Perception is the new reality, especially in the world of finance and regulation. The recent Hindenburg allegations against the SEBI chairperson have moved the focus from a single corporate group to the regulatory entity itself, beginning with its head. In their statement issued on Sunday, Madhabi and Dhaval Buch refuted the charges made by Hindenburg Research with a detailed rational response.
However, the question remains: could SEBI have preemptively disclosed the chairperson’s investment when the entire Hindenburg issue first emerged? Such a disclosure might have prevented the situation from becoming a tool for the short-seller and the bandwagon now. While it is easy to criticise in hindsight, avoiding any direct investment exposure and placing assets in a blind trust during the tenure might have been a wiser choice for all regulatory heads.
Nevertheless, it is crucial to recognise that when one invests in a fund, it is the fund manager — not the individual client — who makes investment decisions. Therefore, it is unlikely that a regulatory chief (as a client) would be privy to the other investors in the same fund. The fund under spotlight has even disclosed that it did not even invest in any of the Adani stocks. The notion that the chairperson “would have known” is more about perception than reality, and it highlights the need for clearer administrative laws regarding handling conflicts of interest in regulatory roles in India.
As private citizens, individuals in regulatory roles have the right to invest their funds as they see fit. Insinuations about the SEBI chairperson and her husband’s net worth and investments, especially referencing her current government salary, are simply appalling, given their educational background and esteemed career path. That said, it is worth noting that even asset managers and directors of investment companies in India are subject to far stricter disclosure requirements every quarter on their financial investments.
One of the more ludicrous allegations is that the SEBI chairperson supported REITs to favour Blackstone, a private equity entity for which her well-educated and globally experienced husband is one of its many advisors. Unless anyone proves a direct quid pro quo, it is only nasty finger pointing, and negative news mongering. This claim ignores the fact that all SEBI regulations are approved by its Board after extensive public consultation, cannot be decided unilaterally by the chairperson.
Nonetheless, regulatory heads and their institutions must be above any suspicion. If there are questions about their conduct, clearing the doubt should be their foremost priority. This latest round of finger-pointing by Hindenburg should not lead to allegations that SEBI failed to investigate the charges due to vested interests — financial or otherwise. Politically, not defending the SEBI chairperson could hurt the government, while allowing a Joint Parliamentary Committee (JPC) to probe the matter could be politically intrusive as well. It is bound to surface for discussions in the Parliament, as it has become inextricably linked with broader political narratives.
The doubt created by these allegations now casts a shadow over the integrity of the regulators themselves. For instance, before SEBI stated to the Supreme Court that it had found nothing amiss, did SEBI inform the Supreme Court-appointed committee that some of the funds or entities SEBI was tasked to investigate were, in fact, part of the same entity in which the SEBI chief had personally invested? For the sake of governance, especially at governance and markets regulator, such probity will be useful.
It is important to remember that just because a short-seller has made these accusations, it does not mean they should be dismissed as anti-national. Short-sellers profit by identifying faults and gaps, and profit is a powerful motivator. Regulators should ideally use such inputs as market intelligence tools. Short selling is not an illegal activity under Indian laws, and mudslinging at successful leaders is, unfortunately, part of the ecosystem — a reality that leaders with a corporate background, like Buch, have likely been stress-tested against. Yet, in the Indian regulatory system, where heads are appointed by the government and not by a legislative committee as in the U.S., even the slightest perception of impropriety can be weaponised by political opposition or critics.
One narrative is that this new allegations represent a hit-job on the regulator by a short-seller who underestimated the resilience and recovery of the corporate entity they targeted. While the Hindenburg allegations, this time around, may lack substance, they highlight a significant vulnerability in our regulatory system: the need for clearer, more robust guidelines on conflicts of interest and the disclosure requirements for those in regulatory positions, and the investigative processes. This will not only protect the integrity, imagery and personal space of our regulators but also safeguard public trust in the institutions they lead.
While this matter may appear straightforward, it demands careful and deft handling by the government. It is crucial to prevent it from becoming sensationalised or politicised. This topic should not oscillate between being framed as anti-India and fuelled by nationalist rhetoric, nor should it be perceived as a sign of opaque governance; instead, it requires a balanced and transparent approach. India should not sacrifice a regulatory chief based on allegations alone; with a thorough and fair process to address these claims, if proven false, it is essential to restore the dignity of both the individual and the regulatory position with appropriate sensitivity.
Dr Srinath Sridharan is a policy researcher and corporate adviser. X: @ssmumbai
