An unclean chit: On the SEBI investigation and Hindenburg Research’s allegations  

The Supreme Court-appointed panel’s report raises fresh questions on the Securities and Exchange Board of India’s functioning  

Updated - May 24, 2023 11:38 am IST

Published - May 24, 2023 12:10 am IST

Last Wednesday, the Supreme Court granted the Securities and Exchange Board of India (SEBI) more time to complete its investigation into Hindenburg Research’s allegations of malfeasance, stock price manipulations and violations of minimum public shareholding requirements in Adani Group firms. Ahead of the Court’s original May 2 limit, SEBI had sought at least six more months, citing complexities and the need to unravel layered deals it deemed “suspicious”. The market watchdog has now got a three-month reprieve. But the findings of a six-member expert panel, tasked by the Court to review Indian securities market’s overall regulatory and investor protection framework in the wake of the dizzying volatility in Adani Group stocks’ prices, do not inspire much hope for an expedient closure. On its most vital term of reference — regulatory failure in dealing with the alleged contravention of securities market laws in relation to the Adani Group or other companies — the committee’s findings are far from emphatic.

On the question of stock price manipulation, for instance, SEBI told the Justice A.M. Sapre-led panel that 849 automated “alerts” were thrown up by stock exchanges in the 57 months up to December 2022, resulting in four reports. The first of these reports, in September 2020, attracted SEBI’s attention to some common foreign portfolio investors (FPIs) holding shares across the Adani Group. Juxtaposing this with earlier complaints, SEBI commenced a formal probe on potential violation of the 25% public shareholding norms in October 2020. SEBI cited Adani Enterprises’ trading data to the panel and said no manipulation was found. But such analyses were still underway for other group stocks, compelling the panel to conclude that “…prima facie”, it won’t be possible to say there has been a “regulatory failure”, even as it stressed that such investigations must be time-bound. Even on the probe into the public share-holding and related party transactions flagged by Hindenburg, the panel’s inference is cautiously worded and hints at its own time constraints. “In these circumstances, it would not be possible to return a finding of regulatory failure… There indeed has to be a coherent enforcement policy.” The key reason for SEBI drawing a blank in attempts (that began in 2020 and revived after the Hindenburg report) to identify the 42 ultimate beneficiaries behind 13 FPIs with sizeable stakes in Adani Group firms is that the regulator had itself tweaked the FPI norms in 2019 to make this obfuscation possible. Such a self-inflicted ‘chicken and egg’ situation, with capricious legislation diverging from enforcement, is rare and must trigger a closer look at SEBI’s approach to its key mandate of protecting investors.

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