By K Raveendran
SEBI has filed another wishy-washy report on its investigations into alleged stock manipulations by the Adani group in the wake of the sensational Hindenburg report, which accused the group of gross violations and malpractices.
An interim report submitted by the market regulator to the Supreme Court, which had sought detailed investigation of all issues directly related to the Hindenburg report, says it is still gathering the details. Right from the beginning, SEBI has been dragging its feet over the investigations in what many believe as an attempt to shield the group in the guise of protecting the interests of retail investors.
SEBI has told the court that it has not finished collecting details of ‘economic interest shareholders’ of 12 Foreign Portfolio Investors (FPIs) which are public shareholders of the Adani Group companies. This to find out if there has been any if there has been a violation of Section 19A of the Securities Contract (Regulation) Act, which stipulates minimum 25 percent public shareholding in listed companies.
As an excuse for the delay, the regulator has informed the court that many of the entities linked to these foreign investors are located in tax haven jurisdictions, making it a challenge to establish such economic interest shareholders. The scope of the investigation on related-party transactions was to ascertain allegations relating to possible material misrepresentation in financial statements, misstatements, attempts to circumvent regulations and fraudulent transactions, it said.
A Supreme Court-appointed panel had earlier pointed out that certain changes in rules brought about by SEBI in 2019 on reporting by offshore funds has made it difficult for anyone to identify the beneficiaries of offshore funds. SEBI argues that the changes were part of the effort to ‘tighten’ regulations, but the net result is that it has made tracking more difficult. The panel had, in fact, pointed out that in view of the changes, the investigation was a ‘journey without a destination’.
SEBI has all along been refusing to be tied down to any time frame for completing its probe, saying such deadlines may interfere with the quality of investigations. This had even prompted the court-appointed panel to recommend that a deadline for the completion of investigations be embedded into the law so that it would be binding on the regulator, which is widely perceived to be providing cover to the Adanis.
The Supreme Court has on a number of times thwarted moves by SEBI to delay the proceedings. In March, this year, the apex court directed the regulator to include the allegations levelled by Hindenburg into the probe which it said was already ongoing and report back by the first week of May. The regulator, however, filed an application with the court on April 29, seeking a six-month extension to complete its probe. This was widely seen as a tactic to delay the probe which has come as a major embarrassment to the Modi government whose support to the group has always remained controversial. A bench consisting of Chief Justice of India DY Chandrachud and Justices PS Narasimha and JB Pardiwala, however, rejected the demand and allowed another three months to complete the probe.
To justify the demand for more time, SEBI expanded the probe to include possible stock price manipulation and trading in Adani Group stocks in the periods before and after the Hindenburg report, as well as a possible violation of Overseas Direct Investment (ODI), Foreign Portfolio Investment (FPI), short selling, and insider trading norms. SEBI said that the detailed investigation process would also include depositions from various key managerial personnel, statutory auditors, and other relevant persons.
It was, however, pointed out by those who opposed the grant of more time to SEBI that the Indian market regulator was a member of International Organisation of Securities Commissions (IOSCO) and could seek information from member countries.
Hindenburg had claimed in its report that entities controlled by the tycoon’s brother and his associates had used Mauritius as a conduit for money laundering and share-price manipulation. It also referred to a ‘vast labyrinth’ of shell companies from the Caribbean to the United Arab Emirates that was used for the execution of the fraud.
Hindenburg also alleged that Adani pulled off ‘this gargantuan feat with the help of enablers in government and a cottage industry of international companies that facilitate these activities’ and that these issues of corruption permeated multiple layers of government. (IPA Service)