SEBI advises investors to exercise caution on Hindenburg report

Mumbai: The Securities and Exchange Board of India (SEBI) has urged investors to remain calm and conduct thorough research before reacting to the Hindenburg Research report.

“Investors should remain calm and exercise due diligence before reacting to such reports. Investors may also like to take note of the disclaimer in the report that states that readers should assume that Hindenburg Research may have short positions in the securities covered in the report,” the SEBI said in a statement.

The late evening release of SEBI refutes the charges made by the US-based short seller and says “the allegations made by Hindenburg Research, against the Adani Group, have been duly investigated by SEBI.”

It further adds that even the apex court in its order has noted that SEBI has completed the investigations in 22 out of 24 cases.

“Hon’ble Supreme Court in its Order of January 3, 2024, noted that SEBI had completed twenty-two out of twenty-four investigations into the Adani group. Subsequently, one more investigation was completed in March 2024, and one remaining investigation is close to completion.”

SEBI statement says the ongoing investigation in the last case is also about to complete.

“…in this matter, more than 100 summons, around 1,100 letters and emails have been issued to seek information. Further, more than 100 communications have been made seeking assistance from domestic/foreign regulators and external agencies. Also, more than 300 documents containing around 12,000 pages have been examined.”

SEBI says as per the rule on the completion of investigations, before initiating enforcement proceedings, show cause notices are issued and an opportunity is given for a hearing to the parties.

“Pursuant to the completion of investigations, SEBI initiates enforcement proceedings which are quasi-judicial in nature. This comprises issuing of show cause notice and giving of opportunity of hearing which culminates in the passing of a speaking order. Such order is then made available in the public domain. Where investigations have been completed, enforcement proceedings initiated are ongoing and appropriate actions are being taken in accordance with the applicable securities laws.”

As a policy measure, SEBI refrains from commenting on any investigation or ongoing enforcement matter.

SEBI says the show cause notice issued to Hindenburg Research on June 27, 2024, was issued following the due process of law for violation of securities laws

“It is noted that Hindenburg Research has itself made the show cause notice issued to it available on its website. The show cause notice contains the reasons for its issuance. The proceedings in this matter are ongoing and the same is being dealt with in accordance with the established procedure and in compliance with the principles of natural justice.”

On charges of SEBI’s (REIT) regulations had benefitted large multinational financial conglomerate SEBI says, REIT regulations were amended from time to time and implemented after a robust consultation process from the stakeholders.

“As with all cases involving introduction of a new regulation or amendment to an existing regulation, a robust consultation process for seeking inputs and feedback of the industry, investors, intermediaries, relevant Advisory Committee and the public at large is in place. Only after consultation, a proposal for introduction of a new regulation or change in the existing regulation is placed for the consideration of and deliberation of the SEBI Board. Regulations are notified after approval of the SEBI Board. As a measure of transparency, the agenda papers for Board meetings and outcomes of Board discussions are also published on SEBI website.”

Hence, claims that such regulations, or circulars issued related to REITs were to favor one large multinational financial conglomerate, are inappropriate.

The market regulator further adds that for the development of the Indian securities market, SEBI has underscored the potential of REITs, SM REITs, InvITs and municipal bonds amongst other assets and they are highlighted in the latest SEBIs Annual Report

Therefore, the claim that promoting REITs and SM REITs among various other asset classes by SEBI was only for benefitting one large multinational financial conglomerate, is inappropriate.

The release also said that SEBI chairperson has recused herself in matters involving conflicts of rule.

it is emphasized that SEBI has adequate internal mechanisms for addressing issues relating to conflict of interest, which include disclosure framework and provision for recusal. It is noted that relevant disclosures required in terms of holdings of securities and their transfers have been made by the Chairperson from time to time. Chairperson has also recused herself in matters involving potential conflicts of interest.”

The market regulator has over the years built a robust regulatory framework that aligns with best global practices and also ensures protection of investors.

A day after US-based short seller Hindenburg Research alleged that SEBI Chairperson Madhabi Puri Buch and her husband Dhaval Buch had stakes in “both the obscure offshore entities used in the Adani money siphoning scandal,” the SEBI Chairperson and her husband in their personal capacity issued a detailed statement rejecting the allegations.

This followed a brief statement issued by them earlier on Sunday where they had accused Hindenburg of tarnishing their reputation.

Earlier on Saturday, the US-based firm Hindenburg Research alleged that SEBI’s Chairperson Madhabi Buch and her husband had a stake in “both the obscure offshore entities used in the Adani money siphoning scandal.”

In January 2023, Hindenburg published a report accusing the Adani Group of financial irregularities, leading to a significant drop in the company’s stock price. The group at the time had rubbished these claims.

In January 2024, the Supreme Court refused to transfer the probe into the allegations of stock price manipulation by the Adani group to an SIT and directed market regulator SEBI to complete its probe into two pending cases within three months.

Earlier this year the SC also dismissed a plea seeking to review the verdict that had sought investigation by the market watchdog SEBI in the Adani-Hindenburg case.