Stockholm (NordSIP) – The Adani Group has been on sustainable investors’ radar as a problematic conglomerate for some time. Over the last four years, the Indian conglomerate has been criticised for greenwashing, cosying up to military dictatorships and outright fraud. All throughout these troubles, many investors have seen fit to exclude Adani’s stocks while others held on. Now, things appear to have taken a turn for the worst, confirming sustainable analysts’ worst concerns.
On November 20th, the Securities and Exchange Commission (SEC), the US financial regulator, charged Adani Group executives Gautam Adani and Sagar Adani as well as Cyril Cabanes, a former member of Azure Power’s Board of Directors, with bribery. In parallel, the US Attorney’s Office of the Eastern District of New York announced it was charging Gautam Adani and seven other co-conspirators with five counts of criminal behaviour.
Following the accusations by the US Attorney’s Office, arrest warrants have been issued by US authorities. Adani Group denies all accusations.
The Background – Controversies, Exclusions and Shorts
As far back as 2020, analysts have been questioning the green credentials of Adani Group. The Indian conglomerate first came to the attential of sustainable investors when its sustainability claims were shown to conflict with its ownership of the controversial Carmichael coal mine in Australia. In 2021, Norwegian pension fund KLP and US investor BNY Mellon Black listed Adani. For KLP, the exclusions trigger was Adani’s operations in Myanmar and its business partnership with the country’s armed forces. For BNY Mellon, the issue was a lack of ESG credibility of Adani in light of its ownership of the Carmichael mine.
In March 2022, Norge’s Bank Investment Management (NBIM) put “Adani Ports & Special Economic Zone Ltd under observation due to the unacceptable risk that the company contributes to or is responsible for serious violations of individuals’ rights in situations of war or conflict.”
At the start of 2023, Hindenburg Research, a US investment research firm, announced it was taking a short position on Adani Group stocks based on inhouse research and claiming that the Indian conglomerate had engaged in stock manipulation and fraud.
Following a long-winded consideration of the risks, NBIM’s exclusion of Adani Ports eventually materialised in May 2024, just on time to avoid this week’s turmoil.
The Civil Complaints
The present accusations carry the weight of civil and criminal prosecution in the USA. On the civil front, the SEC presented two civil law complaints to the US Eastern District Court of New York. The first accuses Gautam Adani, Chairman of Adani Green’s Board of Directors, and his nephew, Sagar Adani, Executive Director of Adani Green’s Board, of orchestrating a bribery scheme involving the payment or promise to pay approximately US$250 million to Indian government officials. The bribes are supposed to have facilitated the purchase ofenergy at above-market rates that would benefit Adani green and Azure Power.
As alleged, Gautam and Sagar Adani were engaged in the bribery scheme during a September 2021 US$750 million Note offering by Adani Green, including approximately US$175 million from U.S. investors. Moreover, the SEC also notes that the Adani Green Note offering materials included statements about its anti-corruption and anti-bribery efforts that were materially false or misleading in light of Gautam and Sagar Adani’s conduct. The participation of US investors and the misrepresentation of Adani’s anti-corruption and anti-bribery efforts appear to be at the heart of the SEC’s complaint.
In the second lawsuit, the SEC also charged Cyril Cabanes, a former member of Azure Power’s Board of Directors, with violations of the Foreign Corrupt Practices Act (FCPA) for his role in the alleged bribery scheme. According to the SEC’s complaint, Cabanes allegedly facilitated the authorization of bribes in furtherance of the scheme while in the United States and abroad.
“As alleged, Gautam and Sagar Adani induced U.S. investors to buy Adani Green bonds through an offering process that misrepresented not only that Adani Green had a robust anti-bribery compliance program but also that the company’s senior management had not and would not pay or promise to pay bribes, and Cyril Cabanes participated in the underlying bribery scheme while serving as director of a U.S. public company,” said Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement. “We will continue to vigorously pursue and hold individuals, including senior corporate officers and directors, accountable when they violate our securities laws.”
The SEC’s complaint against Gautam and Sagar Adani charges them with violating the antifraud provisions of the federal securities laws. The complaint seeks permanent injunctions, civil penalties, and officer and director bars. The SEC’s complaint against Cabanes charges him with violating the FCPA and seeks a permanent injunction, a civil penalty, and an officer and director bar.
The Criminal Case
The bribes also expose Adani to criminal liability in the USA, according to the US Attorney’s Office for the Eastern District of New York, which charged eight defendants, including the Adanis and Cabales, with five counts of criminal behaviour: Conspiracy to violate the FCPA, Securities Fraud Conspiracy, Wire Fraud Conspiracy, (actual) securities fraud, and Conspiracy to Obstruct Justice.
“As alleged, the defendants orchestrated an elaborate scheme to bribe Indian government officials to secure contracts worth billions of dollars and Gautam S. Adani, Sagar R. Adani and Vneet S. Jaain lied about the bribery scheme as they sought to raise capital from U.S. and international investors,” stated Breon Peace, US Attorney for the Eastern District of New York. “My Office is committed to rooting out corruption in the international marketplace and protecting investors from those who seek to enrich themselves at the expense of the integrity of our financial markets.”
“Gautam S. Adani and seven other business executives allegedly bribed the Indian government to finance lucrative contracts designed to benefit their businesses. Adani and other defendants also defrauded investors by raising capital on the basis of false statements about bribery and corruption, while still other defendants allegedly attempted to conceal the bribery conspiracy by obstructing the government’s investigation,” stated FBI Assistant Director in Charge Dennehy. “The FBI maintains its steadfast mission to expose all corrupt agreements, especially with international governments, and protect investors from related harm.”
Adani Denies All Accusations
Faced with these accusations, the Adani Group has issued a press release in support of its directors.
“The allegations made by the US Department of Justice and the US Securities and Exchange Commission against directors of Adani Green are baseless and denied. As stated by the US Department of Justice itself, “the charges in the indictment are allegations and the defendants are presumed innocent unless and until proven guilty.” All possible legal recourse will be sought,” the Adani Group said in a press release.
“The Adani Group has always upheld and is steadfastly committed to maintaining the highest standards of governance, transparency and regulatory compliance across all jurisdictions of its operations. We assure our stakeholders, partners and employees that we are a law-abiding organisation, fully compliant with all laws,” the Adani Group concludes.
Who’s Exposed?
Although some investors shunned Adani, not all had that foresight. When Adani’s attempted US$2.45 billion Follow-on Public Offering (FPO) failed in the aftermath of the Hidenburg Research short, NordSIP noted how the whole fiasco reflected poorly the FPO’s anchors: Jupiter Asset Management, BNP Paribas, Société Générale and Morgan Stanley, as well as Goldman Sachs, which.
In the Nordics, the Anthropocene Fixed Income Institute’s (AFII) Ulf Erlandsson warned Swedish asset manager EQT (via its ) and other investors about the capital raising being undertaken by portfolio company EdgeConnex’s joint venture, AdaniConneX. In April 2023, Erlandsson noted that the transaction “could be viewed as a financing transaction for a related party, Adani Power and, more broadly, the Adani Group”. The transaction appears to have gone through, allowing AdaniConneX to secure US$213 million in debt financing.
Last but not least, Gautam Adani hosted EU, German, Belgian and Danish ambassadors at the group’s office at the start of November. The ambassadors were also showed them around Adani Green Energy’s renewable energy park in Khavda, Gujarat, and India’s largest commercial port in Mundra operated by Adani Ports and SEZ Limited.
