Hindenburg vs SEBI: Is Madhabi Puri Buch Headed for the Exit Door?

The tempting question to ask after a series of sensational allegations made by the report published by Hindenburg Research: Is Madhabi Puri Buch, chairman of the Securities and Exchange Board of India (SEBI), headed for the exit door?

My quick answer to that might be "It appears unlikely" but there are some striking issues involving the details of legality, ethicality, and transparency that merit separate examination -- and these involve overseas transactions that are difficult to confirm and pin down for prosecution.

The political furore is making things more complicated while casual discussions that involve no clear distinction between an understandable misstep and wilful stock manipulation or violation of the law do not offer meaningful clarity.

Ms Buch is facing accusations by the US-based Hindenburg Research of having irregular and/or illegal links with the controversial Adani group, which in turn faces political accusations of being a crony capitalist entity unduly favoured by Prime Minister Narendra Modi's government.

The Hindenburg accusations include investments made by the Buch family in a vehicle linked to the Adanis and a conflict of interest involving her being a regulator overseeing a company called Blackstone, even as the global private equity group employed her husband Dhaval Buch.

From all indications, the controversial investments made by the Buch family preceded her appointment to SEBI. But questions remain on whether the Adani link itself resulted in her political appointment to the coveted post that made her the first woman, as well as the first private sector executive, to head India's stock market regulator.

Also, conflicts of interest are sometimes a matter of perception. SEBI has issued a statement saying that the chairperson had recused herself in instances where there were potential conflicts of interest -- though details are not unavailable on the nature and extent of such conflicts.

Therefore, there are intriguing questions that beg for details: Where and how did Ms Buch make the disclosures relevant to her role in order to avoid conflicts of interest?  

In which cases did she recuse herself and why? Did such recusals in any way reduce her sway over those she was managing or working with at SEBI?  

Transparency is a matter that often involves not just internal disclosures but published documents particularly where the regulator has a quasi-judicial role involving a public office. 

Hindenburg levels serious allegations that Ms Buch's investments preceding her nomination to SEBI were linked to obscure offshore entities involving illegal transactions connected to the Adanis.

It gets murky from the points of view of both SEBI's independent role as well as Ms Puri Buch's personal conduct because IPE Plus Fund 1, the offshore Mauritius fund where the US-based Hindenburg claimed the Buchs held a stake since 2015, is part of the investment structure used by two of the 13 funds which were being probed by SEBI with respect to opaque fund-flows into Adani Group companies. 

IPE Plus Fund 1, in which the Buchs were investors, allegedly received investments from a Bermuda-based entity tied to Vinod Adani, the elder brother of billionaire Gautam Adani, the group's chairman. 

In the alleged web, IPE Plus Fund 1 is linked to a Vinod Adani-controlled company that in turn subscribed to another global fund allegedly used by the Adani associates to trade huge amounts of shares in the Adani Group of companies. 

To cut the long story short, if Hindenburg's allegations citing whistleblowers are taken at face value, there was a manipulation of shares in the Adani companies in which the Buchs may have benefited indirectly. But the law requires proof that they benefited from this by abuse of public office or violation of foreign exchange regulations. Linkages by an association of the Buchs and the Adanis as "co-investors" is not an easy puzzle to resolve. 

These transactions precede Ms Buch's appointment to SEBI, and therefore, are not directly connected with her regulatory mandate. But there is a confusion of cause and effect where the Adanis are alleged to be politically connected to the current BJP government.  

Which is the cause and what is the effect where appointments are considered political? 

More importantly, who will probe this and where? Much like the Bofors case that rocked India in the late 1980s, the Hindenburg Report and the short-sellers' subsequent revelations demand an international audit trail that may make for sensational headlines but is difficult to frame as a court case.

For Ms Buch as an individual, perhaps the most damning allegation (through which the short-seller Hindenburg potentially benefits from bad news related to stock market entities) is that the SEBI chief helped her husband's business interests through personal emails even as she served as a whole-time member of the regulatory body. 

Such a case, involving whistleblower accounts cited by Hindenburg, is difficult to exhume and examine, especially the ones that emerged from the research group after both SEBI and the Buch family issued statements denying any wrongdoing.

However, the politically controversial nature of the Modi-Adani linkage points to wheels within wheels. This is where Ms Buch, at the very least, may well get caught in the crossfire as a proxy target in political skirmishes.  

Of particular relevance is that Hindenburg points to the fact that the offshore investment fund associated with the Buchs was managed by Dhaval Buch's childhood friend Anil Ahuja, who has served as a director with the Adani Group. This, according to Hindenburg, represents a significant conflict of interest -- though we can't be sure if an old friendship in itself necessarily constitutes a conflict of interest. 

Here is where we need to examine where the ball is moving. Veteran financial market analyst and commentator Sucheta Dalal observed in an article that it is unusual for the finance ministry and the government to remain silent on allegations involving the SEBI chairperson. However, Ajay Seth, economic affairs secretary in the finance ministry, told reporters after a two-day wait that there was "nothing further to add" after the statements from SEBI.

We need to interpret the strategic reticence of Seth on behalf of the Modi government: is the SEBI chairperson left alone to defend herself from wolves to protect New Delhi's powerful elite? Or is the reticence a case of implicit support for Ms Buch? 

The BJP has accused Hindenburg Research of attacking Indian institutions but has not specifically sprung to the defence of Ms Buch -- much like the reticent finance ministry. 

The Opposition in the national capital is asking for a joint parliamentary committee (JPC) to probe the entire issue. The Modi government, now needing outside support for the BJP to run its coalition, is under more parliamentary pressure than before. A lot will depend on how the BJP's key allies, the Telugu Desam Party and the Janata Dal (United), behave.  

This much can be said: things are not as easy for the BJP on the Hindenburg issue as it was in its previous term in Parliament. 

More importantly, what if the matter moves to the Supreme Court as demanded by Opposition leader Rahul Gandhi? The Hindenburg attack on the Adanis is not new but its attack on SEBI and its chairperson is. 

Last January, a three-judge bench headed by Chief Justice of India DY Chandrachud had said that if presented with cogent evidence of bias or inadequacy, it would transfer a SEBI investigation into Hindenburg's allegations of irregularities by the Adani group to an independent agency or a court-appointed special investigation team.  

In plain language, the SEBI was kept on the hook by India's top court. If the Supreme Court now hears a new set of allegations, pressures may mount on the Modi government to act decisively. In such an instance, will the ruling party fend for itself, or protect a beleaguered chairperson? That is the question hanging in the capital's monsoon air. 

If there is an "every woman for herself" twist in the plot, the heat may well be on the SEBI chairperson, and at the very least, may cost Ms Buch her prestigious post. It is difficult to imagine her continuance in office while the Supreme Court frowns on the credibility of her oversight into matters linked to the Adanis or other conflicts of interest. 

A lot may depend on what happens in Parliament, within the ruling alliance, and in the Supreme Court. A lot would also depend on Ms Buch's individual efforts to clear the air. 

(The writer is a senior journalist and commentator who has worked for Reuters, Economic Times, Business Standard, and Hindustan Times. He can be reached on Twitter @madversity. This is an opinion article and the views expressed are the author’s own. The Quint neither endorses nor is responsible for them.)