Hyderabad: In a recent development, New York-based Hindenburg Research, a firm known for forensic financial research and allegedly profiting through short-selling shares and bonds, has claimed that Madhabi Puri Buch, the chairperson of the Securities and Exchange Board of India (SEBI), and her husband, Dhaval Buch, had a stake in offshore entities connected to the Adani Group.
The allegations were published as part of the second public investigative report they released on August 10; the first one on the Adani Group was released in 2023.
The latest report alleged that the regulatory body failed to act on claims made in its 2023 report against the Adani Group due to Buch’s offshore investments linked to Vinod Adani, the brother of Gautam Adani and a prominent figure in the Adani Group.
The allegations come one and half months after SEBI issued a show cause notice to Hindenburg in response to their allegations about the Adani Group. The notice accused Hindenburg of violating Indian market regulations and profiting by short selling.
Who is behind Hindenburg Research and how to profit from short-selling?
Hindenburg Research is led by Nathan Anderson, the founder and managing director of the firm. One of the primary ways the research firm makes money is through short-selling, which involves buying shares of a company with the expectation that its price will decline.
When the anticipated drop in share price occurs, the firm sells and repurchases the shares at a lower price, returns them to the lender and pockets the difference. This approach is often used when the firm believes that a company’s stock is overvalued or that there is fraudulent activity that can bring the price down.
Hindenburg’s reports often highlighted issues they believe will lead to a decline in stock value, thus aligning their financial interests with the stock price falling.
What is the 2023 Hindenburg report against the Adani Group?
The Hindenburg report, released on January 24, 2023, titled ‘Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History’ accused the Adani Group of stock manipulation and accounting fraud.
The report claimed that the group had engaged in practices to artificially inflate stock prices, claiming to reveal a significant disconnect between the group’s stock performance and its actual financial health.
The report also alleged discrepancies in the financial statements of Adani Group companies, suggesting they were misleading investors about their true condition. Additionally, it pointed to an extensive use of offshore entities and shell companies, raising concerns about the transparency and legality of the financial transactions. Hindenburg Research further criticised the group’s business practices and governance, alleging they contributed to an inflated market value.
What was the impact of the report on Adani Group’s stock?
Following the release of the report, the Adani Group’s stocks saw a sharp decline, wiping out billions of dollars in market value.
Over a short period, the combined market capitalisation of Adani Group companies fell by over $100 billion. This dramatic drop led to heightened concerns among investors and prompted scrutiny from regulators.
The report’s allegations also led to increased volatility in the stock prices of Adani Group companies, with some shares losing a substantial portion of their value in a single day.
The downturn not only affected the group’s market value but also had broader implications, such as raising questions about the governance and financial practices within the conglomerate and impacting its ability to secure financing for ongoing and future projects.
How did SEBI react to Hindenburg’s allegations?
While SEBI’s investigations into the Adani Group’s transactions failed to yield significant results, in June 2024, the SEBI alleged that Hindenburg Research had shared its report on the Adani Group with a New York-based hedge fund manager, allowing him to trade on the information.
Hindenburg Research denied the allegations, claiming that it was an attempt to muzzle critics who expose corruption involving powerful Indian entities. Notably, the Supreme Court ruled in January 2023 and again in July 2024 that it would not interfere with SEBI’s authority to investigate the claims made in Hindenburg’s report. Hindenburg argued that the Supreme Court’s rulings implied that SEBI’s investigation into the Adani Group had been ineffective.
Statement of SEBI chief Madhabi Puri Buch
In a joint statement released on August 10, SEBI chief Madhabi Puri Buch and her husband Dhaval Buch dismissed the allegations against them as ‘baseless insinuations.’
They clarified that the investment mentioned in the Hindenburg report was made in 2015 when they were private citizens in Singapore, two years before Madhabi joined SEBI. The investment decision was based on their trust in Anil Ahuja, a long-time friend and seasoned investment professional. The statement also criticised Hindenburg for attacking SEBI’s credibility instead of responding to the show cause notice served to them.
Does Adani Group have commercial relationships with the Buch family?
Adani Group have called the latest Hindenburg report a ‘red herring’, dismissing the allegations of a ‘commercial relationship’ with the Buch family.
“The Adani Group has absolutely no commercial relationship with the individuals or matters mentioned in this calculated deliberate effort to malign our standing. We remain steadfastly committed to transparency and compliance with all legal and regulatory requirements,” read the statement.
