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Billionaire Gautam Adani Brothers Rajesh, Vasant And Other Family Members Get Sebi Show Cause

Palak Shah Oct 30, 2024

Sebi can likely issue prohibitory orders against the corporate bigwigs and also impose penalty if it is not satisfied with their reply or arguments in the adjudication proceedings. It remains to be seen how far Sebi can go before the current term of chief Madhabi Puri Buch ends in March 2025

Market regulator Sebi has recently issued a show cause notice (SCN) to billionaire businessman Gautam Adani and his brothers Rajesh and Vasant Adani, sources told BW Businessworld. The SCN has also been issued to Pranav Adani, nephew of Gautam Adani and one Pranav Vora. Other Adani Group linked entities who have been given a SCN include Dharmesh Parekh, Opal Investments Pvt Ltd, Gulf Asia Trade, Emerging India Focus Fund and Global Macro Asset Management, a Bremuda based fund, among others. Overall, 32 entities linked to the Adani Group and four listed companies of the group have been served with SCN, the sources said. SEBI has served the notices under Sec. 11 and 11B of the Securities Act. that empowers the regulator to issue directions like prohibition from accessing markets and impose penalties for the alleged wrongdoings.

SEBI's SCN are chiefly based on initial allegations by the U.S. based short seller Hindenburg Research and George Soros backed by Organised Crime and Corruption Reporting Project (OCCRP). George Soros has publically displayed his dislike towards the incumbent Modi Government and Adani Group by openly criticising the government and praising the attacks on Adani Group. But sources in SEBI say the regulator investigated the allegations and found material to send the SCNs. It has been alleged that entities linked to the promoter group indulged in stock manipulation. The SCNs were issued in September after Hindenburg made allegations of conflict of interest against the SEBI Chief Madhabi Puri Buch and also accused her of shielding Adani Group.

Allegations that SEBI investigated against the Adani Group say that two foreign nationals Nasser Ali Shaban Ahli and Chang Chung-Ling registered four shell companies in tax havens, starting 2010. The money flowed from these four shell companies to two Mauritius-based funds – the EM Resurgent Fund and Emerging India Focus Funds. Monies from these two funds were again transferred to a broader fund, called the Global Opportunities Fund based in Bermuda. The EMRF and EIFF, within the Global Opportunities Fund, then exclusively bought shares and derivatives in four Adani companies.

SEBI rules stipulate that promoters and directors together hold a maximum of 75 percent stake in their company and the rest 25 percent has to be public float. There is no such rule anywhere in the global stock markets but in India SEBI believes a higher public float is necessary to maintain adequate supply of shares in the market and it prevents artificial gain in share prices. SEBI believes that if directors, promoters or insiders hold higher than 75 percent stake in any company they can create artificial demand and farcical scarcity of shares. And this is stock manipulation.

Allegations say that by 2017, Nasser Ali Shaban Ahli and Chang Chung-Ling had bought shares worth $ 430 million in four Adani Group companies and held 13 percent of shares meant for the public in three of four Adani companies. It is alleged that both Ahli and Ling are close associates of Vinod Adani, the elder brother of Adani Group chairperson Gautam Adani. The two men have been directors in Adani group of companies in the past. Chang and Ahli also transferred ownership of two companies based in tax havens to Vinod Adani in 2010. Further, the allegations reported in the media suggest that had Adani Group disclosed the identity of Ahli and Chang in the two Adani companies – Adani Enterprises and Adani Transmission – it would have breached the 75 percent threshold of promoters' shares. This could have led to delisting of at least these two firms. Offshore funds that invested in Adani Group companies are also being linked to the promoters.

For months, SEBI has been collecting data from foreign jurisdictions with regard to the allegations. Many jurisdictions had refused to share, stating that SEBI was on a fishing expedition rather than specific queries and without any legal basis, the sources said. Yet, SEBI is likely to have completed its investigations and issued the notices by the end of September, the sources said.

Incumbent SEBI chief Madhabi Puri Buch, who is retiring in March 2025 and is eligible for an extension, is also facing several allegations from Hindenburg Research on private dealings and getting paid by her former employer ICICI Bank even after joining SEBI. Government is likely to announce an advertisement to invite applications for the post of SEBI chief. But the SCNs by SEBI are a risk for the government since it can give public perception that it removed Buch since SEBI under her issued notices to Adani Group - the situation is like getting stuck between a rock and a hard place.

Palak Shah

BW Reporters The writer is author of the book: The Market Mafia - Chronicle of India’s High-Tech Stock Market Scandal & The Cabal That Went Scot-Free. Palak has been a journalist in Mumbai for nearly two decades now. He has worked for most premier pink papers including The Economic Times, Business Standard and The Financial Express and The Hindu Business Line. He was drawn to crime reporting at the age of 19 but a few years in the field told him that the fabric of crime had changed and the organised gangs, as Mumbai had witnessed during the eighties, no longer existed. It was business and markets that dominated the scenario. His passion to unravel the intricacies of the ‘white money’ economy led Palak to the world of finance and regulations.