Hindenburg report: Conflict of interest cloud looms over SEBI despite Buch, Blackstone's denials

The Hindenburg report raises pressing questions, challenging the denials from SEBI Chairman Madhabi Puri Buch, her husband, and Blackstone regarding conflict of interest allegations. The report points to Buch’s influential role at SEBI, her husband’s advisory position at Blackstone, and the timing of regulatory changes that seemingly favoured Blackstone’s Real Estate Investment Trusts (REITs).

This combination of factors creates a strong perception of potential conflict of interest, especially in light of the key REIT regulations introduced during Buch’s tenure that directly benefited Blackstone. Furthermore, the Buch couple’s statement that their “life and finances are an open book” and that “all disclosures as required have already been furnished to SEBI over the years” does not directly address the specific allegations of holding stakes in obscure offshore entities linked to the Adani scandal.

The lack of a detailed rebuttal to the whistleblower documents mentioned in the Hindenburg report leaves room for scepticism. The report’s emphasis on further transparency suggests that these denials may not dispel concerns about the integrity of SEBI's oversight in the Adani case.

1. Hindenburg report's allegations

• Whistleblower documents: Hindenburg Research claims that whistleblower documents reveal SEBI Chairperson Madhabi Puri Buch and her husband, Dhaval Buch, had stakes in offshore entities involved in the Adani money siphoning scandal.

• Timing of investments: The documents indicate that these stakes were held in complex offshore fund structures used by Vinod Adani, which were reportedly involved in inflating stock prices and engaging in undisclosed related-party transactions.

2. Blackstone's involvement

• Dhaval Buch's role: Dhaval Buch, Madhabi Puri Buch’s husband, was appointed as a senior advisor to Blackstone in 2019 despite having no prior experience in capital markets or real estate, areas in which Blackstone is heavily invested. Even though Blackstone has claimed that he was not involved with real estate, REITs, or any regulatory matters at the firm, his role at Blackstone is limited to advising private equity companies across Asia; it is clear that his employment with the PE Fund is enough to raise conflict of interest issues.

• REITs and SEBI regulations: During Madhabi Buch’s tenure as the SEBI chairperson, SEBI introduced several regulations that significantly benefited Blackstone, one of the most prominent sponsors of REITs (Real Estate Investment Trusts) in India.

3. Whistleblower documents on Madhabi Puri Buch

• Opening of accounts: Whistleblower documents reportedly show that Madhabi Buch and her husband opened an IPE Plus Fund 1 account on June 5, 2015. Their investment source was declared as “salary,” and their net worth is estimated at $10 million.

• Asset transfer before SEBI appointment: Just before Madhabi Buch’s politically sensitive appointment as a whole-time member of SEBI in April 2017, her husband allegedly moved assets out of her name, raising questions about the timing and intent behind this transfer.

• Private email usage: During her tenure at SEBI, Madhabi Buch reportedly used her private Gmail account to manage the redemption of units in these offshore funds, which could be seen as an attempt to maintain discretion about these transactions.

• Consulting firm ownership: Madhabi Buch reportedly maintained a 100 per cent interest in an offshore Singaporean consulting firm, Agora Partners, from its founding in 2013 until just two weeks after her appointment as SEBI Chairperson in 2022. This ownership raises questions about undisclosed external business interests.

• Agora Advisory in India: She also has a 99 per cent stake in an Indian consulting firm, Agora Advisory, which reported significant revenue from consulting — 4.4 times her disclosed SEBI salary — further suggesting potential conflicts of interest in her regulatory role.

4. Blackstone’s connection to SEBI-approved REITs

• Blackstone's dominance in the REIT market: During Dhaval Buch’s advisory role, Blackstone sponsored several REITs that received SEBI approval, including India’s first REIT (Embassy) and subsequent REITs like Mindspace and Nexus Select Trust. These approvals coincided with SEBI’s introduction of REIT regulations favouring sizeable private equity firms like Blackstone.

• Regulatory changes benefiting Blackstone: SEBI introduced key regulatory changes, including new frameworks for micro, small, and medium REITs and nomination rights for unit holders like Blackstone. These changes disproportionately benefit Blackstone, where Dhaval Buch was employed as a Senior Advisor.

5. Adani Group’s alleged financial misconduct

• Corporate fraud claim: Hindenburg’s original report accused the Adani Group of operating “the largest con in corporate history”. This included using offshore shell companies, primarily in Mauritius, to facilitate undisclosed related-party transactions, stock manipulation, and other financial misconduct.

• Over-invoicing scheme: The report cites documents from the Directorate of Revenue Intelligence (DRI), alleging that Adani grossly over-invoiced the import of crucial power equipment, which allowed the company to siphon and launder money through offshore entities.

• Complex fund structures: The report outlines how Vinod Adani, Gautam Adani's brother, allegedly used a web of offshore entities and funds, such as the Global Dynamic Opportunities Fund (GDOF) in Bermuda and the IPE Plus Fund in Mauritius, to move and conceal funds.

• Connection to Wirecard scandal: India Infoline (IIFL), now called 360 One, managed these funds and was previously implicated in the Wirecard scandal, Germany’s most significant fraud case. This connection raises further concerns about the legitimacy of the fund structures involved.

6. SEBI’s regulatory actions (or lack thereof)

• Inaction against Adani Group: Despite the extensive evidence presented by Hindenburg and corroborated by over 40 independent media investigations, SEBI has not taken substantial public action against the Adani Group. This inaction is seen as indicative of possible regulatory capture or conflicts of interest.

• Show cause notice to Hindenburg: Instead of addressing the allegations against Adani, SEBI issued a show cause notice to Hindenburg, focusing on the firm’s disclosure practices rather than the substance of its claims. This has been interpreted as an attempt to deflect from the core issues raised in the report.

7. Judicial observations and industry perceptions

• Supreme Court’s observations: The Supreme Court of India noted that SEBI had failed to uncover the identities of Adani’s offshore shareholders, leading to concerns about the effectiveness of SEBI’s investigation.

• Adani CFO's dismissal of regulatory notices: Adani CFO Jugeshinder Singh described some SEBI notices as “trivial,” implying that the company did not take regulatory scrutiny seriously, possibly due to the regulator's perceived leniency or ineffectiveness.

8. Impact on public perception and market integrity

• Erosion of trust: The report implies that SEBI’s perceived inaction and potential conflicts of interest have eroded trust in its ability to regulate markets fairly and effectively.

• Call for transparency: Hindenburg calls for greater transparency and further investigation into these conflicts of interest to restore confidence in India’s regulatory framework.

There is low possibility of another probe unless Madhabi Buch herself stands down from her post to clear the conflict of interest allegations against her and her husband.