Rules for rule-makers

The Hindenburg allegations have put the spotlight on probity of regulators.

- NACHIKET KELKAR

THE BJP SAYS IT is a conspiracy to destabilise India's financial markets. The Congress wants a joint parliament committee probe. Irrespective of which side you are on, the latest report by Hindenburg Research has put the market regulator Securities and Exchange Board of India and its chairperson Madhabi Puri Buch in a spot over conflict of interest. It also raises broader compliance issues the very regulator has looked to address over the years.

Founded by Nathan Anderson, the New-York-based Hindenburg specialises in forensic financial research. In particular, it looks for situations where companies might have accounting irregularities, bad actors in management, undisclosed transactions, unethical business practices, undisclosed regulatory issues and the like. And it also aims to profit from its research through short-selling, a trading strategy where stock traders take a position that a particular stock price will fall. Often its report itself drives the stock price lower, like it did in January 2023, when its report on Adani Group alleging accounting fraud, stock price manipulation and money laundering wiped off around $150 billion in the group's market cap. Hindenburg made $4.1 million revenue by shorting Adani securities on behalf of its client.

In its latest report, Hindenburg alleged that despite enough evidence, SEBI did not act against Adani. It alleges that Buch and her husband, Dhaval, had investments in the same obscure offshore funds used by Adani Group chairman Gautam Adani's brother Vinod. It also alleged that while Dhaval was a senior adviser at American investment management company Blackstone and Buch was a SEBI official, two Blackstone-sponsored real estate investment trusts (REITs) received the approval to go public in India, and after she became chair, SEBI implemented several REITs regulations that benefited Blackstone.