SEBI urges investors to remain calm and exercise due diligence

The market regulator, SEBI has issued a statement. The statement urges, “investors should remain calm and exercise due diligence before reacting to such reports.

Investors may also like to take note of the disclaimer in the report that states that readers should assume that Hindenburg Research may have short positions in the securities covered in the report.”

The report disputes SEBI’s decision to issue a show cause notice to Hindenburg Research on June 27, 2024, and asserts that the agency has not taken any action against the Adani Group.

Furthermore, it asserts that SEBI modified the 2014 SEBI (REIT) Regulations to the advantage of a multinational financial conglomerate with a diverse portfolio. Notably, the allegations made by Hindenburg Research, against the Adani Group, have been duly investigated by SEBI.

SEBI in its statement said that the Supreme Court in its Order of January 3, 2024 noted that SEBI had completed twenty–two out of twenty–four investigations into the Adani group.

“Subsequently, one more investigation was completed in March 2024, and one remaining investigation is close to completion. During the ongoing investigation in this matter, more than 100 summons, around 1,100 letters and emails have been issued to seek information.”

In addition, more than 100 letters have been sent to external authorities and domestic and international regulators requesting assistance. Furthermore, a total of over 300 documents with around 12,000 pages have been reviewed.

“It may be noted that pursuant to the completion of investigations, SEBI initiates enforcement proceedings which are quasi–judicial in nature. This comprises issuing of show cause notice and giving of opportunity of hearing which culminates in the passing of a speaking order. Such an order is then made available in the public domain. Where investigations have been completed, enforcement proceedings initiated are ongoing and appropriate actions are being taken in accordance with the applicable securities laws. SEBI, as a matter of policy, refrains from commenting on any investigation/ ongoing enforcement matter,” the statement reads.

Report questions SEBI’s action

SEBI further said that the report seeks to question its action in issuing a show cause notice to Hindenburg Research, on June 27, 2024. The aforementioned show cause notice, which accuses Hindenburg Research of breaking securities regulations, was sent out in accordance with the legal process. It should be mentioned that Hindenburg Research has posted the show cause notice that was given to it on its website. The show cause notice explains why it was issued. The current legal processes concerning this subject are being handled in line with the established protocol and the natural justice principles.

“The report has also stated that the implementation of the SEBI (REIT) Regulations 2014 as well as changes in such regulations had resulted in significant benefit to a large multinational financial conglomerate. In this regard, it may be noted that the SEBI (REIT) Regulations, 2014 has been amended from time to time,” SEBI stated in its statement.

SEBI further stressed that a proposal for introduction of a new regulation or change in the existing regulation is placed for the consideration of and deliberation of 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,” it said.

SEBI also clarified that for the development of the Indian securities market, it has at various times underscored the potential of REITs, SM REITs, InvITs and Municipal Bonds amongst other asset classes for democratisation of markets, financialisation of household savings and for capital formation through the capital markets. “These are also highlighted in the latest SEBI Annual Report, as part of Chairperson’s Statement. Therefore, the claim that promoting REITs and SM REITs among various other asset classes by SEBI was only for benefitting one large multinational financial conglomerate, is inappropriate,” the statement added.

Moreover, SEBI has adequate internal mechanisms for addressing issues relating to conflict of interest, which include disclosure framework and provision for recusal.

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