 "How SEC's Adani charges differ from Hindenburg's fraud allegations")
The controversies surrounding Gautam Adani and his conglomerate have escalated with two distinct allegations: the US Securities and Exchange Commission (SEC) indictment and Hindenburg Research’s report. The SEC accuses Adani, his nephew Sagar Adani, and others of orchestrating a $265 million bribery and fraud scheme, misleading US investors, and violating the Foreign Corrupt Practices Act (FCPA).
Meanwhile, Hindenburg’s January 2023 report accused the Adani Group of extensive stock manipulation, accounting fraud, and misuse of tax havens, causing a market downturn.
These allegations differ notably across various dimensions, as outlined below:
1. Nature of allegations
SEC charges:
Billionaire businessman Gautam Adani has been charged by the US over an alleged bribery and fraud scheme valued at $265 million. According to US prosecutors, Adani, his nephew Sagar Adani, and six others are accused of bribing Indian government officials to secure solar energy supply contracts, which reportedly generated $2 billion in profits over two decades.
The US Securities and Exchange Commission (SEC) has indicted Adani and the other individuals in New York, accusing them of violating the Foreign Corrupt Practices Act (FCPA). The case has been filed in the US District Court for the Eastern District of New York.
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An official press statement said, “During the alleged scheme, Adani Green raised more than $175 million from US investors, and Azure Power’s stock was traded on the New York Stock Exchange.”
According to allegations, the bribery occurred during a September 2021 bond issuance by Adani Green, which secured $750 million, including around $175 million from investors in the US. The complaint claims that the offering documents included misleading statements regarding anti-corruption measures, thereby misleading US investors.
Hindenburg allegations:
In its January 2023 report, Hindenburg Research accused the Adani Group of engaging in extensive accounting fraud, stock price manipulation, and exploiting tax havens. The report accused the group of extensive stock manipulation and accounting fraud, claiming that these practices had persisted over decades.
The report alleged that the Adani Group had engaged in a “brazen scheme of stock manipulation” that inflated its market value artificially.
Hindenburg accused the Adani Group of engaging in accounting fraud, asserting that the conglomerate had overstated its financial health through dubious accounting practices. The report highlighted that members of the Adani family controlled numerous offshore entities in tax havens such as Mauritius and the Caribbean.
Hindenburg pointed out that the Adani Group had accumulated significant debt, which raised questions about its ability to meet financial obligations. The report suggested that there was a lack of effective regulatory oversight concerning the Adani Group’s operations. It indicated that ongoing investigations by India’s Securities and Exchange Board (Sebi) into the group’s transactions had not yielded substantial results due to alleged political interference.
Following these allegations, the conglomerate described the report as a “calculated attack” aimed at damaging its reputation and share price. It said that their business operations were transparent and compliant with all regulatory requirements.
2. Legal proceedings
SEC charges:
The SEC has initiated a formal civil lawsuit against Adani and his associates, seeking monetary penalties and enforcement of US securities laws. This civil action is part of a broader criminal investigation by US prosecutors, which may include charges such as conspiracy and obstruction of justice.
The SEC has filed a complaint against Gautam Adani and Sagar Adani, accusing them of breaching the antifraud provisions of federal securities laws. The complaint requests “permanent injunctions, civil penalties, and officer and director bars”.
A New York judge has issued arrest warrants for Gautam Adani and his nephew, with prosecutors intending to forward them to foreign law enforcement agencies. The two, along with others, are accused of violating antifraud provisions of federal securities laws, including the FCPA, by deceiving US investors about their anti-corruption practices. The alleged scheme reportedly enabled them to secure over $3 billion in loans and bonds for the company while concealing the corruption from lenders and investors.
Hindenburg allegations:
Hindenburg Research has not initiated any legal proceedings against the Adani Group. Instead, the conflict has primarily involved accusations and counterclaims between the two parties.
In response to Hindenburg’s claims, the Adani Group has consistently denied all allegations, labelling them as baseless and part of a coordinated effort to damage its reputation. The situation escalated further when Sebi issued a show cause notice to Hindenburg, alleging that it colluded with a US asset manager to use non-public information for short-selling Adani stocks. Hindenburg refuted these allegations, calling them “nonsense” and asserting that Sebi had neglected its responsibility to investigate the Adani Group adequately.
3. Target audience
SEC charges:
The SEC’s legal action is aimed at safeguarding US investors and enforcing compliance with US securities laws. The focus lies on the repercussions of the alleged fraud for American investors who participated in securities offerings by the Adani Group.
Hindenburg allegations:
Hindenburg’s reports are primarily intended to alert the market and investors to potential risks associated with the Adani Group. The emphasis is on exposing possible corporate governance shortcomings and financial irregularities.
By alleging that the Adani Group had used offshore shell companies and tax havens for stock manipulation, Hindenburg intended to reveal a pattern of financial mismanagement and potential fraud that could undermine investor confidence.
4. Scope and impact
SEC charges:
The charges specifically pertains to violations of US laws by Adani and his associates.
Adani and his associates are accused of breaching antifraud provisions of federal securities laws, including the FCPA, by providing false information to US investors regarding their anti-corruption policies. The scheme allegedly helped them secure over $3 billion in loans and bonds for the company while concealing corrupt practices from investors and lenders.
If proven, the charges could result in hefty financial penalties and restrictions on their participation in US markets.
Hindenburg allegations:
Although Hindenburg’s claims triggered significant market reactions, including investor confidence erosion, they do not amount to formal legal proceedings.
Following the allegations, shares of Adani Group companies plummeted dramatically. By late January 2023, it was reported that the group lost approximately $150 billion in market value within a matter of days, significantly impacting Gautam Adani’s net worth and his ranking among the world’s richest individuals.
The fallout led to a loss of confidence among investors, prompting major financial institutions like Credit Suisse to stop accepting bonds from Adani companies as collateral for loans. Additionally, MSCI downgraded several Adani firms’ ratings due to increased risk perceptions.
In response to Hindenburg’s claims, Sebi issued notices to both Hindenburg Research and the Adani Group. Sebi accused Hindenburg of using non-public information for short-selling activities against the conglomerate, while also investigating potential lapses in regulatory compliance by Adani.
The SEC’s charges against Gautam Adani and his associates highlight alleged violations of US securities laws, focusing on bribery and fraud schemes tied to solar contracts and misleading US investors. In contrast, Hindenburg Research’s report accused the Adani Group of stock manipulation, accounting fraud, and misuse of tax havens over decades, with no formal legal proceedings initiated.