view that it would not be possible to return a finding of a regulatory failure in relation to compliance with the regulatory stipulations governing minimum public shareholding stipulation..."

The six-member panel said: "It is noteworthy that a strong feedback on the Hindenburg Report is that it contained no new data but was substantially a collection of inferences from data in the public domain."

Minimum Public Shareholding

On the allegation of violation of minimum public shareholding, the panel’s report expressed its concerns over Sebi’s inability to get adequate data due to the lack of enforcement policy.

The report said that while regulation in 2018 did away with the requirement for FPIs to specify the final beneficiary, investigations in 2020 tried to get into the layers to find the final beneficiary.

“It is this dichotomy that has led to Sebi drawing a blank worldwide, despite its best efforts. The market regulator suspects wrongdoing but also finds compliance with various stipulations… it is a chicken and egg situation, ” the report said adding that in the absence of data, it is difficult to find fault with Sebi.

What Hindenburg report said about Adani Group companies

The Hindenburg Report accused the Adani group of engaging in large-scale stock price manipulation, falsely overinflating the value of their assets, and controlling over 75% of their shares through different offshore shell entities controlled by the Group. 

Hindenburg also accused the Adani Group of taking on substantial debt by overleveraging their assets to obtain several large loans amounting to Rs 2.2 lakh crores.

It said if the Adani Group is unable to pay back its loans, the lending banks will be unable to recover the debt amount putting them in a precarious position.

Also read: Six entities took short positions on Adani stocks ahead of Hindenburg report: SC panel

Also read: Adani group-Hindenburg row: 65 allegations, replies, timeline, group level debt, share pledges & more