Sebi hid facts, slept over DRI's letter on stock manipulation by Adani: PIL

Market regulator Securities and Exchange Board of India (Sebi) suppressed important facts from the Supreme Court (SC) and "slept over" the Directorate of Revenue Intelligence (DRI)'s letter on alleged stock manipulation by the Adani firms, a public interest litigation (PIL) in the Adani-Hindenburg row has alleged in an affidavit.

The apex court has received four PILs on the Adani-Hindenburg controversy, including those by lawyers ML Sharma and Vishal Tiwari, Congress leader Jaya Thakur and law student Anamika Jaiswal.

On August 25, Sebi informed the apex court it has completed the probe in all but two allegations against the Adani Group and is still awaiting information from five tax havens on the actual owners behind the foreign entities that have invested in the conglomerate.

The Sebi told the SC that out of 24 matters it was probing, findings in 22 have been finalised.

Jaiswal's affidavit said that while the investigation against the Adani group was going on in the over-invoicing case, DRI sent a letter to the then Sebi chairperson in 2014 alerting him that the group may be committing stock market manipulation using the money allegedly siphoned off using the modus operandi of over-valuation in the import of power equipment.

The letter was accompanied by a CD containing evidence of siphoning off Rs 2,323 crore and two notes on the case being investigated by the DRI, the affidavit claimed. The letter, the affidavit said, also stated that more documents may be obtained from the Mumbai Zonal Unit of the DRI.

"The petitioner herein submits that not only has the Sebi suppressed important facts from this court and slept over DRI alerts, but there is also an apparent conflict of interest in Sebi conducting the Adani investigation."

"Cyril Shroff Managing Partner, Cyril Amarchand Mangaldas has been a member of Sebi's Committee on Corporate Governance, which looks at offences like insider trading," the affidavit said, adding his daughter is married to Gautam Adani's son. This, the affidavit said, shows a clear conflict of interest.

The petitioner submitted that five out of the 24 Sebi investigation reports are on insider trading allegations against the Adani group companies.

What is the issue?

Hindenburg Research, in a January 24 report, had alleged accounting fraud, stock price manipulation and improper use of tax havens, triggering a stock market rout of the Adani group shares that erased close to $150 billion in market value at its lowest point.

Following this, the Supreme Court asked Sebi to investigate the allegations and submit its findings. In March, a separate six-member expert panel was formed which included a retired judge and veteran bankers, to go into regulatory aspects of the allegations.

That panel said in May that the Sebi has so far drawn a blank in its investigations and its ongoing pursuit of the case is a "journey without a destination".

The apex court set August 14 as the deadline for SEBI to conclude its probe and submit the report. The regulator sought a 15-day extension to conclude the investigation. It has now submitted a status report on its probe.

On its part, the Adani group has rejected all allegations.

What were OCCRP's allegations against Adani Group?

Later, a non-profit media organisation Organised Crime and Corruption Reporting Project (OCCRP), came up with another report laying some details of the manipulation.

The report by OCCRP said that "hundreds of millions of dollars" were invested in the Adani Group stocks through opaque investment funds based in Mauritius.

It added that in at least two cases, the investors turned out to be related to the Adani family, who are majority shareholders. In 2017, the stocks held by these two individuals were valued at a whopping $430 million.

The new allegations state that two individuals, Nasser Ali Shaban Ahli from UAE and Chang Chung-Ling from Taiwan, spent years buying and selling Adani stock through offshore structures that obscured their involvement — and made considerable profits.

These investors used two funds, Emerging India Focus Fund (EIFF) and EM Resurgent Fund (EMRF), to trade "large amounts of shares" in four Adani companies between 2013 and 2018. These were: Adani Power, Adani Enterprises, Adani Ports, and Adani Transmissions.

Over the years, the stocks were bought at low prices and sold at much higher prices.

Moreover, the money was channelled through four companies, which were either owned or controlled by Ahli or Chang. These companies sent money to a large investment fund in Bermuda called the Global Opportunities Fund (GOF). Later, GOF subscribed to two funds, EIFF and EMRF.

(With agency inputs)