Opinion Express View on Hindenburg report: A cloud over SEBI

Eighteen-odd months after Hindenburg Research accused the Adani group of “brazen stock market manipulation” and “accounting fraud”, allegations that the group denied and the Supreme Court said don’t need any CBI or court-monitored probe, the firm, facing a show-cause notice from Sebi, the stock market regulator, is back. It claims it’s connecting the dots between what it sees as inaction on the issue by the regulator and its chairperson Madhabi Puri Buch’s investments. A series of revelations, based on whistleblower papers, made by the US-based firm raise questions for SEBI, and turn the spotlight, specifically, on the regulator’s disclosure norms. The outright denial by all parties is hardly an answer.

Hindenburg has alleged that Buch and her husband “had hidden stakes in the exact same obscure offshore Bermuda and Mauritius funds, found in the same complex nested structure, used by Vinod Adani”. During her tenure as a whole-time member of SEBI, it says, Buch was in communication with the managers of the offshore fund, and wrote to India Infoline to redeem the units in the fund. And that during this time she had an interest in an offshore Singapore consulting firm, Agora, and it was only two weeks after she was appointed as SEBI chairperson that she transferred the shares to her husband. In her defence, Buch has said that “all disclosures as required have already been furnished to SEBI”. The SEBI code for board members asks that they disclose their interests which may conflict with their duties, along with transactions of family members. However, in light of the latest controversy, it must be asked: When the regulator was investigating the allegations surrounding the Adani Group, why were the disclosures not made available to the wider public? After all, members of Parliament openly declare their assets. Any connection between the regulator and the regulated must be publicly disclosed. It is especially odd considering that the same stock market regulator had, in the words of the Supreme Court appointed expert committee, “drawn a blank” in its inquiry to determine the contributors to the foreign portfolio investors who had invested in the Adani Group. It must be asked whether the regulator’s associations with parties who themselves are key players in private investment firms should also have been publicly disclosed.

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A blunt denial will not work. This matter needs to be investigated and every disclosure made — or not made — shared. Not doing so undermines the integrity and independence of the regulator. Given that Buch is the chairperson of SEBI, there will be a question mark over any process initiated by the market regulator to get to the bottom of these revelations. There is also a risk that this will get caught in a political slugfest. Larger issues of propriety and conflict of interest are at stake, and the aim of any such exercise is to strengthen the market regulator in a time of rising market penetration. Quite simply, when the market regulator is under a cloud, all stakeholders, from SEBI to the government, need to act urgently to clear it, fully protecting its institutional autonomy. A short-seller may play fast and loose — the Indian market, the world’s fourth largest by market cap, needs to ring-fence its regulator with a stronger firewall — and a higher bar.