Hindenburg Research Findings, if True, Call for Independent Judicial Probe: EAS Sarma

New Delhi: After another set of allegations by US-based Hindenburg Research on the role of market regulator SEBI chairperson Madhabi Puri Buch and her husband’s alleged links with offshore shell firms that may have been used in the alleged Adani “siphoning” scam, a top former bureaucrat has sought an independent judicial inquiry, terming the findings (yet to be verified) as “highly disturbing”.

The allegations have been denied by SEBI chief Buch, followed by another rebuttal of her denial by Hindenburg Research. On Monday morning, Adani shares are reported to have plunged 7% on the stock market. Meanwhile, a response from the government is still awaited.

In a letter to Finance Minister Nirmala Sitharaman, former Secretary to Government of India, EAS Sarma, quoted a Telugu saying: “kanche chenu mesthe“, implying “what will happen if the fence itself eats away the crop?” and urged her to order an independent judicial inquiry into the role of overseas shell companies in the country’s growing “shadow economy”.

“In my view, both the Hindenburg reports, read in conjunction with the deliberate, continuing inaction on the part of the NDA government to leave the definition of “overseas shell companies” vague and undefined in all the relevant laws, the mysterious reversal by SEBI in 2018 of its own 2014 stringent requirement on disclosure by FPIs of the details of their beneficial ownership, the equally questionable order issued by the DEA in August 2022 diluting restrictions on possible round-tripping of illicit funds by business houses through their overseas shell companies…. in addition, a former stock market regulator, soon after his retirement, quietly joining the Board of Directors of the very same business group that has come under scrutiny….” he said and added that there are many questions that beg answers in public interest.

Read the full letter below:

To 

Smt Nirmala Sitharaman

Union Finance Minister

Dear Smt Sitharaman,

The latest Hindenburg findings on the stock market regulator and the earlier findings on a business house (https://hindenburgresearch.com), though yet to be independently verified for their factual accuracy, are highly disturbing. They remind me of an apt Telugu proverb, “kanche chenu mesthe“, implying “what will happen if the fence itself eats away the crop?”

In my view, both the Hindenburg reports, read in conjunction with the deliberate, continuing inaction on the part of the NDA government to leave the definition of “overseas shell companies” vague and undefined in all the relevant laws, the mysterious reversal by SEBI in 2018 of its own 2014 stringent requirement on disclosure by FPIs of the details of their beneficial ownership, the equally questionable order issued by the DEA in August 2022 diluting restrictions on possible round-tripping of illicit funds by business houses through their overseas shell companies, the more recent uncalled for and irresponsible statements by senior public functionaries in their recent election speeches that triggered a huge surge followed by a sharp fall in stock market indices, raising questions on some corporates profiteering at the cost of small investors and, in addition, a former stock market regulator, soon after his retirement, quietly joining the Board of Directors of the very same business group that has come under scrutiny, seem to fit into a much larger, clearer picture of a well-orchestrated set of calculated measures taken either by the government or by public authorities and, others with government’s blessings, amounting to a blatant collective breach of public trust on the part of all the concerned authorities. 

In this connection, I invite your attention to the following two letters of mine, addressed to you, which are self-explanatory.

https://countercurrents.org/2023/02/overseas-shell-companies-a-shadow-economy-a-threat-t-national-interest/

https://countercurrents.org/2023/10/sebis-ongoing-investigation-into-allegations-against-the-adani-group-hit-a-dead-end/

Your Ministry has not yet acted on either of the above two letters, nor has it cited any valid justification for its inaction.

In addition, I refer to my letter of 18th, September, 2022 addressed to the Economic Affairs Secretary on the above cited dubious order of August, 2022 of the DEA. My letter is accessible at

http://eassarma.in/sites/default/files/public/Letter-to-DEA-on-Overseas-investment-rules.pdf

For reasons best known to your Ministry, no action has yet been taken to reverse the August 2022 order of DEA, despite numerous complaints received by the government about a few influential conglomerates manipulating the stock markets.

On the uncalled for statements made by senior public functionaries in their election speeches and the consequent surge/fall in the stock market prices, possibly allowing a few big investors to profiteer at the cost of small retail investors, I addressed Secretary, DEA in my letter of 5th May, 2024 to get the matter independently investigated. I have extracted below a relevant paragraph of that letter. 

“It appears that the trigger for the unsavoury sequence of events came from no less than the Prime Minister himself, when he “predicted” a stock market surge on the 4th, namely, the date of counting of votes in the 2024 elections, conveying a hint that investors should invest in the stock market, as his government’s return to power would usher in further so-called “reforms”. I am not sure what really prompted the PM to make such an ill-advised statement. His statement was followed by the Union Home Minister, who is reported to have added fuel to fire by saying, that investors should buy before 4th June. As per his expectations, as reported, “the markets will shoot up” “The Prime Minister and the Union Home Minister are expecting market gains on 4th June” (https://www.livemint.com/market/stock-market-news/prime-minister-narendra-modi-says-stock-markets-will-hit-record-high-on-4th-june-bjp-election-2024-investments11716879310018.html)”

Neither your Ministry nor SEBI had acted on my letter. 

Continuing inaction on the range of concerns expressed by me for such a long time in itself calls for an independent investigation.

With specific reference to the latest Hindenburg findings, while I sincerely hope that the accusations made against the stock market regulator are not true, the following issues that arise from the report cannot be ignored:

1. To what extent the latest Hindenburg findings are factually correct? An agency other than SEBI, independent from the government and its agencies, should ascertain the factual accuracy of the accusations made in the report
2. If some or all the Hindenburg accusations are found to be factually correct, did the regulator make a straightforward disclosure to your Ministry of the possible conflict of interest, ever since that person became associated with the SEBI? Was the Cabinet Committee on Appointments kept informed? If it is so, did the concerned person recuse himself/ herself from considering issues that attract conflict of interest?
3. If the accusations are found to be factually correct, it may be necessary for an independent committee, preferably headed by a member of the higher judiciary, to subject every crucial decision taken by SEBI to scrutiny during the timeframe over which such a conflict of interest existed
4. Do others in responsible positions either on the Board of SEBI or holding senior positions in SEBI have a similar conflict of interest? It needs to be quickly ascertained through an independent enquiry, insulated from the political executive
5. If the accusations made by Hindenburg are factually found to be correct, all investigations conducted during the last few years by the stock market regulator on external manipulation of stock market indices by a few corporate entities through their benami agencies need to be subject to a re-investigation.

I feel that it is imperative that the government requests the CJI to nominate a senior member of the judiciary to head an inquiry commission appointed under the Commissions of Inquiry Act, 1952, as the appointment of such a commission alone can serve the cause of upholding the public trust and eliciting public trust. The Inquiry Commission’s proceedings should be in the public domain and its report submitted to the Parliament within a time-bound manner.

Such accusations should wake up the powers that be to refrain from interfering with the independence of any statutory institution for that matter, as such interference will erode public trust and credibility of that institution. 

It now becomes abundantly clear as to how deliberately or otherwise the NDA government took the decision to privatise CPSEs in general and the LIC in particular.

When the NDA government initiated disinvestment of LIC, some of us cautioned it not to go ahead as it would amount to dismantling a unique social security cover for millions of disadvantaged households. It meant bartering away the savings of small LIC policy holders, with the help of which LIC was carrying on its business, into the hands of predatory stock market sharks, knowing well that a few business conglomerates were manipulating the domestic stock markets with the help of their overseas shell companies. 

Whatever concerns that I have raised in this letter and in my earlier letters also apply to the hasty, indiscriminate manner in which the government is disinvesting CPSEs, exposing their equity to a volatile stock market subject to external manipulation and monetising their land assets. The way your government is under-selling mineral and other natural resources that belong to the people, to a few private corporates, seems to fit eminently into the larger picture of collective breach of public trust, cited by me above. 

Top of Form

Bottom of Form

I hope that your Ministry and the powers that be in the government act promptly and announce a full-scale judicial inquiry into the whole range of policy twists and turns that took place, evidently endorsed by the political executive, over the last six to seven years. 

Failing to do so, I am sure, would force the public to draw an adverse inference on the role of the public authorities in allowing a few private corporates to manipulate the domestic stock market to their advantage at the cost of small investors and the public at large.

I am ciriculating this letter widely so that there may be a public debate on these serious concerns.

Regards,

Yours sincerely,

E A S Sarma

Former Secretary to the Government of India

Visakhapatnam

Courtesy: Countercurrents.org