What is the latest revelation by Hindenburg on the SEBI chief all about? | Explained

Hidenburg report allegations: Hindenburg Research accuses SEBI chief of bias in Adani investigation, prompting concerns about short selling and credibility.

The story so far: New York-based Hindenburg Research has released a new set of documents to substantiate its accusation that the ongoing investigation into insider trading and other stock market violations by the Adani Group by India’s financial regulator — the Securities and Exchange Board of India (SEBI) — is compromised. In its latest tranche, Hindenburg has included emails and publicly available records of stakes held by SEBI Chairman Madhabi Puri Buch and her husband Dhaval Buch in Adani Group-related entities through little-known offshore investment funds to allege a conflict of interest that aided the Adani Group to “syphon monies”. The short seller attempts to establish a correlation between the alleged use of two offshore funds, the couple’s investments and varied professional engagements to accuse Ms. Buch of being biased toward the Adani Group. Both Ms. Buch and the Adani Group have denied the charge.

Also Read: Something big soon on India, says Hindenburg Research

Short selling entails profiting from a fall in the prices of a scrip. Although short selling can serve many purposes, such as mitigating demand-supply imbalances in scrips and ensuring price efficiency, it has also been used as a means of manipulation — or what the U.S Securities and Exchange Commission (SEC) has described as a “bear raid”. Thus, prompting concerns about intent and credibility. As a practice, it entails selling a borrowed scrip in anticipation of a downward price movement and buying it back when the lower price level is realised. Let us say, anticipating a downward movement, an individual sells 10 shares at ₹100 apiece. The total sale value is ₹1,000. The price of the share decreases to ₹85 apiece and they opt to buy the quantity back. This time it will cost them ₹850 — a direct profit of ₹150.

Also Read: Hindenburg allegations: Adani group stocks tumble

The short seller in discussion had shorted electric truck maker Nikola Corp in 2020 placing concerns about their functionality. In October 2022, the Nikola’s founder Trevor Milton was convicted by a U.S. jury of fraud for lying to investors about the technology.

At the centre of the allegations are the Buchs’ alleged “hidden stakes” in certain offshore funds in Bermuda and Mauritius, two tax havens, and their professional engagements during and before Ms. Buch’s tenure at SEBI. Hindenburg asserts concern on two fronts, a conflict of interest and an ensuing collusion.

About personal investments: gathering from investigations by the Organized Crime and Corruption Reporting Project (OCCRP), the short seller points to Vinod Adani, brother of Adani Group Chairman Gautam Adani, who invested in the Bermuda-based ‘Global Dynamic Opportunities Fund’ (GDOF), which then invested in the Mauritius-based IPE Plus Fund 1. A separate investigation by the Financial Times said that the parent fund of GDOF, that is, the Global Opportunities Fund (GOF) were used by two Adani associates, Nasser Ali Shaban Ahli from UAE and Chang Chung-Ling from Taiwan, to amass and acquire large positions in scrips of the conglomerate, amounting to stock manipulation. Additionally, as per the Hindenburg report, the founder and Chief Investment Officer (CIO) of the IPE Plus Fund was Anil Ahuja, director at Adani Enterprises for nine years until 2017.