Hindenburg-Sebi Takedown: Full text of Sebi’s statement on Hindenburg allegations in Adani case

In addition to two statements to the media made by Sebi chief Madhabi Puri Buch and her husband Dhaval’s book In its capacity as regulator, the regulator also issued a statement asking investors to remain calm and read the short-seller disclaimer.

Here is the full text of Sebi’s statement:

SEBI takes note of the report published by Hindenburg Research on August 10, 2024.

Investors should remain calm and conduct due diligence before reacting to such reports. Investors may also want to take note of the disclaimer included in the report which states that readers should assume that Hindenburg Research may have short positions in the securities included in the report.

The report states, among other things, that: SEBI has not taken any action against the Adani Group. It questions SEBI’s action of issuing a show-cause notice to Hindenburg Research on June 27, 2024. It further states that SEBI has made changes in the SEBI (REIT) Regulations, 2014, in order to benefit a diversified multinational financial conglomerate.

These questions deserve an adequate response. It is noteworthy that the allegations made by Hindenburg Research against the Adani Group have been duly investigated by SEBI.The Hon’ble Supreme Court, in its Order dated 3rd January 2024, noted that SEBI had completed twenty-two of the twenty-four investigations into the Adani group. Subsequently, one more investigation was completed in March 2024 and one remaining investigation is nearing completion. During the ongoing investigation into this matter, more than 100 subpoenas, around 1,100 letters and emails requesting information have been issued. In addition, more than 100 communications requesting assistance have been made to domestic and foreign regulators and external agencies. More than 300 documents containing around 12,000 pages have also been examined. It may be noted that on completion of investigations, SEBI initiates enforcement proceedings which are quasi-judicial in nature. This includes issuance of a show cause notice and granting of opportunity of hearing culminating in issuance of an intervention order. Such order is made available to the public. Where investigations have been completed, the enforcement proceedings initiated are ongoing and appropriate steps are being taken in accordance with applicable securities laws. SEBI, as a matter of policy, refrains from commenting on any ongoing investigation or enforcement matter.

The report also seeks to question SEBI’s action in issuing a show-cause notice to Hindenburg Research on June 27, 2024. The show-cause notice in question, alleging violations of securities laws by Hindenburg Research, has been issued following due process of law. It may be noted that Hindenburg Research has made available on its website the show-cause notice issued to it. The show-cause notice contains the reasons for its issuance. The proceedings in this matter are ongoing and are being dealt with in accordance with the prescribed procedure and in compliance with the principles of natural justice.

The report has also indicated that the implementation of the SEBI (REIT) Rules, 2014 as well as the changes in the said rules have resulted in significant benefit to a large multinational financial conglomerate. In this regard, it is to be noted that the SEBI (REIT) Rules, 2014 have been amended from time to time.

As in all cases involving the introduction of a new regulation or amendment to an existing regulation, a robust consultation process has been put in place to seek input and views from the industry, investors, intermediaries, the relevant Advisory Committee and the general public. Only after consultation, a proposal for introduction of a new regulation or amendment to the existing regulation is brought up for consideration and deliberation by the SEBI Board. Regulations are notified after approval by the SEBI Board. As a measure of transparency, agenda documents of Board meetings and outcomes of Board discussions are also published on the SEBI website. Therefore, claims that such regulations, amendments to regulations or circulars issued relating to REITs were in favour of a large multinational financial conglomerate are inappropriate.

As far as the development of the Indian securities market is concerned, SEBI has on several occasions underlined the potential of REITs, small-cap REITs, InvITs and municipal bonds, among other asset classes, for democratisation of markets, financialisation of household savings and capital formation through capital markets. These aspects are also highlighted in the latest Annual Report of SEBI, as part of the Chairman’s Statement (see paragraphs titled “Financial Inclusion and Democratisation of Markets” and “New Avenues for Capital Formation”). Therefore, the claim that the promotion of REITs and small-cap REITs among several other asset classes by SEBI was only aimed at benefiting a large multinational financial conglomerate is inappropriate.

Finally, it is noted that SEBI has adequate internal mechanisms in place to address issues relating to conflicts of interest, including a disclosure framework and a disqualification provision. It is noted that the Chairperson has periodically made the relevant disclosures required in terms of securities holdings and their transfers. The Chairperson has also recused herself in matters involving potential conflicts of interest.

SEBI, over the years, has built a robust regulatory framework that not only aligns with global best practices but also ensures investor protection.

SEBI remains committed to ensuring the integrity of India’s capital markets and their orderly growth and development.

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