The recent whistleblower revelations about SEBI Chairperson Madhabi Buch’s involvement in offshore funds connected to the Adani Group’s alleged financial irregularities have stirred significant controversy.
This new twist in the ongoing investigation by SEBI into the Adani Group raises serious questions about regulatory oversight and conflict of interest. Let’s take a look at the details and implications of these allegations.
Background: SEBI’s Lack of Action on Adani’s Offshore Entities
It has been nearly 18 months since Hindenburg Research’s original report uncovered an extensive network of offshore shell entities used by the Adani Group. This network, primarily based in Mauritius, was alleged to facilitate billions of dollars in undisclosed transactions and stock manipulation.
According to Hindenburg Research, despite overwhelming evidence and numerous independent investigations corroborating these findings, SEBI’s response has been notably minimal. Reports suggest that SEBI may impose only minor technical violations on Adani, which appears disproportionate given the severity of the allegations.
In June 2024, SEBI issued a ‘show cause’ notice to Hindenburg Research, questioning the adequacy of their disclosure regarding a short position. SEBI also criticised the report for quoting a banned broker, which, according to the notice, was “reckless”. This notice seemed to deflect attention from the core issues surrounding Adani’s offshore activities and instead focused on procedural matters.
The Hidden Connections: Offshore Funds and SEBI’s Chairperson
The IPE Plus Fund and the Adani Network
Previous investigations by Hindenburg Research revealed a complex web of offshore entities linked to the Adani Group, primarily centred around Mauritius and Bermuda. A key player in this network is the IPE Plus Fund, a small offshore entity registered in Mauritius.
Hindenburg Research alleges that the fund was part of a convoluted structure involving the Global Dynamic Opportunities Fund (GDOF) in Bermuda, which in turn was linked to various entities controlled by Vinod Adani, Gautam Adani’s brother. This structure was allegedly used to funnel and launder money through inflated valuations of power equipment.
Connections to India Infoline and Alleged Fraud
The report also highlights the involvement of India Infoline (IIFL), now 360 One, in the offshore network linked to Adani. According to Hindenburg Research, IIFL has a history of complex fund structures and connections to significant fraud cases, including the Wirecard scandal.
The involvement of IIFL in managing the GDOF and IPE Plus Fund adds another layer of complexity to the allegations. These funds, managed by IIFL, were reportedly used to facilitate Adani’s alleged illicit transactions.
Madhabi Buch’s association with these funds, both through her direct investments and her role in overseeing the sector as SEBI Chairperson, raises serious concerns about potential conflicts of interest. The lack of action against these funds, despite their evident role in the scandal, further fuels suspicions about SEBI’s impartiality.
The Role of Agora Partners and Blackstone
According to Hindenburg Research, Madhabi Buch’s involvement with offshore funds extends beyond mere financial stakes. Records show that from April 2017 to March 2022, while Buch was serving as a Whole Time Member of SEBI, she owned a 100% stake in Agora Partners Pte Ltd, a consulting firm registered in Singapore.
Emails accessed by Hindenburg Research show that the firm was later transferred to her husband shortly before Buch’s appointment as SEBI Chairperson in March 2022. Agora Partners is exempt from disclosing its financial statements, leaving a significant gap in understanding its financial dealings and revenue sources.
Additionally, the Hindenburg Research report claims that Dhaval Buch’s role as a Senior Advisor to Blackstone, a major player in the Indian Real Estate Investment Trust (REIT) market, adds another layer of complexity. Blackstone has been heavily involved in sponsoring and investing in REITs in India. Under Madhabi Buch’s tenure, SEBI has introduced several regulatory changes benefiting REITs, which aligns with Blackstone’s interests.
Dhaval Buch’s Role and SEBI’s Regulatory Actions
The allegations by Hindenburg Research extend beyond mere investments. Dhaval Buch’s appointment as a Senior Advisor to Blackstone in 2019, while his wife was a SEBI official, introduces another layer of potential conflict.
Blackstone has been significantly involved in REITs in India, a sector where SEBI has introduced numerous regulations since Madhabi Buch became Chairperson.
The timing of regulatory changes favouring REITs, along with Blackstone’s interests, suggests a possible conflict of interest. SEBI’s proposed and approved regulatory frameworks have notably benefitted Blackstone, raising questions about whether Buch’s position at SEBI could have influenced these developments. The lack of clear disclosure about these ties adds to the concerns of regulatory capture.
Implications for SEBI and the Indian Financial Market
The revelations and alleged connections pose serious questions about SEBI’s integrity and its ability to regulate fairly. The overlap between SEBI’s regulatory role and the Buchs’ financial interests suggests a troubling conflict of interest.
This situation could undermine public confidence in SEBI’s ability to enforce regulations impartially, particularly in high-profile cases like the Adani Group investigation.
As SEBI continues to handle the Adani issue with what appears to be a light touch, critics argue that this might be indicative of broader systemic issues within the regulator. The failure to act decisively against the Adani Group, coupled with the Chairperson’s personal stakes in related offshore entities, raises concerns about the effectiveness of India’s financial oversight mechanisms.
The Supreme Court’s observation that SEBI had “drawn a blank” in its investigation into Adani’s offshore shareholders vindicates the regulator’s struggles.
If SEBI is failing to follow through on significant leads, it raises the question: could there be a deliberate reluctance to delve deeper into a trail that might lead back to its leadership?
What Next for SEBI?
The disclosures by Hindenburg Research about SEBI Chairperson Madhabi Buch’s financial ties to offshore funds connected to the Adani scandal call for a thorough investigation into potential conflicts of interest. According to Hindenburg Research, as the regulator tasked with overseeing India’s securities market, SEBI must address these allegations transparently to restore trust.
The investigation’s outcome will be crucial in determining whether SEBI can continue to be seen as an objective and effective regulator, or if it has become compromised by its leadership’s entanglements.
