Adani Controversy Round 2.0: A Look at the Latest Allegations

The latest exposé suggests that India’s top financial markets regulator had known about the alleged wrongdoing in 2013, but failed to act

India’s Adani Group has been hit by a new wave of fraud allegations, this time from a media investigation led by Organized Crime and Corruption Reporting Project (OCCRP) along with global media partners including The Financial Times and The Guardian.

The sprawling Indian conglomerate, which has energy interests spanning from Australia to Bangladesh, saw its group company shares fall by between 2% and 4% today.

The news stories each take slightly different angles. Here is the basic gist of the allegations:

1) The Adani family and its associates secretly invested hundreds of millions of dollars buying its own shares

According to the reports, the vast majority of money invested by two Mauritius-based funds into Adani Group stocks between 2013 and 2018 can be traced back to shell companies controlled by two individuals.

These two people are Nasser Ali Shaban Ahli from the United Arab Emirates and Chang Chung-Ling from Taiwan. Both Chang and Ahli are associates of the Adani group having been directors of Adani linked companies, according to the reports. The two funds in question are called ‘The Emerging India Focus Funds’ (EIFF) and the ‘EM Resurgent Fund’ (EMRF).

The money that flowed into these funds came from yet another fund called the Global Opportunities Fund (GOF) in Bermuda. 

Ahli and Chang’s accounts in GOF were “overseen” by an employee of a company called Excel Investment and Advisory Services. The management companies of EIFF, EMRF and GOF all paid “advisory” fees to Excel. There is evidence to indicate that Excel was controlled by Gautam Adani’s older brother (Vinod Adani) at the time.

As per the documents seen by the consortium, the offshore companies controlled by Chang and Ahli had invested $430m – 100% of their total portfolio – into Adani company stock by March 2017. 

The allegation has serious implications for the Adani group under India’s stock market rules which require that not more than 75% of the shares of a listed company are held by promoters. If the shares held by Ahli and Chang are classified as controlled by proxies of Vinod Adani, then the Adani Group’s promoter holding would breach the 75% limit. This could potentially lead to delisting, according to the rules. 

2) India’s top regulator knew but did nothing

The consortium has found evidence to indicate that the Securities and Exchange Board of India (SEBI) was aware of GOF’s investments in the Adani Group as far back as 2013. 

The Financial Times in its report says that SEBI had inquired in August 2013 about the beneficial owners of the two funds buying large amounts of Adani stock and was told that the end investor was the GOF.

In January 2014, the Directorate of Revenue Intelligence, which was investigating a separate case of over invoicing by Adani group of companies, wrote a letter to SEBI. The letter said “There are indications that [Adani-linked] money may have found its way to stock markets in India as investment and disinvestment in the Adani Group.” 

The letter also said that it was sent to SEBI because it was understood to be investigating the dealings of Adani group companies in the stock market. 

But, a source who worked at SEBI at the time told the consortium of journalists that “SEBI’s apparent interest seemed to disappear” after Narendra Modi (who is known to have very close ties with the Adani family) was elected Prime Minister of India in 2014. 

3) Ahli and Chang’s names also appear in a different set of investigation by India’s finance ministry into the Adani Group back in 2014

These probes, which dealt with alleged over-invoicing of power equipment imports and circular trading of diamonds, were later closed by a higher adjudicating authority due to a lack of evidence.

Overall, the allegations hint that Chang and Ahli are alleged fronts for Adani. And the situation points towards a breach of public shareholding norms (at the minimum) and round-tripping of funds (at the worst). These were allegations first raised by short-seller Hindenberg Research back in January 2023. 

Public shareholding rules exist to make sure companies can’t manipulate the share price of their own stocks. And round-tripping of funds implies there is black money or tax evasion involved.

Questions that SEBI should answer

Here’s where things get more interesting though. Both EIFF and EMRF are part of a list of 12 foreign funds that SEBI has been investigating for some time as part of its probe into the Adani Group. 

A few months ago, an expert committee set up by India’s Supreme Court shed some light on the status of the market regulator’s probe. The panel said that the 12 funds had 42 investors. These investors aren’t people though, each of them are yet another company with more unknown shareholders. The committee’s conclusion: finding the ultimate beneficial owners of each of these 42 companies could be an exercise in futility; potentially a “journey without a destination” for SEBI.

A more recent status report from SEBI itself said this: “ “As many of the entities linked to these foreign investors are located in tax haven jurisdictions, establishing the economic interest shareholders of the 12 FPIs remains a challenge… efforts are still being made to gather details from five foreign jurisdictions.”

If SEBI ends up offering no response, it would be disappointing to say the least. If a few news organizations were able to find documents that trace the ultimate ownership for money invested by two funds, how hard would it be for SEBI? Especially considering the regulator was worried about GOF’s investments way back in 2013?

Granted, OCCRP may have gotten these documents from a whistleblower. And there is a case to be made that even if SEBI got access to the same documents in a similar manner, it's unclear whether they could actually use them as evidence in a probe against the Adani Group. But should the market regulator be allowed to throw up its hands and declare that the task is too hard because authorities in foreign jurisdictions aren’t playing ball? Especially when now there is information in the public domain that could help its probe?

Finally, the most interesting link to Adani in the news expose is the role played by Excel Investment in advising where Chang and Ahli’s money ended up.

The details around this are a little scarce, but OCCRP’s report offers some nuggets of insight:

“An internal email exchange suggests that, in connection with an upcoming audit, fund managers were concerned that they didn’t have sufficient paperwork to justify following Excel’s investment advice. In one of the emails, a manager instructs several employees to produce records that would justify the reasoning behind the investments. In another, a manager makes a request to obtain a report from Excel which should recommend investing in “more than the number of securities into which the fund has [actually] invested so that it can be demonstrated that the [investment manager] used their discretion to make the selection of investments.” [Emphasis added].

This appears to indicate that fund managers followed Excel’s investment advice without too much thought. On their part, the news organizations would do well to place these emails in the public domain for everyone to judge the relationship between the funds and Excel.

That said, what is the best way for India’s market regulator to ask for the internal corporate communications of a UAE company or a Mauritius fund? If Excel was based in India, it would be relatively easy for SEBI to raid them. Other investigative agencies like the Enforcement Directorate or Central Bureau of Investigation generally resort to filing what is called ‘letters rogatory’ or a formal request for help from a foreign judicial authority or government. 

Has SEBI done this? We’ll find out soon enough.