Brenin Group

Adani Update – India’s Securities Regulator SEBI

Various corporate and research institutions presented evidence in January 2023 alleging that Indian conglomerate Adani Group was involved in “the largest con in corporate history.”
The firm anticipated strong opposition to their report before its publication, regardless of the truthfulness of the evidence provided.
On June 27, 2024, evidence showed an email from SEBI indicating that a previous message from SEBI had been flagged as a security risk and quarantined for safety.
The email was initially perceived as a potential phishing attempt.
Later that same day, there was a second email from SEBI, containing a ‘Show Cause’ notice that outlined suspected violations of Indian regulations.
The organization is sharing the entirety of the notice, arguing that it is nonsensical and designed to silence and intimidate those exposing corruption in India.
The original report was 106 pages long, containing 32,000 words and 720 citations, detailing evidence of stock manipulation and accounting fraud by Adani over decades.
The report revealed a network of offshore shell entities controlled by Vinod Adani and close associates, highlighting the movement of billions through these entities into Adani’s public and private entities without proper disclosures.
Evidence was provided showing how opaque offshore fund operators helped Adani evade minimum shareholder listing rules, backed by public documents and interviews.
In August 2023, Deloitte resigned as the statutory auditor for Adani Ports, citing undisclosed related-party transactions flagged in the report.
After the report’s release, at least 40 independent media investigations corroborated or expanded upon the findings, revealing widespread fraud against shareholders and Indian taxpayers.
Adani has not directly addressed any findings from the report or the subsequent media investigations, instead providing deflections and blanket denials.
SEBI’s lack of meaningful pursuit of Adani contrasts with its apparent focus on targeting those who expose such practices, aligning with actions by other Indian government elements against critical journalists and members of parliament.
Following the publication of the report in January 2023, it is believed that SEBI began to support Adani by pressuring brokers to close short positions, which created buying pressure on Adani stocks.
When pressed by the public and the Supreme Court to investigate the allegations, SEBI initially appeared to agree with some key findings from the report.
SEBI later claimed it could not further investigate the allegations, describing the situation as a “journey without a destination.”
Media reports suggest that SEBI may impose only minor, technical violations on the Adani Group, despite the serious nature of the allegations.
Adani’s CFO downplayed the regulator’s notices, labeling them as “trivial.”
Gautam Adani had two meetings with SEBI Chairperson Madhabi Buch in 2022, including discussions on Adani’s acquisition of cement companies where SEBI was examining offshore vehicles linked to Vinod Adani.
The organization is seeking transparency from SEBI by filing a Right To Information (RTI) request for details about SEBI’s investigations into both the Adani matter and the report.
SEBI’s 46-page Show Cause Notice primarily outlined the background of the report and the relationship with an investor who held a short position in Adani.
Much of the notice implied that the investment stance was secretive or insidious, despite being a U.S.-based firm without ties to India.
SEBI claimed that disclaimers in the report were misleading, asserting that the firm was “indirectly participating” in the Indian securities market.
SEBI did not mention Kotak Bank, which managed the offshore fund structure used by the investor partner, perhaps to protect powerful business interests.
After 1.5 years of investigation, SEBI found zero factual inaccuracies in the research, focusing instead on semantic issues:

Use of “Scandal”: SEBI objected to the term “scandal” used to describe Adani’s alleged fraud related to circular trading of diamonds, even though they did not contest the facts.
“Leniency” Definition: SEBI took issue with the term “leniency” used to describe reduced punishments for Adani, despite this being a standard definition.
“Unreliable” Sources: SEBI labeled a quoted banned broker as “unreliable” while failing to acknowledge that the report disclosed this upfront for transparency.
Technical Disclaimers: SEBI focused on technical aspects of the disclaimer regarding the short position, arguing that it implied a false claim of objectivity.
Misreading of Claims: SEBI misinterpreted the disclaimer, alleging a false claim of objectivity when the language explicitly stated the absence of claims regarding the quality of information.

Overall, SEBI’s response revealed no substantive inaccuracies in the research, raising concerns about SEBI’s motives and its relationship with Adani.
The organization encourages readers to review SEBI’s notice for themselves.
Financial Misunderstanding: Contrary to previous claims, there was only one investor partner for their Adani shorts, not a network of firms.
Minimal Gains: The total gross revenue from Adani shorts was approximately $4.1 million, with only $31,000 made from their own short position in Adani U.S. bonds.
Breakeven Status: After accounting for legal, research, and investigation expenses over two years, the organization may only break even on their Adani short position.
Personal Safety Concerns: The team acknowledged the risks associated with publishing their findings, particularly in light of rising violence against journalists in India and declining press freedom.
Commitment to Public Interest: Despite these risks, the team felt it was essential to publish their research once it met their evidentiary standards, emphasizing that the Adani investigation is their most proud work.
Corporate Governance Wake-Up Call: The findings on Adani expose serious issues within corporate governance and regulatory enforcement in India.
Legitimacy of Short Selling: Short selling is a recognized practice in India and plays a critical role in market regulation.
SEBI’s Role: The organization criticized SEBI for failing to protect investors from fraud and prioritizing the protection of those committing malfeasance.
Incentives for Fraud: The environment created by SEBI’s inaction encourages companies to engage in fraudulent practices without significant fear of repercussions.
Investor Sentiment: The findings indicate that investors in India may lack real protection from corporate fraud, undermining corporate governance.
Government’s Stance on Criticism: The government’s response suggests that critics of those in power will face punitive actions, either through regulatory measures or media manipulation.
Ongoing Commitment: The organization remains committed to exposing corporate wrongdoing globally, regardless of potential repercussions from regulatory bodies.
Recognition of Support: The organization expressed gratitude to their readers in India for their support and insights, emphasizing their commitment to transparency and accountability.
The organization is dedicated to uncovering fraudulent practices, focusing solely on evidence-based reporting without political bias.
They view India as a country with significant economic potential, emphasizing the need for transparency to combat fraud and corruption.