Mumbai: More than half a dozen foreign portfolio investors (FPIs) that owned substantial stakes in Adani Group firms are looking to settle securities violation matters with markets regulator Sebi, said people familiar with the matter. They have agreed to pay a certain amount as fines, the people said.
The legal representatives of eight FPIs – Albula Investment Fund, Cresta Fund, MGC Fund, Asia Investment Corporation (Mauritius), APMS Investment Fund, Elara India Opportunities Fund, Vespera Fund and LTS Investment Fund – have filed a total of 16 settlement applications with Sebi. The regulator had accused the FPIs of failing to maintain and disclose information about their ultimate beneficial owners as well as for breaching investment limits in listed entities of Adani Group during certain periods.
Two Sets of Show-cause Notices
This was one of the issues referred to in the Hindenburg Research report of January 2023 that led to a slump in the stocks of Adani Group companies.
Several other FPIs that also owned stocks of Adani Group companies and were accused of violations by Sebi are planning to submit settlement applications, the people said.
Regulatory experts said parties charged with securities law violations often seek a settlement but it’s up to Sebi to accept or reject them. The FPIs don’t admit or deny wrongdoing, a common practice among parties settling with the market regulator.
Sebi didn’t respond to queries and neither did the eight FPIs.
After going through the settlement applications, Sebi calls legal representatives of the FPIs to negotiate terms and conditions. If agreeable to all sides, the settlement terms will be placed before an independent advisory committee headed by a retired chief justice of a high court. Based on the committee’s recommendations, which could include modifications to the terms or rejection of the settlement, Sebi will pass a settlement order or proceed with legal action.
The regulator had issued two separate sets of show-cause notices to the FPIs – under enquiry and adjudication proceedings. Under enquiry proceedings, it asked the FPIs why it should not cancel their registrations for the violations committed. Under adjudication proceedings, it sought to impose fines for breaches.
“Adjudication proceedings can be settled as they involve monetary penalty or settlement amount,” a securities lawyer said. “But in enquiry proceedings, non-monetary terms and conditions have to be agreed by the parties involved. If they agree to the alleged violations, then they would have to stay away from the capital market for a certain period of time, among other restrictions.”
The FPIs have 60 days from the date of receipt of the show-cause notices to file for a settlement.
The matter dates to October 2020, when Sebi started to probe the shareholding patterns of Adani Group companies after its internal surveillance system threw up alerts over concentration of certain foreign holdings in the listed entities of the infrastructure conglomerate. The question was whether the overseas investors were fronts for promoters or bonafide public shareholders.
Sebi’s examination flagged 13 FPIs. Apart from the eight mentioned above, the other five are Emerging India Focus Funds, EM Resurgent Fund, Polus Global Fund, New Leaina Investments and Opal Investments. But the investigation hit a wall as Sebi couldn’t ascertain the ultimate beneficial owners of the FPIs and whether they were linked to the Adani Group.
Two years later, US-based Hindenburg Research published the report on the Adani Group accusing it of round-tripping, money laundering and other allegations. The Adani Group denied any wrongdoing but the report led to a revival of Sebi’s effort to trace the economic interest in the 13 FPIs.
In its submission in August 2023 to the Supreme Court, where multiple public interest litigations (PILs) had been filed seeking a probe into the Hindenburg allegations, Sebi said it had analysed trading by three clusters of FPIs in seven Adani Group stocks – Adani Enterprises, Adani Ports & SEZ, Adani Green Energy, Adani Transmission (now Adani Energy Solutions), Adani Power, Adani Total Gas and Adani Wilmar – between March 1, 2020, and December 31, 2022.
These analyses were related to alleged price volume manipulation, minimum public shareholding violation, FPI investment limit breach and offshore derivative instrument norm violation, it said.
The regulator said that it had found 42 contributories to the assets under management of 13 FPIs but it drew a blank with regard to the ultimate beneficial owners of these contributories. This was mainly because it couldn’t get information from its foreign counterparts.
As per the latest available information, the FPIs have either exited or pared their stakes in Adani Group companies. Stock exchanges only capture shareholdings that are 1% and above and so the FPIs’ latest holding in Adani Group companies couldn’t be ascertained. Elara India Opportunities Fund, however, held 1.52% and 1.69% in Adani Total Gas and Adani Transmission, respectively, as of March 31.
Though the Supreme Court in January this year disposed of the PILs, it had directed Sebi to complete its pending investigations and “to take its investigations to logical conclusion in accordance with law”.
If the matters are settled between the Sebi and the FPIs, it could bring the curtain down on the four-year inquiry into the issue.
