8 FPIs Settle Alleged Adani Stock Violations with SEBI

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.

Of the 13 FPIs flagged by SEBI for failing to maintain and disclose information about their ultimate beneficial owners in listed Adani entities, eight are looking to settle securities violation matters with the markets regulator, The Economic Times reported.

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 these 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.

This matter dates to October, 2020 when SEBI launched an investigation into the shareholding structures of the Adani Group companies. This move came after the market regulators' internal surveillance system flagged worrying concerns about the high concentration of foreign holdings in the conglomerate's listed entities. The question posed by the regulator was whether these overseas investors were acting as fronts for promoters or were genuine public shareholders.

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. The US-based Hindenburg Research in its report on the Adani Group accused 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.

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 say that 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.

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 has identified a total of 13 Foreign Portfolio Investors for scrutiny, including the eight previously mentioned and five others -- Emerging India Focus Funds, EM Resurgent Fund, Polus Global Fund, New Leaina Investments, and Opal Investments.

However, the investigation came to a standstill as SEBI struggled to determine the ultimate beneficial owners of these FPIs and their potential connections to the Adani Group.

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.

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.