SEBI vs Hindenburg: SEBI urges Investors to Remain Calm

The market regulator SEBI has released a statement. The statement urges “investors to remain calm and exercise due diligence before reacting to such reports. Investors should also note the study’s disclaimer, which notes that readers should presume Hindenburg Research may have short holdings in the securities included in the report.”

The report questions SEBI’s decision to issue a show cause notice to Hindenburg Research on June 27, 2024, claiming that the agency has taken no action against the Adani Group. Furthermore, it claims that SEBI changed the 2014 SEBI (REIT) Regulations in favour of a multinational financial conglomerate with a wide portfolio. Notably, the charges presented by Hindenburg Research against the Adani Group have been thoroughly reviewed by the SEBI.

According to SEBI’s announcement, the Supreme Court highlighted in its Order of January 3, 2024, that SEBI has concluded twenty-two of twenty-four investigations into the Adani group. “Since then, one additional investigation was finished in March 2024, and another is nearing completion. During the current inquiry, more than 100 summonses, around 1,100 letters, and emails have been issued to get information.”

In addition, over 100 letters of request for assistance have been issued to external authorities as well as domestic and international regulators. Furthermore, more than 300 documents totalling approximately 12,000 pages were analyzed.

“It should be remembered that, once investigations are completed, SEBI launches quasi-judicial enforcement processes. This includes issuing a show cause notice and providing an opportunity for a hearing, which concludes in the passing of a speaking order. Such an order is then published in the public domain. Where investigations have been completed, enforcement processes are currently underway, and necessary actions are being taken in compliance with applicable securities laws. SEBI, as a matter of policy, does not comment on any ongoing inquiry or enforcement case,” the statement states.

SEBI further stated that the study questions its action in issuing a show-cause notice to Hindenburg Research on June 27, 2024. The aforementioned show cause notice, accusing Hindenburg Research of violating securities legislation, was issued in accordance with legal procedures. It should be noted that Hindenburg Research has posted the show cause notice that was issued to them on its website. The show cause notice describes why it was issued. The current legal proceedings on this subject are being conducted in accordance with established protocols and natural justice principles.

“The report also noted that the adoption and modifications to the SEBI (REIT) Regulations 2014 resulted in considerable benefits for a large global financial conglomerate. In this regard, it should be noted that the SEBI (REIT) Regulations, 2014 have been revised from time to time,” SEBI said in its statement.

SEBI further stated that a proposal for the implementation of a new regulation or a change to an existing regulation is submitted for discussion and deliberation by 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,” according to the statement.

SEBI further explained that for the development of the Indian securities market, it has previously highlighted the potential of REITs, SM REITs, InvITs, and Municipal Bonds, among other asset classes, for market democratization, financialization of household savings, and capital formation through capital markets.

“These are also mentioned in the recent SEBI Annual Report as part of the Chairman’s Statement. As a result, the claim that SEBI’s promotion of REITs and SM REITs, among other asset classes, was only for the benefit of one huge global financial conglomerate is incorrect,” the statement said.

Furthermore, SEBI has suitable internal measures in place to manage conflict of interest issues, such as a disclosure structure and recusal provisions.