The pesky company has resurfaced with a new bombshell—this time aimed at SEBI chief Madhabi Puri Buch—and her husband Dhaval. Of course, there is an Adani angle.
Editor’s note: It will take up way too much real estate to explain the original Hindenburg-Adani investigations from scratch. Our previous Big Stories have everything you need. This one explains the allegations in detail; and this one has the follow-up Organised Crime and Corruption Reporting Project (OCCRP) investigation that seemed to confirm those allegations. The July 3 Big Story explained the jhagda between SEBI and Hindenburg.
Hindenburg: What you need to know
Hindenburg who? It is a New York-based shortseller—an investment firm that bets on companies failing. And it often issues forensic financial reports on various companies—and they’re rarely flattering. Back in January, 2023, in an explosive 32,000-word report, the New York-based Hindenburg Research alleged that the Adani Group has engaged in a years-long scheme of fraud and stock market manipulation. All the dirty money words were thrown in: Adani has pulled off the "largest con in corporate history."
The immediate fallout: Adani group stocks took a beating—falling up to 20% after the damaging allegations. Its seven listed companies lost a combined $48 billion in market capitalisation. The Supreme Court appointed an expert committee to investigate the claims—and separately demanded a report from stock market regulator Securities and Exchange Board of India (SEBI).
The expert committee: proved to be a dud—despite the presence of luminaries such as Nandan Nilekani (Infosys Chairman) and former Supreme Court Justice A M Sapre. In May, they basically let SEBI off the hook:
Despite involving various Indian and overseas agencies in the investigation across multiple countries, "SEBI has drawn a blank", the panel's report said, adding that trying to prove who had invested in foreign portfolio investors (FPI) who then pumped money into Adani and figure out the ultimate beneficial owner could be a massive task. "It is evident that such an exercise could be a voluminous one but potentially a journey without a destination."
As for SEBI: The stock market regulator finally submitted its report to the Court in August 2023—after repeatedly asking for extensions. But it hasn’t been made public so no one knows what it says. By January 2024, the justices were more interested in whether Hindenburg hurt Indian investors—than any wrongdoing by Adani. And they directed SEBI to investigate the same. All of which set the scene for a SEBI-Hindenburg clash.
SEBI shots fired! As part of its investigation, SEBI sent six show-cause notices. The first two were to Hindenburg Research and Nathan Anderson—its founder and sole owner. Three of those six notices were sent to Kingdon Capital—an investor partner of Hindenburg. Kingdon acquired a shell company to short Adani shares—and made a hefty packet ($22.11 million) when they tanked (shorting is explained here). The allegation: Hindenburg showed its damning report to Kingdon in advance of releasing it to the public—which enabled the windfall.
The Hindenburg defence: The company published the entire notice—and offered a stirring defence. And it outright accused SEBI of being more interested in punishing them—than companies involved in shady dealings—specifically the Adani Group.
In our view, SEBI has neglected its responsibility, seemingly doing more to protect those perpetrating fraud than to protect the investors being victimised by it. These actions send a clear message to every public company in India: Are you having a difficult time with your quarterly results? Do you want your stock price to be higher? (Who doesn’t?) Simply have your brother or another relative set up an offshore shell empire to buoy up the stock or rosy up your financials.
Dem’s fightin’ words! Little over a month later, Hindenburg has turned its guns on SEBI—specifically its chief: Madhabi and Dhaval Buch.
Ok, what’s Hindenburg saying about her?
It’s easy to get buried in a convoluted trail of offshore funds. So we’re going to keep it as straightforward as we can (original report is here.)
Fund drama #1: Back in September, a global news investigation exposed an offshore fund called Global Opportunities Fund (GOF). The reporting showed:
- Money in the GOF came from two men—Nasser Ali Shaban Ahli from UAE and Chang Chung-Ling in Taiwan—who have close links to Adani.
- The Bermuda-based GOF invested almost all its money in two Mauritius funds—India Focus Fund and EM Resurgent Fund.
- The two funds invested almost all of their money in Adani-owned companies.
- The first kicker: The company giving orders to the two funds was controlled by Gautam-bhai’s elder brother Vinod.
Fund drama #2: A 2023 NGO report showed where the money in these funds came from:
- Companies linked to Adani generated inflated invoices for power equipment imported for two coal-based power plants in Maharashtra and Rajasthan.
- The money paid for this equipment went to Dubai—to a company that appears to be owned by Vinod Adani.
- That company in turn routed the money to the Bermuda-based Global Development Opportunities Fund (GDOF)—which is—surprise, surprise—a sub-fund of the Global Opportunities Fund.
- The GDOF invested that money in a Mauritius fund called IPE Plus Fund 1—which invested in the Indian stock market.
How does any of this connect to the SEBI chief?
There are a series of accusations—each intersects with the other. FYI: The claims are based on “whistleblower” documents.
The funds: According to Hindenburg, Madhabi and Dhaval Buch—held investments in IPE Plus Fund 1 and GDOF. In March 2017, Dhaval Buch asked to “be the sole person authorised to operate the Accounts” for GDOF—to “move the assets out of his wife’s name.” She became a ‘Whole Member’ of SEBI just weeks later. So far, so good.
But, but, but: Hindenburg offers an email she allegedly wrote to the operator of GDOF from her personal email—asking for “redemption” of 100% of everything held in the fund. The date: February, 2018. Hence, this long-winded allegation:
In brief, despite the existence of thousands of mainstream, reputable onshore Indian mutual fund products, an industry she now is responsible for regulating, documents show SEBI Chairperson Madhabi Buch and her husband had stakes in a multi-layered offshore fund structure with miniscule assets, traversing known high-risk jurisdictions… in the same entity run by an Adani director and significantly used by Vinod Adani in the alleged Adani cash siphoning scandal.
The more damning bit: Last year, when the Supreme Court asked to investigate the offshore funds linked to Adani, SEBI claimed it could not find contributors to these funds. The Supreme Court said “this is where it has hit a wall.” Buch became SEBI chief in March 2022.
A matter of disclosure: Hindenburg says Buch should have declared her link to these funds the moment the Court ordered a SEBI investigation—which is fair enough. Former SEBI officials agree:
In effect, this made the Sebi Chairperson a part of the investigations by the regulator, said former Sebi officials, thereby raising potential conflict of interest issues. “We don’t know if she recused herself when the investigation was going on. Ideally, she should have recused herself and disclosed that she had invested in the fund structure in the time period that was under investigation,” said a former whole time member with Sebi.
As for the rest: It is mainly innuendo:
We suspect SEBI’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.
The husband: In 2019—when Buch was a SEBI member—her husband Dhaval was hired as a senior advisor to Blackstone—a significant global investment fund. Why this is supposedly fishy: Dhaval has no previous fund-related experience—having worked as a chief procurement officer for Unilever. The problem:
Blackstone has large investments in India, and sponsors several real estate investment trusts (REITS) that Ms. Madhabi Puri Buch has championed during her tenure as SEBI chief, beginning March 2022, Hindenburg argued. While she touted REITs as her “favourite product for the future” and urged investors to look “positively” at them, Ms. Madhabi Puri Buch omitted to mention that Blackstone stood to gain from the asset class, the short-seller alleged.
The consultancy: Buch owns a 99% stake in an Indian company called Agora Advisory—which may or may not be linked to an offshore Singaporean consulting firm registered in 2013 called Agora Partners. She had a 100% stake in that until March 2022—when she once again transferred everything to Dhaval. What’s interesting to Hindenburg: The company generated Rs 1.98 crores ($2,61,000) in revenue at the end of FY2022.
Point to note: SEBI ‘sources’ told Mint: “Madhabi Buch can’t look at Blackstone and ICICI securities as part of her disclosures. She did not engage with Blackstone on REITs."
Another matter of disclosure: It isn’t clear what this advisory firm does—but some experts say Buch should have disclosed her ownership:
When you are holding the position of Sebi chair, all disclosures regarding your investment in privately held firms should be made in public, possibly through annual reports or on the website. It doesn’t matter if the business is small or if you have made the disclosures internally to the board.
But others say that Buch did nothing wrong as long as she shared the info with SEBI.
And what’s the response been?
The Buchs issued a lengthy two-page denial—where they essentially say that they have fully disclosed all their financial interests. The investments in the Mauritius fund were made before Madhabi became a SEBI member. They chose that particular fund because Dhaval’s childhood buddy ran it.
Everyone else has assumed their expected positions:
- Adani has condemned the allegations as “baseless”.
- The government and its supporters argue Hindenburg is a “vulture fund”—intent on destabilising the Indian stock market.
- The Opposition is naturally claiming foul—demanding Buch’s head and an investigation. Most oddly: SEBI’s reaction was to lock its X account.
- A MoneyControl report based on “sources” within Blackstone—who say Dhaval was never involved in real estate.
Hindenburg’s rebuttal: The company says Buchs’ response essentially confirms their allegations:
Buch’s response now publicly confirms her investment in an obscure Bermuda/Mauritius fund structure, alongside money allegedly siphoned by Vinod Adani. She also confirmed the fund was run by a childhood friend of her husband, who at the time was an Adani director. SEBI [Securities Exchange Board of India] was tasked with investigating investment funds relating to the Adani matter, which would include funds Ms. Buch was personally invested in and funds by the same sponsor which were specifically highlighted in our original report,” the firm said, stressing this was “obviously a massive conflict of interest”.
Data point to note: A Mint analysis of Hindenburg’s record shows that it has driven down the stock of an impressive record:
Only 12 of the 63 listed companies targeted by Hindenburg were trading at a higher price as of 10 August. This implies that Hindenburg got it right in 51 of the 63 companies—a strike rate of about 81%.
Adani Group stock, however, has recouped most of its losses—so presumably doesn’t count as a win. Other companies—such as former Twitter founder Jack Dorsey’s Block—haven’t been as lucky.
The bottomline: There is no hard evidence of wrongdoing—which is astonishing when you’re challenging the integrity of the chief regulator of a key stock market. OTOH, the lack of transparency in the financial dealings of that regulator is no less shocking. Who cares if SEBI knew what Buch did and when—the rest of us, including the Supreme Court, were left in the dark.
Reading list
We recommend reading the Hindenburg report for yourself. For more background, check out our Big Stories on the first Hindenburg report, the global media investigation and the most recent fight with SEBI. Adani Watch has an extensive—and very nerdy—analysis of how money was siphoned out of India. Business Today profiles Madhabi Buch—while Economic Times has more on Dhaval. The Telegraph has highlights of the Buch denial. The Hindu has Hindenburg’s rebuttal of that denial.
