I spoke to some readers who worked in finance about their everyday work and how they used AI in their workflows, if at all. Because of those conversations, I’ve narrowed my focus to chartered accountancy.

If you’re a practising CA, would you be up for a 30-minute chat? Topic: understanding your everyday work and how AI is impacting it.

You can reply to this email or fill the form below and I’ll reach out.

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Modern finance has done a decent job of ensuring that the incentives of a borrower and a lender are aligned. The lender wants a reliable borrower who pays their dues on time (well, obviously). If you’re a borrower, you want to be reliable, or at least perceived to be reliable, because if you default, lenders won’t lend to you anymore, investors won’t invest in you, vendors won’t sell to you (on credit, that is), and people online will write annoying blog posts about you. It’s a downward spiral.

So what do you do if you can’t repay on time? The lender isn’t going to like it, but hey, shit happens, and you might generally be a good borrower who can’t meet an upcoming payment for an honest reason.

So you ask the lender for more time, even offer to pay more to cover the late payment. You assure them that future payments won’t be affected. Unless the lender thinks you’re intentionally stifling them, their incentive is to go with it. If they don’t, their loan to you will become a non-performing asset, which means that they will be able to lend less, and that’s something their investors won’t like. If they were to loosen their terms, give you a bit of wiggle room, you might come through and there’d be no harm done.

Your lender makes a huffed face but ultimately agrees to revise your payment terms, with a few conditions. The conditions are not trivial, but you’ve got no choice but to accept. You do what you need to do, and meet those conditions. But then your lender can just refuse to revise your payment terms? You’ve now paid the cost of meeting the lender’s initial conditions as well as defaulted on your loan. Worst possible outcome!

Ecstasy Realty is a Mumbai-based builder that issued bonds worth ₹600 crore ($63 million) to a bunch of lenders. It was unable to make a repayment, so it proposed restructuring the bonds. The lenders seemed to agree, they set out the conditions, Ecstasy met those conditions, but then the lenders disagreed. Two corporate courts—NCLT and NCLAT—sided with Ecstasy and felt Edelweiss couldn’t go back on its initial agreement. But last month, the Supreme Court reversed their judgements and said that hey Edelweiss very well could because it had never really agreed to the new terms in the first place.

Setting the conditions

Ecstasy borrowed this contentious ₹600 crore in March 2018. 85% of this amount came from three companies: ECL Finance, Edelweiss Investment Adviser, and Edelweiss Rural and Corporate Services. Essentially, from Edelweiss Group.

By March 2022, Ecstasy was good with its repayments and had repaid ₹508 crore. The interest rate on the ₹600 crore it had borrowed was 15% per annum, so this was still less than half the money it owed.1 Ecstasy had a ₹65 crore ($6.9 mn) repayment due by the end of the month, but it figured that it wouldn’t be able to make the payment. So it reached out to Edelweiss with a proposal.

Here’s a bit from Ecstasy’s email to Edelweiss, from NCLAT’s judgement:

We require the going forward terms confirmed in writing from edelweiss as under:

1. Interest and Principal moratorium of 18 months for the Balance NCD.

2. Bandra property unwound from security package.

3. Rs 25 crores to be released simultaneously.

4. Int rate on balance payments brought to 14.5% pa.

5. Rs 1 cr to be released from current escrow for stamp duty and other expenses.

Let’s make sense of what we’ve got:

1. Ecstasy wants to delay its repayments by 18 months without being branded as a defaulter during this period.

2. There’s a “Bandra property” that was collateral for the bonds which Ecstasy wants back so that it can sell some flats and earn some money.

3. Ecstasy wants another ₹25 crore from Edelweiss to meet its operational expenses? And it wants the interest rate for its bonds to be lowered.

All of this looks like Ecstasy just asking for things, a bit much for a borrower on the verge of defaulting. What is Edelweiss’s play here? Let’s look at its response:

As discussed we are agreeable to the following, subject to completion of the current Sapphire transaction and disbursement by 25th March latest:

1. Release of Bandra plot

2. Restructuring will be provided on the balance original NCDs - Moratorium for principal and interest of 18 months (Repayment will start Sept 2023 onwards)

Edelweiss had one condition—the completion of a certain Sapphire transaction. This transaction, as we learn from NCLAT’s order, is... more borrowings! This one from the India Credit Investment Fund-I (ICIF). ₹152 crore ($16 mn) at a 16.25% interest rate.

There’s more to it:

Upon receipt of the funds from ICIF, the Corporate Debtor transferred the entire amount of Rs 152 Cr. to the Edelweiss Group through the Appellant. On 28.03.2022, the Appellant also addressed a letter to the Corporate Debtor stating that subject to the receipt of Rs 152 cr of the Sapphire transaction, they would issue the release letter and No Dues Certificate.

Ecstasy did complete the transaction, and the money that Ecstasy borrowed from ICIF went directly to Edelweiss! This money was to be additional collateral for Edelweiss in return for agreeing to revising the repayment terms and not branding Ecstasy as a defaulter.

Minds change

So Ecstasy completed an expensive bond offering in a matter of days, and wrote to Edelweiss, asking them to inform everyone about the new terms please. Here’s what Edelweiss got back with:

With regards to restructuring, we have already communicated that we are ok to provide extension. However as communicated earlier, we will need to run the entire process internally based on the overall resolution plan. The final restructuring approval will be provided around the month of June.

Ecstasy’s repayment is due in March 2022, and this email lands on the second-last day of the month! Ecstasy is desperate, Edelweiss pretty nonchalant. After this, there is no coming back. By July, the bondholders do a formal vote and reject Ecstasy’s restructuring proposal, inform it that it has defaulted, and immediately demand that it pay back the entire principal with interest—₹1,203 crore.

Formal structures in an informal world

A few good things for us to know:

1. Ecstasy had issued non-convertible debentures, which are a type of bonds that can be traded on the stock exchange.

2. Because they can be traded, the “lenders” are not fixed. The ones that buy the bonds initially can sell them.

3. Which is why these bonds have a trustee. The one entity which represents the bondholders at all times. This is the borrower’s official point of contact with the lenders.

Ecstasy’s lenders were at least three Edelweiss companies: ECL, Edelweiss Investment Adviser, Edelweiss Rural and Corporate Services. In theory, these are three different companies which operate independently. In practice, they’re three companies who don’t even have their own websites, operate out of the same office, and are wholly owned subsidiaries of Edelweiss Financial Services.

When I wrote earlier that Ecstasy wrote to Edelweiss, whom do you think it wrote to? Your choices—

1. Someone at one of the three Edelweiss companies.

2. Someone at each of the three Edelweiss companies.

3. The bond trustee.

The right answer is—none of the three! From the Supreme Court’s order:

[…] correspondence by the respondent company with regard to restructuring of the loan facility under the debentures was with one Saahil Dugar, who was associated with Edelweiss Alternative Asset Advisors Limited, an Edelweiss group company. The case of the respondent company, as is evident from its counter affidavit filed before us, was that he was acting on behalf of the Edelweiss group/ECLF. No authorization in that regard was produced. Thus, the restructuring proposal was addressed by the respondent company to only one debenture holder, viz., ECLF. In the absence of express authorization of Saahil Dugar to act on behalf of the other debenture holders, which include a company, an LLP and individuals, his actions could not bind them

Ecstasy wrote to someone at Edelweiss Alternative Asset Advisors, yet another different Edelweiss company, which wasn’t involved in the situation at all. This may not have been the only one, but this was a core reason that the Court sided with Edelweiss. It said that the random guy Ecstasy was speaking to had no business agreeing to the proposal on the lenders’ behalf.

More weirdness, and a question

I can imagine Ecstasy’s predicament. It borrowed money from Edelweiss. It was communicating with Edelweiss! While there is no way for me to say for sure, I wouldn’t be surprised if the person they were talking to was also their point of contact when they initially borrowed the money. No reason to doubt him. And you wouldn’t want to write to a middleman if you thought you had one lender and could just write to them directly.

Things are already weird, but they get weirder. Edelweiss wanted Ecstasy to borrow from a fund called ICIF. And ICIF was an Edelweiss fund! Edelweiss lent money to Ecstasy so that Ecstasy could repay Edelweiss, just at a higher interest rate.

Did Edelweiss ever want to agree to revising the repayment terms? Why would it lend more money to someone already on the verge of default? Let’s consider the possibilities:

1. Edelweiss didn’t think Ecstasy was a bad borrower, Covid was in the air it was just bad circumstances. So it was fine lending more money—it would both avoid a bad loan, as well as make more money with the new loan. But then new information made it decide to do otherwise.

2. Edelweiss never wanted to revise the original repayment terms, and instead wanted to stiff Ecstasy and recover as much as it could from its original loan. It got ₹152 crore from its own fund, which would make its immediate financials look better, and eventually Edelweiss would anyway sue, sell collateral, seize assets, etc. to recover money at a higher interest rate.

Both (1) and (2) are theoretically possible. Yeah, (2) seems a bit twisted, but that’s what NCLT and NCLAT thought was happening.

If (1) were the case, what could’ve made Edelweiss change its mind?

Maybe Edelweiss figured that Ecstasy was actually a bad borrower that stole money. Last year, Edelweiss sued Ecstasy for “diverting funds to personal accounts, layering and siphoning funds using shell company accounts, and repaying undisclosed third party borrowings”, so it definitely thinks that now.2

Or, maybe Edelweiss figured that using its own ICIF to lend to Ecstasy to then repay a part of its own original loan would be very obvious evergreening. Then Edelweiss would itself be committing fraud. (In 2024, RBI pulled up Edelweiss for evergreening some of its loans very creatively in an unrelated context.)

Either way, Ecstasy wasn’t ecstatic.

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If you own 75% of a company, and someone else owns 25%, you could refer to yourself as the owner of that company. The other person would be a partner, co-founder, shareholder, investor, or whatever else you want them to be, but they wouldn’t be an owner.

Now split the 25% into 10 pieces each and the decision is simpler. You own 75%, 10 others own 2.5% each. Of course, you’re the owner.

Now split each of the 2.5% chunks into 10 more pieces each. 100 people now own 0.25% each and you still own 75%. You’re the owner, no doubt.

Let’s keep going! Split the 0.25% by 10. Now there are a thousand others who own 0.025% of the company each. Are you still the owner?

The funny thing is that yes of course you own most of the company, and everyone else is way too small to have any meaningful say in how the company is run. But if there really is a scenario where thousands of others own shares in your company, you are no longer the owner. You’re a publicly listed company with public shareholders who come with minority shareholder rights.1

Shareholder rights include things like “you must inform everyone about your financials every quarter” but also “you cannot withdraw the company cash, pile it up, and set it on fire”. If you were the owner of the company in its truest sense, which means that your company isn’t listed and you own 75%, you can literally create a mountain of cash and light it on fire and you’d be fine.2 As long as your accountant manages the balance sheet correctly, of course.

Linde India and Praxair India are two companies that produce and sell industrial gases in India. Both are owned by Linde plc, a European multinational. Linde “owns” Linde India, but it really owns Praxair India. The difference being that Linde India is a publicly listed company with 25% of its shares with public shareholders, while Praxair India is private and fully owned by Linde plc.

Linde did not burn a pile of cash, but it did transfer some of Linde India’s assets to Praxair India. That’s a bad look! Linde India is public and some of its profits go to public shareholders. Praxair India is private, and all its profits go to its parent company. If Linde India happened to give away its best assets to Praxair, that’s bad for public shareholders. But this was back in 2020, and since then the company’s stock has gone up 10X, so presumably the asset transfer wasn’t too bad.

Regardless, SEBI investigated investor complaints against Linde India and issued two enforcement orders against it, both in 2024. Linde India challenged both orders, and last December SAT ruled that SEBI was right about being annoyed about Linde India’s asset transfer.

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Split right down the middle

Until 2018, Linde India and Praxair India were separate, competing companies. In October 2018, their parent companies, both European multinationals, merged, and both of them became sister companies.

The rational thing for Linde plc to do, as it owned both companies, was to not have them compete against each other. From SEBI’s July 2024 order, this is how they achieved that:

a) Geographic Allocation (north, east and west 2 regions were allotted to Linde whereas south, central and west 1 regions were allotted to PIPL), and

b) Product Allocation [Linde got exclusivity with respect to the Project Engineering Business and PIPL got exclusivity in HyCO, Hydrogen, Carbon Monoxide and CO2 including carbon capture businesses (“HyCO”)

Linde and Praxair split regions within the country between them, and decided to operate their main gas selling business within their own regions. They also split product lines between them. Linde India got something called “project engineering” while Praxair got carbon capture. (Carbon capture is the hip, new, cool stuff. Project engineering sounds like what your grandad used to do when he retired.)

The problem with this is that the region-splitting and product-splitting was largely arbitrary. Linde plc owned both companies, said “hey let’s do this”, and so it was done. Linde of course has a bit of an incentive to favour Praxair India at the cost of Linde India’s shareholders.

After the 2018 merger, Linde plc had three options:

1. Make Linde India private, that way it can split regions, product lines, employees, whatever else it likes and it’s nobody’s business.

2. Let the companies remain as they are, but take shareholder approval for the transaction. (SEBI’s rules state that if a transaction with a related party is above 10% of the company’s annual turnover, the company must take shareholder approval.3)

3. Ask for forgiveness rather than permission.

We know now that Linde India went with #3. But in all fairness, it tried both #1 and #2 first, even if half-heartedly.

Linde plc wanted to take Linde India private, but shareholders didn’t like the price it offered and refused. Linde also asked shareholders for a sort of “pre approval” of all transactions with its related parties. That permission was way too broad for shareholders, it would mean Linde India could literally do whatever it liked with any of Linde plc’s subsidiaries, and shareholders refused again. That’s when Linde India decided not to care.

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Shareholders’ world

Intuitively, the way to sort out assets between the two companies would be by doing an equal barter. Linde India gives some regions, gets some regions. Gives some products, gets other products. The split should be out of convenience of operations, but the value of the assets with both the companies must remain the same.

In April 2024, SEBI issued its first order against Linde India. It asked for two things:

1. An independent valuer must value the assets Linde India gave away to Praxair and received in return.

2. If the value of the assets was more than 10% the turnover of the company, it must take shareholder approval.

These are both simple asks! No one’s being penalised. There isn’t necessarily any insinuation of the company shafting its public shareholders. And yet, Linde India didn’t like it. It challenged SEBI’s order in SAT. SEBI then reviewed its order, heard Linde’s arguments out, and issued another order, asking for the same things again.

Linde India challenged the second order in SAT again, and finally, last December, SAT decided that SEBI’s order was reasonable and Linde India must get the valuations done and take shareholder approval.

It’s been two months since this order, so I assume the independent valuer must be putting final touches? But how do things even work at this stage?

I think in all likelihood an independent valuation will find that Linde India gave away its assets for less than they were worth. If that were not the case, Linde wouldn’t have gone to the lengths that it did to challenge the independent valuations in the first place. But what happens then? It’s been 5 years since asset exchange happened, and it would be foolish to think that it can be reversed.

Here’s a funny possibility. At this point, Linde India has no choice but to ensure that the valuations are done and shareholders approve the transaction. That gives them power! Even if the valuations of the exchange aren’t too lopsided,4 Praxair India will need to throw in cash to sweeten the deal so that shareholders approve. The last time Linde India tried to get shareholder approval, 93.94% voted against it,5 so you can imagine the amount of cash it would take to get their approval this time around.

The more cash Praxair throws in, the more valuable Linde India gets. The more valuable Linde India gets, the higher its share price goes up. And it might be one of the few companies whose share price goes up directly as a result of SEBI orders against it.

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It’s been 3 months since the last Boring Money post, and I’ve been meaning to share an update about what’s going on. Here it is, finally!

For those who may not know me, I’m neither a journalist1 nor do I work in investing, finance, or anything remotely related to Boring Money. I’m just someone who likes reading about finance, thinking about things, joining the dots, and writing about the stuff I’ve thought about and the dots I’ve joined. It’s pretty fun.

When I’m not writing, I work in tech. Most recently, at a startup as a product manager. The product management paid the bills, the writing brought joy and fulfilment.

A few months ago, a couple of things happened around the same time.

1. The startup I worked at was acquired.

2. AI became pretty amazing at coding.

Let’s begin with the startup acquisition. I can’t go into too much candid detail just yet, 2 but the truth is that the quality of the work that I was doing had long fallen below whatever imaginary line one can draw for bullshit jobs. There was no value in what I was doing, nothing to look forward to. The time I spent “working” was more “pretending to be working” while everyone else was doing exactly the same thing without being able to say it or admit it. Man, was it exhausting.

As this was happening, AI took off. I mean, it took off well enough with ChatGPT’s launch, but its application into software development was quite another thing. The path from imagination to software got incredibly short.

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Even though I’ve studied computer science, I’ve never worked as a software engineer. I didn’t enjoy it.

But that was when software engineering meant something else. It meant being able to type characters in a weird computer language that the computer understood, but you didn’t. Bah.

But AI, it speaks the weird computer language. And it speaks English. And it’s here to do as you say (for now).

On the one hand was my job. Drab,3 exhausting, self-delusion all around. On the other hand was this beautiful, magical compression of human knowledge that seemed to be turning the digital world on its head.

I went in slow, used AI to build a project or two in spaces that I knew a little bit about. Put them out into the world. People used the things I built. Real people! It was exhilarating.

In October, the day prior to Diwali, the job went away. Technically, I was kicked out.4 But bah, I was mentally checked out anyway. I got two months’ notice pay, and January is going to be the first month in 6 years that I don’t get that sweet monthly salary credit (scary).

Anyway, I’m now working on my own startup. It’s called Inkable Docs, a SaaS aimed at universities in the US. I’ve spent the last few months, both days and nights, working on it. Which is why Boring Money took a backseat. Can’t have too much fun, can we?

While the startup is my source of exhilaration, the joy and fulfilment of writing a Boring Money post is irreplaceable. So this is me saying Boring Money isn’t on hiatus. Just a bit of an unplanned gap that we’re seeing the end of.

I’ll be back. Soon.

—

PS - If you’re a paid subscriber disappointed that you’re not getting your money’s worth with regular posts, just reply to this email and I’ll be happy to refund.

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More than 2 years ago, Hindenburg Research published a report accusing the Adani Group of fraud. After the report, SEBI ran an investigation to figure whether any of Hindenburg’s claims were true.

If you’ve been along with Boring Money for a while, you might know that Hindenburg had quite a few claims. They weren’t particularly new claims, but they were all together in one place, easy to read, and easy to register the sheer shock value in some of the circumstances around the Adani Group. Of the many claims, the one that interested me the most and which seemed to be the most flagrant was of foreign funds which owned Adani stock—so much Adani stock, and no other stock!—that it seemed like a no-brainer to the people who used to work at those foreign firms that Adani was behind the funds.

Adani’s companies caught international interest because their stock prices shot up like mad. And the stock price shot up like mad, the accusation goes, because Adani Group was buying its own companies’ stock via these foreign funds.

Last month SEBI published two orders (here and here) related to Hindenburg and Adani. Neither of them address the foreign firms issue and pick much less significant claims. Both of them conclude that there was no evidence that Adani was committing fraud.

I read the orders and found no investigation. I don’t know how else to put it. SEBI spent 2.5 years investigating arguably the largest conglomerate in the country and seems to have forgotten to actually investigate the company.

The middling companies

The way a SEBI investigation works is that there are people who investigate a particular case, and there are other people who decide if their investigation makes sense. When SEBI’s investigation people decide that they have enough evidence, they send a show-cause notice to whoever they’ve been investigating.1 The goal is to give them an opportunity to make their case about what the facts seem to say, and to clear any misinterpretations that might be happening. Once they respond to the notice, maybe even appear for in-person hearings, someone else at SEBI (usually one of the board members) plays judge. They take the call on whether the investigation made sense, if the company’s response made sense, and what the immediate action must be based on the facts at hand.

SEBI skipped the Adani foreign funds issue and instead picked two other issues that Hindenburg raised in its report. Both were about Adani companies borrowing money from or lending money to seemingly no-name companies. Here’s a quick rundown from Hindenburg’s report:

1. Rehvar Infrastructure and Milestone Tradelinks, two companies based in Gujarat, combined lent more than $300 million to Adani Infra. Both Rehvar and Milestone were supposedly silver merchants but there seems to be no evidence that there was any real business.

2. Separately, four Adani companies (Adani Enterprises, Logistics, Estates, Ports) lent $87.4 million to another small company called Adicorp Enterprises. Adicorp then lent $86 million (that’s nearly all of what it borrowed) to Adani Power.

3. Rehvar, Milestone, Adicorp all had some connections to Adani beyond the money lending. For instance, one of Milestone’s shareholders has been an employee with Adani for more than 40 years. And Adicorp’s owner has been a friend and employee for more than 30 years.

Every time a company lends to or borrows from someone that is closely related to the company’s owners, they must disclose the transaction as a “related party transaction”. This is important because it helps disclose any potential conflicts of interests and invites some scrutiny whenever there is such a transaction. That way, the owners can’t just keep “lending” money to themselves while pretending that they were legitimate business transactions.

Hindenburg’s point was that Rehvar, Milestone, Adicorp and whatever other companies were related to Adani and their transactions with Adani had to be disclosed as related party transactions, which Adani Group hadn’t done.

Now this is a narrow, securities law point of view. Kinda technical. Adani may have borrowed from a couple of companies owned by his employees. Pff, who cares? Put that one line in a financial statement and it would have been “disclosed”. Move on.

But the lack of a disclosure is just a start! Sure, Hindenburg’s point in the report was that the disclosure was missing. But the underlying, real point was that a missing disclosure is a starting point for a bunch of questions and scrutiny. For instance—

1. Where did Rehvar and Milestone get the $300 million they lent to the Adani companies?

2. Why did four Adani companies—whose business was not lending—lend $87 million to Adicorp, a company whose net profit was 0.1% that amount?

3. What did the Adani companies do with the money they borrowed from these random companies? Were they even correctly recorded as loans in its books?

I already gave the plot away in the last section, so you know what’s coming. Here’s a snippet from SEBI’s show-cause notice to Adani. This is the bit that’s supposed to be the investigation. From SEBI’s order:

a) The Noticee no.1 gave total loan of INR 1282 crores to the Noticee no.3 from December 27, 2012 to October 5, 2018 and in return received back INR 1376.15 crores from May 13, 2014 to September 25, 2020.

b) The Noticee no.3 gave total loan of INR 1282 crores to the Noticee no.2 from December 27, 2012 to October 6, 2018 and in return received INR 1453.87 crores from May 13, 2014 to September 25, 2020.

c) ALL gave loan of INR 495 crores to the Noticee no.3 on April 2, 2019 and in turn received back INR 568.26 crores on June 29, 2020 and September 25, 2020.

d) In the entire process, the Noticee no.1 got extra amount (interest) of INR 94.15 crores, ALL got extra amount (interest) of INR 73.26 crores and the Noticee no.3 got extra amount (interest) of INR4.46 crores.

SEBI describes the money trail that went from Adani to Adicorp and back to Adani. It looked at Adicorp’s bank statements and figured that Adicorp returned Adani Ports’ money with interest, and also received the money it lent to Adani Power with interest.

BUT THAT WAS NEVER THE POINT. Hindenburg didn’t flag these transactions because it claimed that Adani didn’t charge enough interest for the money it lent out. It flagged the transactions because they didn’t make sense and were an indication that there was something shady happening behind the scenes. I mean if you were using a shell company as a way to, I don’t know, inflate your revenues or to move money around and show more cash in your balance sheet, you might be careful enough to ensure that the bank statements of your shell company have a reasonable record of money coming back with interest. It seems like the kind of bottom-of-the-barrel precaution you might take. Its existence proves nothing.

In the same show-cause notice, here’s a point that SEBI made:

66% of the debit and 67% of credit transactions of the Noticee no.3 [Adicorp] were with Adani Group.

A normal person might read the above point and think “wow 66% is a lot from just one entity.” Here’s Adicorp’s response to this:

As SEBI itself has recorded in the impugned SCN that only 67% of debits and 66% of credits from the Noticee no.3 were associated with the Adani Group, which means remaining 33% and 34% of credits involved transactions with non-Adani entities. This demonstrates that the Noticee no.3 was engaged in legitimate business with a variety of entities and was not exclusively involved with the Adani Group.

Adicorp's response was “but what about the remaining 33% bro?”. SEBI’s board member who saw the show-cause notice and saw Adicorp’s response seems to have accepted this argument?2

SEBI needs to read SEBI’s orders

On the face of it, SEBI’s orders were about Adani. Yet SEBI didn’t even look at the Adani companies’ bank statements the way it did for the no-name middlemen companies. SEBI has done some wonderful investigations in the past, so it is certainly not the case that they don’t know how to.

So here’s a few things that SEBI could’ve done to really investigate the Adani issue, fully based on things it has already done in the past in other situations.

1. Retrieve all official and unofficial communication between Adani Group and the middleman companies.

The easiest way to prove fraud is when someone admits it themselves on text with a wink emoji. When Adani was lending money to Adicorp, what were the employees involved in this transaction saying to each other?

2. Doing a forensic audit of the Adani companies which borrowed from or lent to the no-name middlemen.

This is really just a way to answer the question: what in the heavens is Adani Group doing with the money that it’s borrowing from the no-name companies? Are we sure this money is not showing up as its income anywhere in its financials?

3. Physically visit the companies.

Rehvar Infrastructure is supposed to be a silver merchant. Go to its office, look for the silver bars. If you find them, great, if you don’t, ask why. (Hindenburg did do this, by the way, and found Rehvar’s office closed with an Adani employee’s contact attached on the door.)

4. Ask Adani questions! Why did it lend to a random company? Why did it borrow from a random company? Did it know that it was just lending to itself via a middleman?

Had SEBI asked questions of Adani, and Adani answered those questions, each response would serve as a thread to investigate and validate. Any lies here would be grounds for fraud.

Instead of investigating Adani, SEBI just picked up Hindenburg’s accusations, repackaged them, and sent them to Adani in a notice to refute. I think Adani does the best job here explaining why SEBI did a bad job. From SEBI’s order, here’s a bit of Adani’s response to SEBI:

The SCN has not clearly set out specific charges and the basis of allegations of the provisions of the SEBI Act and the PFUTP Regulations. The SCN is only based on suspicion and suspicion cannot be placed as proof or evidence.

SEBI’s job was to find the evidence.

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A stock exchange today1 is a company whose main product is software. The software is an order matching system that never goes down, and can make no mistakes. If it does, people lose money.

Because a stock exchange’s main product is software, it has a lot of data about people (and machines) using its software. This is stuff like the orders people are placing right now, the orders people placed 10 years ago, the kind of stocks or derivatives they’re trading, those sort of things. Because an exchange has all this data, a side-business they have is selling this data.2

A stock exchange sits in the middle of people trading, which also makes it conveniently placed when it comes to figuring out who’s playing by the rules and who isn’t. If a particular high-frequency trading firm seems to be intentionally pumping up stock prices, for instance, the exchange has to detect it and try to stop it.

This doesn’t fully make sense to me. A stock exchange is, after all, a business. And if someone is trading stock via its software, the exchange makes money. It doesn’t want people to not trade, but at the same time it wants people to follow the rules. This “want” isn’t from a sense of morality but because the exchange is given regulatory responsibilities by its own regulator, SEBI.

So:

1. Exchanges sell software and also the data that comes with everyone using their software.

2. They have regulatory responsibilities.

In addition to the information that comes with people trading on the exchange, there’s other data that exchanges have. A company that’s listed on an exchange must disclose all routine and non-routine affairs to that exchange to continue being listed. Its financial results, board meetings, responses to news reports, shady stuff discovered in the company, etc. all go to the exchanges. This is information the exchange gets not because people like using its software. It is information it gets because exchanges are pseudo-regulators and the listed companies have no choice.

In late June this year, SEBI issued an order against BSE, one of India’s two main stock exchanges. SEBI figured that people who paid BSE for data seemed to be getting access to company disclosures sooner than people who didn’t.3 Company filings aren’t information that the exchange gets because it owns great software; it’s data it gets because it’s a pseudo-regulator. That was a problem.

Befuddling databases

BSE, as a business, lets people subscribe to it for access to data. But it wasn’t just giving away the corporate filings and disclosures it received as a regulator to its paid subscribers before everyone else. There’s a bunch of tech stuff behind what was happening, and a lot of SEBI’s order tries to make sense of BSE’s systems.

Here’s what SEBI figured with BSE’s inputs:

1. When companies upload their filings, they go to database 1.

2. From database 1, the data moves to database 2. Database 1 is now irrelevant, its purpose was only to immediately (maybe temporarily?) store the filings when they’re uploaded.

3. From database 2, the data is copied to databases 3 and 4. (In SEBI’s order these are referred to as databases 2A and 2B respectively, but man those names are confusing for no good reason.)

4. A user on BSE’s website can get the data from any one of databases 2, 3 or 4 depending on which database is busy or available in that moment. This would mean that two users on the same website could be served by two different databases depending on which one’s best suited at that particular moment.

5. BSE’s paid subscribers receive the company filings from database 4. (They’re supposed to, at least.)

Because of so many databases in use at the same time, there is the possibility of some data showing up in one database before another. If the website is serving data from database 3, but the data hasn’t been copied over to it from database 2 yet, even though it may have been copied to database 4, there is a possibility of paid subscribers getting access to company filings while they’re not showing up on BSE’s own website yet.4

From SEBI’s order:

[…]

c) In 6 out of 100 instances, paid subscribers received data prior to replication in DB2A and DB2B and hence, paid subscribers would have received data prior to users of BSE website if they had connected through these databases.

d) In 47 out of 100 instances, paid subscribers received data prior to latest time stamp of databases 2A and 2B. Hence, paid subscribers had access to data prior to investor in case investor has connected to website through other database (i.e., except DB2)

In 6% of the cases SEBI looked at, BSE’s paid subscribers received the data before it was replicated to databases 3 and 4. That is very weird because the subscribers were themselves supposed to be receiving data from database 4.

In 47% of the cases, the paid subscribers received the data before the timestamps were updated for databases 3 and 4. Wow, this is confusing too. SEBI doesn’t offer an explanation about this so I’m totally guessing here, but it seems to me that the timestamps on the databases would be updated after the full replication was complete. So investors on either of these databases would see the older information until the replication was done and the timestamp updated.

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You still gotta pay

While there was a bit (probably a few seconds to a few minutes) of a time gap in when BSE’s paid subscribers received company disclosures versus everyone else, the real gap seems to be in how the data was made available to both.

If something new shows up on a website, there are typically two ways for you to know about it.

1. Checking the website. Maybe you don’t check it yourself but you have a machine that checks the website every second, and lets you know when there is a change.

2. Or, the website tells you when there is new data available.

Checking the website is fine if it’s a single web page. If it’s a thousand different company pages, it’s tough. And no matter what you do, there will be a time gap between the data becoming available and you knowing about it, depending on how frequently you or your machine is able to check.

BSE’s paid subscribers have access to BSE’s API5 which is essentially BSE telling its subscribers when there is a new update available. Everyone else just has to show up on the website and find out for themselves if the company they’re interested in is being investigated for fraud.

In its order, SEBI has a suggestion—RSS feeds:

BSE has further submitted that there is no regulatory requirement to have a RSS feed. In my view, absence of any such statutory requirement does not dilute the spirit of obligation under regulation 39(3) of the SECC Regulations. The availability of an RSS feed for dissemination of information on BSE website would have addressed the disparity between pull and push of data between general website users and paid subscribers. BSE being an MII has higher responsibility to take necessary steps to abide by the said principle and it was incumbent on BSE to ensure that the possibility of receipt of information by LCM or paid clients before its publication on website, even if due to technical reasons, is avoided.

RSS is a technology from the internet’s early days. All data goes on a simple webpage, gets read by RSS readers, no one gets preferential treatment. SEBI itself uses RSS for its own announcements. SEBI would like if BSE used RSS feeds for company filings.6 It’s been almost 2 months since the order, and BSE doesn’t seem to have brought in RSS feeds yet. I think it’s safe to assume that it doesn’t intend to.

BSE was fined a minuscule ₹15 lakh ($17,441) for the mess with the databases. There was no evidence of any malice and SEBI treated it like a technical violation which has now been addressed. SEBI’s case is that BSE is free to make money by selling data that it gets by being a software provider, but not the data that it gets by being a semi-regulator. BSE prefers to make money either way.

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For everyone asking about where Boring Money has been—I’m sorry! I’ve had a dramatic month at work, and this particular post needed a lot of reading and pondering.

If you’re buying or selling a company’s stock on an exchange, chances are that you’re trading with a market maker. Market makers are financial firms that, for the most part, trade a super huge volume of stock in super small units of time. They can buy and sell crores worth of stock in a matter of a few milliseconds. (This super fast trading is called high frequency trading or HFT.)

Jane Street is a New York-based market maker that SEBI pulled up earlier this month for market manipulation. Here’s SEBI’s order. I will get to what they did, etc. but I want to touch upon market making before we get to the details so that we can appreciate the nuances a little bit better.

The funny thing about a market maker is that they’re doing two things together. They’re “making” a market, that is, they’re buying and selling so much that they’re enabling others’ buying and selling. But they’re also trading in that they only buy or sell if their trading algorithm it’s going to be profitable. The profit margin could be minuscule, maybe something like 0.2%, but if the value of the stock they’re trading is in the crores, that would be worth it.

I would be simplifying it, but here’s an example. You’re in the market looking to buy a particular company’s stock. And your neighbour is looking to sell the same company’s stock. Both of you log on to your broker’s website at the same time, see the stock’s last traded price at ₹100, and place an order to buy/sell the stock at the market price. The moment you click buy, your order gets fulfilled at ₹100.1. That’s extremely close to what you saw on your screen just a moment back, so you’re happy. Your neighbour, on the other hand, just sold at ₹99.9. They’re just as happy with this price.

So what happened to that ₹0.2 in between?

You and your neighbour were sitting in front of your computers at the same time, and clicking the buy/sell button at the same time. But, and it’s just because of how physics works, there would be a minuscule difference in the time both your orders actually reach the exchange. Maybe you use a cheap broker who has its servers in Pune while the exchange is in Mumbai, and your neighbour’s order to sell reaches half a second before your order to buy. Or maybe your neighbour’s broker has its server inside the exchange while your broker is a few hundred metres away. Any of these would add a few milliseconds or more between your orders and that’s enough room for others to wriggle in.

The market maker wriggles in. They buy from your neighbour, sell to you, and make a tiny profit. The market maker was around for your neighbour when you weren’t, and instead of them having to wait, the market maker was ready and available to buy from them and sell to you. It all sounds a little stupid, but as trading volumes go up, market makers play some role by just being available to trade. They don’t profit on every trade, their mathematical models and algos just need to be directionally right about a stock, and they can fulfil all trades and make a neat overall profit with a thin margin but high volumes.

There are regular squabbles about whether market makers do any good in a market, or if we would just be better off without them. There are good arguments on both sides, but we’ll never really know because they’re here now and we don’t have a choice but to live with them.

Back to Jane Street. The gist of SEBI’s order against the firm was that it was manipulating the Indian options market by: first pumping up the price of a particular set of stocks, then dumping them and making money when their prices fell. Jane Street doesn’t seem to have said anything publicly about this, but in an internal email they’ve said that they were just doing a simple arbitrage.1 Let’s look at both arguments.

New bottle

We’ve discussed how a classic pump-and-dump works several times before:

1. Find a relatively unknown company. Buy as many of its shares as you can.

2. Scream your lungs out! The nicer the story about the company, the better.

3. People who think they’re great stock pickers will buy the shares of the company. This is a dumb illiquid stock, so its price will shoot up.

4. Sell to the suckers.

5. ??? Profit.

This isn’t what Jane Street did. That would be ridiculous. But here’s what SEBI says it did do:

1. Bought a ton of stocks. So many shares that the prices of the stocks shot up.

2. It went short on the same stocks. Bought a bunch of options that helped it bet against the stock.

3. Sold the stocks from step (1). The prices had gone up because Jane Street bought them. So their prices went down when Jane Street sold them.

4. ??? Profit. From all the options in step (2).

A big and important difference between the classic pump-and-dump and what Jane Street did was that Jane Street did not scream its lungs out during or after buying its stocks. It did not pay influencers to shill the stock or spread false news about its business deals. Instead, it picked the top 12 Indian banks that formed the Nifty Bank index and were among the most liquid stocks in the Indian market, and just bought a hell lot of shares. More from SEBI:

Jane Street Group aggressively bought shares and futures of all BANKNIFTY constituents (except BANDHANBANK) during this patch. Their net Traded Value (TV) in the cash segment was INR 1,851.57 Cr and in the futures segment was INR 2,518.46 Cr.

…

Further, in all the scrips (except HDFCBANK), JS contributed 15–25% of the entire market's traded value — a remarkably dominant share/ concentration. For perspective, the next highest participant’s concentration in any of these scrips was much smaller (e.g. the next highest participant concentration in KOTAKBANK cash segment during the aforementioned general buy patch was only 8.09%, as opposed to 23.21% for JS Group), underscoring the disproportionate footprint of JS Group’s activity.

SEBI looked at a particular day, Jan 17 last year, when Jane Street made its most profitable trades in a single day. In a matter of a couple of hours, Jane Street bought ₹4,370 crore ($500 million) worth of Indian banks’ stock. That was ~20% of all the shares that were trading for those banks.

Simultaneously, Jane Street bought put options and sold call options of the Nifty Bank index. Both are derivatives to bet that the index would fall. (I’ll go into more detail about these options further in the post.)

Then, as you can guess:

JS Group reverses and sells practically all of the net cash/ futures positions in BANKNIFTY constituent stocks that were bought in Patch I. The sizes are large, compared to market trading volumes in these segments. The sales are aggressive, in a manner that pushes down prices in the component stocks and hence index. JS Group books losses in intraday cash/ futures market trading.

Jane Street turned around and sold all the shares that it bought earlier in the day. The share sales were just as sudden and massive as the share purchases. So, of course, the stocks went down. And when that happened, Jane Street’s options made a lot of money. The options made ₹723 crore ($84 million) while the actual shares that Jane Street bought and sold lost ₹62 crore ($7 million). That’s a net of ₹661 crore ($77 million) in profit in just a single day. SEBI points out multiple times that Jane Street intentionally made a loss on one side of the trade, so that it could manipulate and massively profit from the other side.

Okay so this was one story. There’s another.

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The a-word

Probably the oldest and most common trade of all time is arbitrage. You buy something from one place, sell it for a higher price in another. India has two main stock exchanges, NSE and BSE. Sometimes a large order might come to one of the exchanges, push the price up or down just a little bit in that exchange, and some slick arbitrageurs might pocket a couple of decimal points in profit from the temporary price mismatch.

In any reasonably mature market, a dumb arbitrage like this won’t exist. Certainly not after your trading costs, brokerage, taxes, etc. Well, here’s an arbitrage with a couple of layers above it:

1. You buy a specific call option of a stock. The option must: have a strike price that’s as close as possible to the price of the stock,2 and must be expiring the same day. That is, you’re betting that by the end of the day the stock will go up in comparison to whatever it is right now. The higher it goes, the more money your call option makes.

2. You sell a specific put option of that stock with the same conditions. It must have a strike price that’s ~current stock price and must expire the same day. Technically, this is the same bet as (1)—you’re betting that the stock either stays the same or will go up. Though the payoff is inverted. If the stock goes down, the further it falls, the more you lose.

3. Put (1) and (2) together and congrats! You’ve created exactly the same situation as you would if you were actually buying the stock.

4. That’s your arbitrage opportunity. You compare the current market price of the stock with the effective market price if you were to “buy” it using steps (1) and (2). If there is a price mismatch, you buy the stock one way and sell it the other.

Here’s Matt Levine3 making the case that Jane Street’s extremely profitable trades were just arbitrage:

Consider two options from the table:

1. The 47,000 put. This is an option that would pay off if the index closed that day below 47,000. At 9:15 a.m., this was trading at 144.9.

2. The 47,000 call. This is an option that would pay off if the index closed above 47,000. At 9:15 a.m., this was trading at 479.9.

From the prices of these options, you can back out an implied price for the underlying index. Buying the call and selling the put is the equivalent of buying the underlying index: You pay 335 for the combination (479.9 - 144.9), and then you get all the upside above 47,000 (from the call) and all the downside below 47,000 (from the put). Because you paid 335 of premium, this is the equivalent of buying the index at 47,335. So the options market implied an index level of 47,335 at 9:15 a.m.

and,

Notice, though, that the actual index “moved significantly from 46,573.93 to 47,176.97 during this patch.” It started at 46,573.93, but the options started at 47,335. The options implied a price for the Nifty Bank index that was 1.6% higher than the actual price of the index: Retail investors were paying more for stock exposure via options than institutions were paying to buy the actual underlying stocks.

At some point on Jan 17 2024, the Nifty Bank index was trading at ₹46,573.9 while the cost of owning the same index via the options route that we just saw was ₹47,335. That’s 1.6% more which is many multiples more than the typical margins of a market maker. So of course the natural thing to do would be to:

1. Buy the index by buying up its component stocks.

2. Sell the index by buying put options and selling call options.

These are exactly the trades we saw in the last section which SEBI says are evidence that Jane Street manipulated the market. But these are also trades that Jane Street would do if it were going for arbitrage and not market manipulation.

So what was it? Manipulation or arbitrage? Some numbers might help.

1. Jane Street bought ₹4,370 crore ($500 million) worth of index stocks.

2. It “sold” ₹32,115 crore ($3.7 billion) worth of the index using options. That’s more than 7X the shares it bought.

I don’t know a whole lot, but arbitrage to me implies equal buying and selling. Jane Street, though, seems to have been way more optimistic about the selling leg of the trade than the buying leg.

There was another

Jane Street had another trade. If you’ve bought, say, a call option with a strike price of ₹100, you make a profit if the stock ends higher than ₹100 by the end of the day. The higher up it goes, the more money you make. Now, what’s the “end of the day” price exactly? Typically the price of a stock refers to the last traded price, but in this case it can’t really be that because the last traded price is one trade. It could be an anomaly. Instead of that one trade, the formula everyone’s decided is that they’ll take the average trading price of the last half hour of the trading day to determine the end-of-day price of the stock.

Jane Street absolutely dominated the last 30 minutes. From SEBI:

During the first five hours of the trading day (09:15 to 14:30), the Group’s activity remained relatively muted in constituent stocks, with modest participation rates and no disproportionate footprint in any specific stock. However, starting around 14:30 and intensifying sharply post 15:00, the Group's activity spiked dramatically. This was visible especially in the stock futures segment – where the Group's traded volume in all constituent stocks in the last 60 minutes accounted for more than 35% of the market-wide total traded value

This was 10 July last year. For the first few hours of the day, Jane Street made some normal trades. It bought stock, futures. Nice and evenly spread out. No shocks to the system.

But at 2:30 pm, Jane Street went diabolical. First, it bought put options and sold call options. Next, it offloaded all its shares and futures that it had bought earlier in the day. It sold so much stock that SEBI says the trading volume in the last hour was 35% Jane Street. Thanks to this, the stock prices fell, and hey Jane Street just happened to have bought put options and sold call options whose payoff went up because of the fall.

Jane Street made ₹560 crore ($65 million) within just 3 days that SEBI looked at in 2024. It made another ₹370 crore doing the same thing in 3 days in May 2025. That’s ₹930 crore ($108 million) in profit from strategy #2.

Not making the market

There is an interesting parallel between both strategies. One profits from first a sudden rise, and then a sudden fall in prices. The other is just a sudden fall before the end of the day’s trading. But the raw trades for both are the same.

Jane Street bought a lot of stock and stock futures. And it bought put options and sold call options. Both strategies! The difference was in the timing, not the trades.

One point of view here is that the trades are similar because it is the same trade. That’s the argument Matt Levine makes:

Retail customers bought a ton of options Wednesday morning, knowing they would expire Wednesday afternoon. Jane Street, in effect, sold them the options on Wednesday morning (when they were overpriced), and hedged by buying the underlying stock. But the options expired (and cash settled) on Wednesday afternoon: In effect, Jane Street had to buy them back on Wednesday afternoon (at whatever the closing price was). If the hedge for selling the options is buying the stock, the hedge for buying back the options is selling back the stock.

I think that’s a bit too innocent. Jane Street’s strategies were on different days. From the examples that we’ve seen in SEBI’s order, strategy #1 was in January and strategy #2 in July. It isn’t just plugging an arbitrage in the morning exiting those trades in the afternoon. Jane Street effectively just prepared the entire day to do the trades it did in the afternoon.

I think the funniest bit here is that none of these trades seem to me like traditional market making. Even if it were arbitrage, there were no mathematical models and nothing high frequency in either of the strategies. Any schmuck with a brokerage account and a lot of capital could do the same trades. I’m sure there’s a larger commentary around here about the kind of trading volume market makers are bringing in, but I don’t think I’m smart enough to comment on that just yet.

For now, SEBI attributes ₹4,843 crore ($563m) to market manipulation and has got it back from Jane Street. That’s just a smidge in comparison to the ₹36,000 crore ($4 billion) it made in profit last year from its trades in India. SEBI’s investigation is ongoing, and I don’t know what else they’re going to find. Hopefully whatever they find will be fun.

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The way I look at any financial fraud is that the original version is simple but there are layers and layers of complexity added to the original which makes the real world fraud unrecognisable. Take insider trading. In its simplest avatar, it’s when someone inside the company knows something that’s going to affect the company’s stock price, and trades the company’s stock based on that information. If you remove the company insider and bring in their father-in-law, things get a bit hazy. Or you remove the company itself and instead trade its competitor’s stock, things get hazier still.

Here’s another complexity. The insider remains and so does the company, but instead of trading the company’s stock right before an important announcement as is usually the case, the trades happen many many months before whatever sensitive information becomes public.

In March, IndusInd Bank disclosed that it was going to take a ₹1,577 crore hit to its profits because it goofed up the accounting of its forex derivatives. (I wrote about it here.) Apparently some of its executives at the time, including the top two guys, its CEO and deputy CEO, sold the company’s stock before this announcement. But not like right before. They sold the stock at least 8–15 months before the announcement which ultimately led to a massive fall in the bank’s stock price. IndusInd was investigating just how bad the accounting mess-up was, and these guys were investigating how to best time their stock trades.

This is stuff that SEBI figured out after an investigation and published in an interim order. (Link here.) There are some nuances that would be fun to look at.

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That seemed… easy

There are three requirements to prove insider trading:

1. Some non-public information must exist. It must be price sensitive, which means that if this information is made public, it should impact the company’s stock price.

2. This information should be known by whosoever is being accused of insider trading.

3. The trades should’ve happened!

There obviously was (1). IndusInd disclosed that it messed up its accounting on March 10 and its stock price fell by 27% the next day.

There are 5 people in SEBI’s order, but the two main ones are IndusInd’s former CEO, Sumant Kathpalia, and the former deputy CEO, Arun Khurana.1 (They’ve both resigned from the bank now.) In a way, it’s obvious that the top two guys would know if IndusInd was at risk of discovering a ₹1,577 crore loss in its financials, but SEBI anyway retrieved a bunch of emails and got hard proof.

Here’s an email that Kathpalia sent on December 17, 2023:

“This is against what we have been talking to investors. It seems we need to go to Market early next year. This is very very serious. Pls have these calculations on derivatives again revalidated.”

There are a few other emails with similar stuff. These gave SEBI a precise date and time when Kathpalia, Khurana & Co (let’s call them KK & Co) knew not just that something was off but also that it was going to impact the company’s stock price.

Then all SEBI had to do was look for trades between September 2023 (when IndusInd became aware of the accounting goof-up) and March 2025 (when IndusInd went public with the accounting goof-up) and it would be insider trading.

Kathpalia, the former CEO, sold 1,25,500 shares at an average price of ₹1,533 per share.2 Khurana, former deputy CEO, sold the most shares—3,48,500—at an average price of ₹1,520. IndusInd’s share price today is hovering between ₹810–850.

Profit, yes, but how much

A tricky question to answer is, just how much money did the IndusInd executives make by selling the bank’s shares before its goof-up became public? Pre-disclosure IndusInd’s stock price was at around ₹900. Post-disclosure it fell by 27% to ₹655. KK and Co sold at around ₹1,500 on average. Today the price is around ₹840.

If KK & Co hadn’t sold IndusInd’s shares pre-disclosure, do we assume that they would have sold at ₹655? Or ₹850? Or another figure?

Since UPSI period is spread out, share price during that period is also influenced by other factors. Hence, it would not be appropriate to calculate likely disgorgement amount by subtracting closing share price on March 11, 2025 (₹655.95) with the price at which shares were sold during UPSI period.

…

For the purpose of calculation of loss avoided, it would be fair to assume that if these shares were sold with UPSI being public, price of the scrip would have been lower by 27.165%

Post-disclosure, IndusInd’s share price fell by 27%. The impact of this information on the bank’s stock price was 27%, so SEBI assumes KK & Co made 27% more than they would have without insider information.

Lucky break! Between September 2023 and March 2025 pre-disclosure, IndusInd’s stock price fell by almost 40%. This was over a span of a year-and-half, so SEBI’s interpretation is that this 40% was totally regular market movement. It could very well have gone up by 40%.

Here’s the thing. Before the 27% fall post-disclosure, there was another sudden 20% fall last October. For me, this ties back to the incentives born because of knowing that a fall was coming.

A surprise

Banks are in the business of predicting the future. If you’re a bank, you collect some numbers about your potential borrower and feed them into a computer. If the computer spits out “safe!” you give them the money they want. If the computer spits out “unsafe!” you don’t give them the money. (Yeah, it’s a lot like the Sorting Hat. I miss HP.)

But the business of predicting doesn’t end once the money is given out. You must also constantly evaluate the likelihood of you getting your money back. If you feel that your borrower is going to default on their loan, you have to then, by regulation, put some money into a vault and promise not to touch it. This money gets a fancy name (provisions) and sits there as security to effectively cancel out the bad loan you just made.

If you’re cautious, you might keep more money aside than you absolutely need to during a good year, so that there’s some breathing space in a not-so-good year. If you’re adventurous, you might live on the edge. Any money you put into the vault comes from your profits. The more bad loans you make, the more money you keep aside, the lower your profit.

This subjectivity gives banks some short-term control over their financials. They can choose to keep their profit growth nice and stable, or they can go big every time and risk getting drastic hits on their financials at once.

In October 2024, IndusInd’s stock price fell by 20% in a single day. The reason was that the bank’s quarterly financials showed a 40% drop in profit in comparison to the year prior. The reason for the drop in profit was because IndusInd decided to keep more money in the vault than was expected.

Here’s then-CEO Kathpalia from a call with analysts:

[…] We just created it and set it aside. There is no specific reason for creating in this quarter. Only rationale for creating in this quarter was that we believe that the stress in the operating environment is building up.

Analysts questioned him about why the provisions had to come this quarter, and he said that there was really no specific reason for it.

Here’s another analyst asking the same question again (emphasis mine):

The issue is you could have done that previous quarter or quarter earlier because typically, contingent provisions are made in a quarter where you believe you have some excess profitability to provide for. Would it make sense to crash the financials and make a contingent provision because that's what has happened in a very tough quarter already you have gone ahead and made contingent provisions? So, maybe the timing is something which is curious to all of us. That's the only thing.

Kathpalia’s response was the same nothingburger again. It’s unusual for analysts to quiz the CEO of a company twice about the same thing. No one likes pissing off the management of a company and risking them not letting you talk to the CEO again.

Anyway so here’s where we’re at:

1. Around September 2023, KK & Co got to know about a big accounting goof-up that was almost definitely going to result in a major fall in IndusInd’s stock price.

2. December 2023 onward, right up to June 2024, KK & Co sold IndusInd stock.

3. All this while, the bank’s profits were stable and growing. The share price was above ₹1,500 right up till June.

4. Come October 2024, IndusInd decided to announce provisions that took everyone by surprise and crashed its stock price. It fell to close to ₹1,000.

5. KK & Co didn’t sell any more stock after June.

SEBI, when it calculated just how much illegal profit KK & Co made by selling stock, did not consider the incentives that were warped just because of their intention to sell. Until they sold their stock, the bank showed record profits. The second they were done, the bank had to suddenly set money aside to cover bad loans. Pleasant coincidence.

SEBI has asked KK & Co to deposit ₹19.8 crore ($2.3 million) and restricted them from buying or selling any stock. For now. There’ll be more to come.

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Typically I’m quite excited to receive emails from readers. (Write to me! I respond to all emails.) Yesterday’s email was more exciting than usual. The lawyers of Gensol, a company I wrote about last month, sent me an email with a court order asking me to take down my post about the company.

Some screenshots:

The email had two documents attached. One was a court order from the Tis Hazari civil court in Delhi (uploaded here) and another a massive 300-page case information doc (here) where Gensol lays out its case for how everyone is defaming its founders (Puneet Singh Jaggi and Anmol Singh Jaggi) and must be restrained.

In its case info doc, Gensol has more than 46 URLs, which included those of established folks like Business Standard and Mint, as well as some Instagram and LinkedIn posts of content creators. Some of the links have been taken down, most are still up.

The civil court has, for the time being, and without evaluating what each of those articles actually says, given a blanket order to “remove the Defamatory Material including but not limited to that using the words 'scam, laundering funds, deception and financial misconduct' and/or other similar words/synonyms from their respective websites”.

Now I’m not going to get into what the court has done or evaluate whether it makes sense. India has a magnificent recent track record on freedom of expression, and this order is in line with that track record. All I want to write about is how much of this applies to Boring Money.

The superpower named Ashok Kumar

Even though Gensol’s lawyers wanted at least 46 links taken down, they had mentioned 10 “defendants” who were directly addressed. This list includes India Today, Zerodha, Fortune India and Financial Express, among others. However, there’s one curious defendant:

The defendant no.10 is Ashok Kumar, referred to as John Doe representing any other person whether natural or legal, who has been involved in spreading the defamatory content as alleged in the plaint. The identity or entity of this person is presently unknown or is impossible to sufficiently determining.

What? Who the hell is this Ashok Kumar? The court order doesn’t elaborate. But Gensol’s case information offers a clue:

While the Plaintiffs have made efforts to compile a list of defamatory publications, the sheer volume of such content is continuously growing, and it cannot be fully documented at this stage. In light of the extensive and ongoing nature of the defamatory reports, the Plaintiffs humbly submits that, in view of the voluminous reporting, they seeks liberty from this Hon’ble Court to produce all such articles and content as may be directed by the Court.

Gensol wants to use this anonymous Ashok Kumar to cover everyone. Me, you, your neighbour, your neighbour’s dog? If the Jaggi brothers don’t like what you’ve written, their lawyers will find your email address and accuse you of being Ashok Kumar.

Unfortunately the Delhi civil court doesn’t define, elaborate on or explain what it’s expecting to do with this Ashok Kumar. Unlike Gensol’s lawyers, I’m not going to interpret it as a superpower to take down any article on the internet. Instead, let’s go through some of the specifics of the court’s order and see if I need to revise my post on Gensol from last month.

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Here’s what the court says the defendants including Ashok Kumar are restrained from doing:

distributing and/or circulating any incorrect reports about the Plaintiff including any report with sensational headline in violation of the norms and the capital of the Journalistic Conduct issued by the Press Council of India;

Gensol’s case info doc as well as the court’s order had a huge emphasis on “sensational headlines”. I actually have some sympathy here. News portals and content creators can sometimes go ballistic with headlines and thumbnails to get more views/clicks. But hey, I think Boring Money titles are always quite matter of fact. This was the headline of the Gensol post:

Gensol steals the money and public sector lenders hold the bag

Maybe the word “steal” made them upset. Okay, I’ll change it to—

Not quite as punchy but I think it’ll do.

Here is another important restraint by the court:

from making any further unverified, unsubstantiated, and ex-facie defamatory statements in any form, i.e., article, tweet, video, report, interview, etc. concerning the Plaintiff or repeating and republishing the Defamatory Material including but not limited to that using the words 'scam, laundering funds, deception and financial misconduct' and/or other similar words/ synonyms

In its case info doc, Gensol says that people asserted that the Jaggis ran a scam, laundered funds, deceived or indulged in financial misconduct. Their point was that even though SEBI did accuse them of it, their order was not final, and these were just things it found “prima facie” (on first impression). Technically, these could change and they didn’t deserve to be adjudged to be scamsters before SEBI did.

Fair! In my post I didn’t refer to the Jaggis as scamsters or claim they laundered funds. But I did use the word “fraud” in a couple of places. Here they are:

Gensol bought its electric cars from a company called Go Auto, and it was this company that enabled the Jaggis’ fraud.

[…]

Is it just me or is there something humorously ironic about using your regulatory affairs guy to defraud lenders?

Here’s an easy fix:

Looks good!

BTW the court also added this:

… this order shall not have any bearing on the merits of the matter and shall not be construed to restrain any person from reporting about investigation and court proceedings in relation to the allegations so long as it is fair and accurate reporting based on duly substantiated, conclusive and verified material.

My post on Gensol draws from SEBI’s investigation and explains how public sector lenders are likely to face a loss due to Gensol and the Jaggis borrowing money and not paying it back. I’d hope that meets whatever bar the court has set.

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The idea of a company giving out a dividend is that it has “excess cash” that it can return to its shareholders. The company is presumably doing well, has invested in whatever assets it needs for the next few years, is earning a healthy profit, and wants to make investors happy by returning some of their money.

The idea of a company raising money from investors is the opposite. It needs money to do things. It could be to get more customers, move into new business lines, etc. Giving out a dividend and raising money from investors are ideas at odds with each other. A company can’t both have excess cash and need external money to be able to do stuff.

Last month IDFC First Bank announced a fund-raise:

Private equity major Warburg Pincus and sovereign fund Abu Dhabi Investment Authority (ADIA) have agreed to invest ₹7,500 crore in IDFC First Bank for close to 15% stake, delivering a capital boost for the private lender accelerating its credit cards and wealth management businesses.

The bank will issue compulsorily convertible preference shares (CCPS) worth ₹4,876 crore to a Warburg Pincus affiliate, and shares worth ₹2,624 crore at ₹60 each to an ADIA subsidiary. While the Warburg affiliate will hold 9.48% stake, the ADIA unit will hold 5.10%.

And almost immediately after that, the bank came back announcing a dividend:

[…] recommended dividend of ₹ 0.25/- (2.50% of face value) per equity share…

IDFC is raising ₹7,500 crore ($900 million) from investors and turning around and giving away ₹183 crore of that to its shareholders.1 Warburg Pincus and the Abu Dhabi Investment Authority (ADIA) are the ones buying the shares paying ₹60 per share for a combined 14.5% stake in IDFC First.

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The market price at the time of announcement of this deal was ₹63, so the two investors got about a 5% discount. That’s not a lot! Anyone buying a stake as large as this would expect a discount, and 5% is on the lower end of what would be reasonable.

But there are two unknowns:

1. Why would the two new investors be okay with the company flipping cash they’ve just raised over to the rest of the shareholders?

2. The last time IDFC gave out a dividend was 7 years ago. Why would IDFC want to randomly give out a dividend right now even though it needs the cash?

For (1) I really don’t know. Maybe they weren’t okay with it but IDFC didn’t care? They probably would’ve wanted to negotiate a larger discount had they known that the bank would be distributing money.

For (2) there’s a clue.

Warburg and ADIA didn’t buy IDFC’s shares. They bought a special type of preference shares which will eventually convert to regular shares. These are the kind of shares that VC investors in startups usually like. I mean, they do invest a lot on vibes and need a bunch of conditions and safeguards to go with their investment. Stuff like “you can’t just sell your company and exit, and if you do then you have to give us at least 3X our money back”. Investors in listed companies can just read the company’s financials. More regulations, less vibes.

Anyway so the two investors have preference shares which will eventually convert to regular shares. When these shares convert is conditional. Here’s IDFC’s CEO V Vaidyanathan from the bank’s meeting with analysts last month:

The terms of the contract are that if the stock stays above Rs. 60 for a period of 45 trading days, then it automatically stands converted. So to make it clear, therefore, we don't have to really exactly wait for 18 months and all that stuff. If all goes well, within 45 days of allotment, it might just stand converted. And in the interim, they will get an 8% return.

If IDFC’s average share price remains above ₹60 for 45 days, Warburg and ADIA’s preference shares convert to regular shares right away. If it doesn’t, the two get an additional 18 months to convert their shares and the bank will have to pay them an interest at 8% pa until they do.2 That’s an additional ₹900 crore ($105m) over 18 months, a lot of money!

Now, from a company’s valuation perspective, dividends don’t make a lot of difference. A company is, for the most part, valued based on its earnings. Dividends are issued post-earnings, they don’t affect the company’s profit figure. So they don’t make a company inherently more or less valuable. In general though shareholders like dividends. If you do nothing and money hits your bank account, there’s a nice, warm, fuzzy feeling to it. Shareholders seem to give this feeling some value,3 and it’s basically a thing that a dividend can cause a temporary bump in the company’s stock price. Especially if it’s come after a 7-year gap.

A temporary bump is exactly what IDFC needed. And that’s what they got. It’s been more than 30 days now and its stock price has been safely above ₹60. Of course, it was also affected by the fact that two prominent investors were taking a large stake in the bank. But an additional push never hurt. After all, spending ₹183 crore to save ₹900 crore seems like a great deal.

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The short story is that Gensol is a solar energy company which borrowed money from a couple of public sector lenders and did not pay them back. The lenders expected Gensol to use the borrowed money to buy electric cars for its business, but Gensol preferred shuffling the money around and buying expensive real estate and embarrassing looking chocolates1 instead.

People first realised something was shady last month when Gensol’s credit rating agency, ICRA, downgraded it and said that the company lied about repaying its loans and even fudged some documents. Gensol being a listed company, SEBI was on this and last week released an order against Gensol and its founders. Some fine choice of words there:

What has been witnessed in the present matter is a complete breakdown of internal controls and corporate governance norms in Gensol, a listed company. The promoters were running a listed public company as if it were a propriety firm. The Company’s funds were routed to related parties and used for unconnected expenses, as if the Company’s funds were promoters’ piggybank.

Anmol Singh Jaggi and Puneet Singh Jaggi, the founders of Gensol, stole money from PFC and IREDA, two public sector NBFCs focused on lending to companies in the energy space. Can they expect to get their money back?

Do loans or do shares, don’t do both

PFC and IREDA lent ₹664 crore ($77 million) to Gensol to buy electric cars. Gensol was supposed to chip in an additional ₹166 crore ($19 million) and buy the cars with the combined ₹830 crore.

Gensol did buy the cars, but it only spent some ₹568 crore ($66 million). It completely skipped putting up its own money and it also left out about ₹96 crore ($11 million) from the money PFC/IREDA lent it. That money, or at least part of that money, is what got spent on DLF’s luxury flat, golf gear, vacations, chocolates, and the rest of the good stuff.

Now this was a secured loan. Secured by electric cars, of course. PFC/IREDA can, theoretically, take over those cars and sell them off to get some of their money back. They’re considering doing that—but it’s not going to be trivial!

The cars aren’t with Gensol to begin with. They’re leased to BluSmart, another company owned by Gensol’s founders. I mean, they might not even physically be with BluSmart at the moment, the company shut operations overnight. The cars will be with BluSmart’s drivers in different parts of the country, in different shapes and forms. The lenders will have to first get BluSmart to retrieve those cars, and then seize them from BluSmart itself. Yeah, it’s going to be a while.

Whenever PFC/IREDA manage to herd all the cars back, cars being a depreciating asset, they’re going to lose money on the sale. The cars were originally worth ₹568 crore, and they’ll be between 2–4 years old. Optimistically they’ll get back maybe 60–70% of that? Of course, they lent ₹664 crore in all, and they’ll have to spend on the entire recovery operations, valuations, auctions, etc. and let’s not even get into the lost interest income. They’ll be lucky to get back half of what they lent out.

Apart from the cars, IREDA has Gensol stock as collateral. From SEBI’s order:

We have been informed by IREDA vide email dated April 11, 2025 that promoters have created pledges for 75.74 Lakh shares of Gensol. Further, the latest pledge invocation data available on the BSE website, indicates that more pledges have been invoked during this month. This would lead to the possible conclusion that promoter shareholding in Gensol would become even lower, may be negligible, if IREDA were to invoke the pledge created by Anmol Singh Jaggi and Puneet Singh Jaggi.

Gensol has about 3.8 crore shares in all. Twenty percent of those shares, owned by the Jaggis, were pledged as collateral to IREDA. But Gensol’s share price has been tanking for the last 2 months now, and it looks like the company’s going to be worth zero or close to zero, very soon.

I know I have the luxury of hindsight as I say this, but the choice of Gensol’s shares as collateral is a little unusual? When someone’s shares are pledged, it’s because they have borrowed money using their own shares as collateral. In this case, the loan IREDA made wasn’t to the Jaggis, it was to Gensol itself. And yet the Jaggis’ shares were pledged as collateral.

I get why IREDA would’ve liked to have some pledged shares. Listed shares are nice and convenient. You know what they’re worth, there’s no need to auction them, no need to go to court to seize them. If you’ve lent someone money against shares and they ditch paying you back, you can open your laptop, login to your brokerage account, find and click the “invoke pledge” button on their website, and the shares are yours.2

But IREDA lent to Gensol and then turned around and took Gensol’s shares as collateral!3 If you’re a lender it would be nice to ensure that your collateral doesn’t get obliterated if your borrower decides to not repay. I am sympathetic. Gensol is supposed to be a solar energy company, not an electric car-leasing company. IREDA was lending to it for a side-biz, and it presumably did some calculations and figured that even if the electric car business flopped, the solar energy business would be enough to give the company’s shares its value. Apparently not!

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Regulatory affairs all right

Gensol bought its electric cars from a company called Go Auto, and it was this company that enabled the Jaggis’ prima-facie fraud.

Gensol would pay Go Auto for cars (apparently), but Go Auto would turn around and transfer this money back to a company either owned directly by the Jaggis or someone related to them.

There is a weird possibility for PFC/IREDA. Gensol, on the face of it, did buy cars worth ₹568 crore. But that’s what Gensol reported with Go Auto on the other side of the trade. I wouldn’t be surprised if this figure itself happens to be inflated and the lenders realise the real market price for the cars was even lower.4

One of the companies that Go Auto transferred the money that Gensol paid it to was called Wellray Solar Industries. From SEBI’s order:

Subsequently, on the same day (February 01, 2023) Rs. 54.62 Crore was transferred to Go-Auto (Bank A/c No. 06792000003065 with HDFC Bank). Before this transaction, Go-Auto’s account had a balance of Rs. 4.86 Crore. On the very next day (February 02, 2023), Go-Auto transferred Rs. 40 Crore to the Bank Account of Wellray (A/c No. 058605002357 with ICICI Bank), which had a balance of Rs. 4.93 Lakh before the receipt

[…]

Presently, almost the entire shareholding (99%) of Wellray is held by Lalit Solanki, who was employed as Regulatory Affairs Manager at the Gensol Group until December 2018, as per information available on LinkedIn.

The Jaggis trusted a former employee enough to transfer ₹40 crore ($4.6 million) to a shell company entirely in his name! Imagine if he had run off with it.

This former employee, Lalit Solanki, used to be a regulatory affairs manager at Gensol. (Here’s his LinkedIn, by the way.) Is it just me or is there something humorously ironic about using your regulatory affairs guy to prima-facie defraud lenders?

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25 May 2025

I made some light edits in this post after Gensol’s lawyers sent me a court order asking me to take this post down. See.

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We touched upon currency swaps in my last post about how IndusInd Bank messed up its accounting and exaggerated its profits. This post isn’t about IndusInd, it’s about currency swaps. They’re confusing so let’s look at them independently for just a moment.

You have some money in one currency, but you do business in another currency. You want to remain immune to random exchange rate fluctuations. If you’re able to find someone who wants to do what you want to do, but with the currencies in reverse, you can both just mooch off each other.

Let’s go back to the example from my last post:

1. You’ve borrowed $10 million from the US. You need dollars to pay the lender interest. But you need rupees to do your business in India.

2. You swap the $10 mil for ₹86 crore with someone. You now have the rupees you needed to do business.

3. This is effectively you borrowing ₹86 crore from him, and him borrowing $10 million from you.

4. So you both pay interest to each other on these borrowed amounts. The interest rates are fixed, there are no surprises.1

5. He’s borrowed dollars, so he pays you interest in dollars! You now have dollars to pass on to your US lender. You’ve borrowed rupees and pay interest in rupees.

6. At the end of it all, you re-swap (un-swap?) your dollars and rupees.

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A question that pops up is why would this other party borrow $10 million from you instead of borrowing directly from the US market? One reason is that you’re a bank borrowing a large amount of money. Your counterparty could be a smaller business not having the same kind of access because they’re small and less reliable. The interest rate they get from you could be better than what they get directly.

Another reason could be that they’re a hedge fund looking to bet on the other side of the trade.

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One of the things you would do as a bank is look for places to borrow money at a low interest rate so that you can lend it out at a higher interest rate and pocket the difference. Interest rates in India are higher than interest rates in many other countries, so here’s an obvious trade:

1. Borrow $10 million from the US (or wherever) for 5 years at, say, 5% interest.

2. Convert the money to ₹86 crore and lend it out at 10% interest.

Of course it’s not that simple. Your interest income is in rupees, but your principal and the interest you pay out are in dollars. If the dollar goes up against the rupee, it’s going to be a problem.

So you hedge against the dollar going up! The typical way to do this is by entering a currency swap. Here’s how that would work:

1. You have dollars and need rupees. You find someone who has rupees and needs dollars.

2. Give them your $10 million. They give you the equivalent ₹86 crore. All yours to lend out at 10%.

3. Every year you pay each other a pre-decided interest amount. You have ₹86 crore, so maybe you pay 8% interest. The other guy has $10 million, so maybe he pays you 5%.1

4. You take that 5% on $10 million every year and give it to your lender in the US.

5. At the end of the 5 years, you exchange your principal amounts. You get back your $10 million and return it to your lender in the US.

You no longer care about the exchange rate going up, down, or in circles. The currency swap ensures that—the interest you get, the interest you pay, and the principal you return are all pre-decided. At the end of the day, you have a predictable profit.

How does this swap show up in your financials? You may have borrowed the dollars at 5%, but you’re paying 8% interest on the equivalent rupee amount. Intuitively, you might put that 8% in your expenses tab. The 10% you’re earning as interest from your borrowers goes into your income. The 2% difference is your profit. This is similar to what you would do had you borrowed rupees directly.2

But you haven’t borrowed rupees directly! You’ve done a currency swap! It’s a bit like holding a magic rock. As long as you hold the rock, the exchange rates can’t touch you. If you hold it for the full 5 years, you get exactly the rate you started with. But if you drop it early, the exchange rate hits you hard in the face. To get your original $10 million back you’ll have to close your position and pay for it at the ongoing exchange rate.

To account for this risk of you trying to get out of your contract, there’s the mark-to-market accounting. If the dollar goes up against the rupee, you immediately go to your financials and record that as a loss. You know, just in case you decide to no longer hold the magic rock. If you hold the swap for the full 5 years, great, you can just go and cancel out your losses from earlier.3 In this case both the mark-to-market accounting (the second type) and the swap cost accounting (the first type) converge.

After all that context, here’s the story: Two weeks ago, IndusInd Bank disclosed that it had bought some foreign exchange derivatives that were not accounted for properly. The problem, the company said, was that it had used swap cost accounting when it was supposed to use mark-to-market accounting. This caused the bank to add ₹1,577 crore to its expenses overnight because of which its stock price fell by more than 25%.

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Internal, external and everything in between

Right after this announcement, a bunch of IndusInd executives spoke to analysts. Here’s what one of the executives said:

The large number came up because there was a process that was always being followed by the Bank right from the inception of these transactions for the internal trades that were done by the desk.

[…] So internal trades were entered only for trades which had little liquidity in the external market. For example, 3 to 5 years yen deposit coming in to be swapped into INR or 8 or a 10-year dollar borrowing from a multilateral. So these are the typical trades that were entered. We used to take market quotes from at least 3-odd different sources before these internal trades were contracted. So when you do this internal trade with the trading desk, the trading desk will in turn go out and hedge the trade itself because you got to be within your risk limits that are put up or what they've got to work within.

IndusInd had two teams doing trades. One was responsible for hedging stuff (with an incredibly boring name, “Balance Sheet Management Desk”, but let’s call it BSMD which feels like an apt typo). The other was the trading desk.

If the company borrowed dollars or yen or whatever, the BSMD would do a currency swap with the company’s own trading desk. Later, the trading desk would itself get into another currency swap with someone else from outside and hedge its own exposure. (The trading desk took the parcel from the hedging team and passed it along.)

This sort of makes sense? If you’ve borrowed foreign currency you have to hedge as quickly as possible. And currency swaps aren’t a particularly liquid market. You need to find someone who is okay swapping their rupees for your currency, is okay with the tenure of the swap, and you also need to find enough of these folks to cover the presumably large amount you’ve borrowed as a bank. Instead of waiting to find the right counterparty, you could just pass on the swap to your real trading desk who trade things all day for a living.

All good up till now. Here’s what wasn’t good:

So the external trade was mark-to-market, while the internal trade was on swap cost accounting or swap valuation. These 2 legs would vary during the period of contract, but converge on maturity.

The external trade was marked to market. If the rupee went up or down, the swap with the external party could result in a profit or a loss that would reflect in the company’s books. But the internal trade was recorded using swap cost accounting where the exchange rate didn’t matter. Think about how this would play out:

1. Let’s assume the rupee goes up against the foreign currency. The trading desk records a profit on its external trade.

2. But the trading desk technically makes a loss on its internal trade. It’s holding the exact opposite contract with the boring balance sheet management team.

3. The internal trade is not marked to market! The trading desk doesn’t record a loss there. (The BSMD, of course, makes no profit or loss adjustment at all.)

If IndusInd held both the internal and external contracts until maturity, none of this would eventually matter. I do empathise a little bit with the bank picking swap cost accounting instead of mark-to-market for the convenience of it, but it’s so so weird for one side of the trade to show up with a profit without an equivalent loss on the other side to cancel it out. The company mentioned borrowing in yen and the rupee has strengthened against the yen in the last 5 years so I’m guessing this is where the profit overstatement happened.

This stuff makes IndusInd’s financials look better. Would IndusInd have let this go on for so long had the mismatch made its financials look worse?

Sudden death

In September 2023, RBI released a bunch of new directions defining exactly how banks’ investments must be valued. One of the directions was that derivatives, including currency swaps, were to be marked to market. IndusInd said that this new rule was the trigger for them to go back to the drawing board and re-evaluate how they were accounting for their derivatives. That’s when they discovered the inconsistency between their internal and external trades.

They had to plug this inconsistency once they discovered it, the result of which was that the bank was hit with a sudden ₹1,577 crore loss. Is this loss real or just an accounting quirk? It sounds like an accounting quirk to me at the moment, but I wouldn’t be too sure.

There are still a bunch of unknowns. Later today PwC is supposed to be submitting an audit report of this entire thing. Let’s see what gold that brings us.

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In the financial world, if you’re a company giving money to another company, it’s likely for one of three reasons:

1. You’re lending it money and expect some fixed interest in return. The riskier the company you’re lending to, the more interest you expect.

2. You’re investing in the company. If things work out, the value of your stake in the company goes up, and you make money. If not, you lose money, but that’s okay. That’s the game you’re playing.

3. You’re investing, but the investment is strategic. You both bring something to the table, fill in each other’s gaps. Eventually, you’ll run a great business together and own a share of the profit.

Nice, clear differences. Right?

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In 2018, the State Bank of India gave some money to Reliance Industries. The idea was that they would start a payments bank together called Jio Payments Bank. Reliance owned 70% of the company and SBI the remaining 30%.

On the face of it this was a strategic investment for SBI. But even at that time, this was a little unusual for a few reasons:

1. Payments banks are a weird type of bank. They can take money from people as deposits, but can’t lend that money out as loans. Making money is tough.

2. SBI is a bank! It could do everything Jio Payments Bank could ever do, and much much more.

3. Jio Payments Bank sounds like Reliance, not like SBI.

Maybe SBI saw great business potential in Jio Payments and was happy to be a part of it. But then this happened last week:

The State Bank of India (SBI) has decided to divest its entire 17.8 per cent stake in Jio Payments Bank Limited, a joint venture between the state-owned bank and Jio Financial Services (JFS).

JFS will acquire the SBI’s stake for ₹104.5 crore, after which Jio Payments Bank will become its wholly-owned subsidiary, the Reliance Group firm said on Tuesday.

Okay maybe this wasn’t a strategic investment after all but was financial? After eight years, SBI sold its entire stake back to Reliance itself for ₹104.5 crore ($12m).

Intuitively we know that it wasn’t the most successful investment. Jio Payments Bank is still a no-name in the payments industry. And it’s been losing money like a tech startup (with a loss of ₹50 crore last financial year) but with a revenue (₹30 crore last year) that doesn’t show for it.

But just how bad a financial investment was this for SBI? In FY 2019, SBI invested ₹70 crore ($8m). In FY 2022, it invested another ₹9 crore ($1m). So that’s a total of ₹79 crore. Then in FY 2025, it’s selling its stake for ₹104.54 crore. That’s an annual return rate of 4.57%.1

SBI would’ve made more money had it invested in its own fixed deposits.

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Not a lot of interest

So, SBI gave Reliance some money. Then Reliance gave it back with a 4.57% annualised return.

This sounds a bit like… a loan? Lending to start a startup is a no go, too risky for any bank’s underwriting team. But an investment is fine! So maybe it made sense to just call it an investment instead?

The pieces of the puzzle fall into place if you treat SBI’s investment as a low-interest loan. But hey, of course, it was just a strategic investment in a joint venture with Reliance that happened to not work out.

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I enabled paid subscriptions exactly a year back, and here are the results:

Almost 4500 subscribers in all with 0.8% choosing to pay for writing that is almost entirely available free anyway. This translates to about ₹1,14,000 in earnings.1

I never thought I'd make more than a lakh in a year just doing what I’d be doing anyway. Thank you—to everyone who read, shared, and paid. ❤️

As readers would know, I write without a fixed cadence. In writing circles, that might even count as a sin. I publish whenever I am done writing, rewriting, rewriting again, and maybe one last time for good measure. If I get a high from what I’ve written, a sense of satisfaction with whatever I was trying to make sense of, that’s when I hit publish.

The only consistency I try to maintain in the publishing schedule is that each post goes out precisely at 7:33 am. Occasional posts like this are a good opportunity to stay accountable.

My goal has always been to publish three posts a month, on average. Two free posts, one paid MYSTERY POST. That would mean 24 free posts and 12 paid posts in the last year. I did 19 and 9. Oh well, close but ah, not enough.

I might not have hit the ideal numbers, but it’s not because of a dearth of topics to write about. In fact, I have more things to write about than I can keep up with.

Time is the constraint. I have a full-time job, of course.2 And hobbies. By far the most time-consuming has been sitting on my sofa listening to my friend from college babble about his day. He moved to my building six months ago and I’ve lost both writing time and sleep. It’s not my favourite hobby, but it’s been a hobby nevertheless.

It gets cheaper

A Boring Money subscription is expensive. That’s intentional. I think I’ll get the most paid subscribers if the subscription price is between ₹500 and ₹1000—but will the number of subscribers go up 4–8X? I doubt it. And that’s just to equal what folks paid last year.

Another alternative is that I paywall more posts. I’d expect a bump in paid subscribers—a small bump—but it would come at the cost of free subscribers. Fewer readers is the last thing I want.

So here’s what I’m trying out: ₹3000/year. It’s still expensive, but not too expensive. Hopefully, I gain more paid subscribers than I lose in earnings.

If you’ve liked what you’ve read on Boring Money so far, please consider subscribing.

Upgrade via Card (5% off)

Upgrade via UPI

(I’m adding a 5% discount for card payments because UPI is external via Razorpay and that makes life tough. Please use the card option if you have the choice.)

If you’re a student or can’t afford the amount just yet, write to me and I’ll give you a discount.3

Some closing updates—

Help with social media pls

Most Boring Money subscribers have come from Reddit. But it’s clear to me that just Reddit won’t suffice. Still, I feel like a lame duck writing on anything but Substack.

If you like reading Boring Money, are decent at social media, and would like to help create a social media presence for Boring Money from scratch, hit me up. We’ll work out the ₹₹₹.

Oh, Boring Money now has a subreddit. Please join!

And a Twitter profile. Please follow :)

Fragments

Boring Money hadn’t begun as Boring Money. It began as Fragments. Similar to BM in quality and depth, just not focused on finance. I wrote just one post but I’ve been wanting to write more for a while now. Hopefully I will, this year.

Podcast

I had briefly touched upon the idea of co-hosting a BM podcast. If you submitted the form I put out many months ago, many thanks and apologies for not getting back. That idea’s shelved. I don’t see it happening in the next 6 months at least. Anything I do here is bound to come at the cost of my writing time, which I wouldn’t like at all.

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The Burman family now owns Religare. To take over the company, they first announced an open offer to buy Religare’s shares from the public in September 2023. The open offer actually happened just last month though. (We’ve already seen that drama.)

Just before the Burmans’ offer went through, an Indian-origin businessman whom no one in India knew existed, Danny Gaekwad, happened to write a bunch of letters to Religare and to SEBI saying that he wanted to buy Religare instead. He apparently wanted to counter with an offer of ₹275 per share against the Burmans’ ₹235 offer.

Gaekwad’s offer was a farce. There was almost no doubt that he was a front for Rashmi Saluja, the former chairperson of Religare, who wanted to stall and stall and win the battle against the Burmans merely by attrition.1 Gaekwad had no proof of funds, no prior interest, no shares to his name. And yet he wrote letters, appeared on as many media channels as he could, and even went to the Supreme Court because SEBI wasn’t listening to him or stalling the Burmans’ offer (justifiably).

For some bizarre reason, the Supreme Court actually gave him an opportunity! Gaekwad said he wanted to acquire 55% of Religare. To do that, he would’ve needed almost ₹5000 crore ($580 million). The Supreme Court asked him to deposit ₹600 crore ($69 million) in an RBI-designated bank account to prove that he was serious. Gaekwad was not, so he did not. He disappeared just as quickly as he had appeared. The Court wasted its time, and so did SEBI because it had to then issue an order refusing Gaekwad’s make-believe counteroffer.

This story’s done and dusted. But here’s what I’m wondering. The Supreme Court gave Gaekwad a chance. What if this was an offer not by a US-based oddball but by a private equity firm? What if this firm, let’s call it RealCo, did actually deposit that ₹600 crore?

Would SEBI then be forced to push the open offer even further? I don’t have the answer, but hey, let’s look at this hypothetical from each of the parties’ perspectives and see how they could have responded. Assuming they’re all rational and reasonably responsible, of course.

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The board of directors

Religare’s board of directors would have a singular responsibility—maximising return for its shareholders. The Burman family had lowballed Religare’s shareholders by offering ₹235 per share, lower than the market price when the offer was announced.

If RealCo’s offer was legit, the board’s only consideration would be: Do the shareholders make more money? If RealCo was offering ₹275 per share—17% more than the Burmans, yes there’s more money to be made.

The board would need to go back to the Burmans and stick RealCo’s counteroffer in their face. Push them to offer more. By this point, the Burmans have already received all approvals, so they need not match ₹275. They just need to reach a sweet spot between ₹235 and ₹275 where the cost of waiting longer would exceed the benefit of the higher price.

The management

Saluja was overwhelmingly the person who represented Religare’s management.

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Don’t miss the feedback poll in the middle of this post.

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There’s a bit of a weird understanding around company ownership in India. If you’re out in the market looking to take control of a listed company, sure, you should lap up as many of the company’s shares as you can. Intuitively, you would need to buy at least 51% of the company’s stock to get control. But not in India! Even if you own less than that, if the company marks you as a “promoter”, you end up effectively owning1 the company.

There’s quite a bit of confusion and conflict around this understanding. Sometimes the founder and CEO of a company owning 10% doesn’t want to be called the promoter, but is forced to. Other times an investor who owns 17% cannot remove a promoter holding less than 4%.

Being a promoter is a state of being. You don’t need a large stake. If you’re calling the shots day-to-day, you’re a promoter. It works the other way too. If you don’t control a company just yet, but want to, you better get yourself put down as a promoter. It’s like drawing a superpower from within the soul of the company that gives you the permission and access to decide how it works.

This week, the Burman family, who are the promoters of the Ayurvedic brand Dabur, also became the promoters of Religare Enterprises, a financial services conglomerate. They were in the market to own about 51% of Religare, but their offer to buy the public’s shares failed miserably. No matter! They still own 25% of its shares, but more importantly, after a long-drawn conflict, they passed the company’s vibe check and managed to call themselves its promoters.

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An offer that you can refuse

Before this week, Religare did not have a promoter. They did, once upon a time, but for the last seven years they didn’t. This isn’t a problem. There are large companies like ITC and HDFC Bank without a promoter, and all it means is that there is no one shareholder calling the shots on how the company operates. The shareholders with varying levels of ownership have some representation on the board, which then assigns the CEO, and the CEO reports to the board just as a regular employee would. (And when the CEO leaves, their son or nephew doesn’t take over.)

In September 2023, the Burmans owned ~21% of Religare, which they bought over a few years from the open market. They intended to buy 4% more and exceed 25% in total ownership. There’s a SEBI mandate around such high ownership. If you happen to own 25% of a company’s shares, you have to then offer to buy at least 26% of its remaining shares as well. The idea is that this gives you the opportunity to own a controlling stake in the company, and also gives people who may not like you the opportunity to sell their stock to you and get out.

If you’re a serious buyer, your offer to the public had better be more than the stock’s market price. We’re talking about a publicly listed company here—people can sell their shares and move on anyway. The only reason they’d sell to you is if you offered them a better-than-market price for their shares.

When the Burman family first announced their intention to run an offer, Religare’s stock price was around ₹270. The Burmans offered ₹235, a good 13% lower.

The Burmans announced the offer one-and-a-half years back, but it actually happened just last week. And it failed! They were out to buy ₹2,116 crore of Religare stock. Shareholders agreed to sell only 0.25% of that, about ₹5.4 crore.

That’s what makes the Burman family’s successful takeover a little weird. They made a shitty offer, it didn’t go through, and yet they control Religare? Tell me if being a promoter isn’t a state of being.

She does not give up

There are two things I want to mention about Rashmi Saluja, one of them totally irrelevant to this story.

1. Until last week, she was the executive chairperson of Religare.

2. She was deboarded from an Air India flight for being rude to the crew.

Saluja had been the chairperson since December 2019 (the deboarding happened last year) at a time when Religare was almost a dead company because its founders stole from the company. I don’t know how Religare turned around, but it did. Saluja had been the chairperson all this while so looks like she did a good job with it.

Saluja did not want the Burmans to take over Religare. Makes sense to me. If you’re a corporate turnaround artist at a financial services company, you wouldn’t want the company to be taken over by a billionaire family selling adulterated honey. But just how far do you go to keep your job?

Pretty far. Here’s a bit from earlier this month from the Financial Express:

The battle for control of Religare Enterprises (REL) has started looking like a never-ending soap opera. On Tuesday, Rashmi Saluja, the ousted executive chairperson of REL, made the first move by filing a fresh writ petition in the Delhi High Court, seeking to quash the open offer by the Burman family-led entities. This marks the seventh legal attempt by her to stall the takeover process. The court is expected to hear her petition on Wednesday (today).

Seventh legal attempt! Saluja does not give up.2

Fit and proper!

Religare is a holding company for a brokerage, an insurance company, and an NBFC, among other smaller businesses. For the Burman family to become the promoter, they had to get the approval of the regulator for each line of business. That’s SEBI for being a broker, IRDAI for insurance, and RBI for the NBFC.

It doesn’t make a whole lot of sense to me, but someone looking to buy a company like Religare, cannot apply directly to the regulators for approval. Instead, the company itself has to go to its regulators and say “hey this guy’s looking to buy me, are you okay if we let him run an offer for our shareholders to consider?”. The company does have some discretion here. If a potential acquirer isn’t credible, it need not go to the regulators and waste their time. But the Burmans already owned 21% of Religare, obviously had the means to buy more, so Religare didn’t really have any room for discretion.

And yet, Religare’s board, led by Saluja, decided that it did not want to take the Burmans’ offer to the regulators for approval. Apparently the Burmans did not meet the criteria that owners and executives for financial companies must be “fit and proper”.

Fit and proper? That sounds familiar. We spoke about these criteria last year when a company argued that their CEO need not be fit and proper. Here Religare is arguing that the potential buyer absolutely must be fit and proper, and that it was deciding that they were not. Surely the Burmans must be in some financial soup? No?

From a Mint report:

Members of the Dabur group have issued a rebuttal after reports linked its chairman and director to the Mahadev betting app case. The Mumbai Police has reportedly booked 32 people – including Mohit Burman and Gaurav Burman – under various sections of fraud and gambling. A spokesperson for the Burman family however dubbed it a ‘baseless’ accusation that happened to coincide with their bid to acquire Religare Enterprises.

“We have not received any formal communication on any such FIR. However, we have sighted the FIR which is being circulated to media houses. The FIR is patently false and baseless. Nothing could be further from the truth than as wrongly stated in the FIR,” the spokesperson said.

The Burmans announced that it was going to do an open offer and in a few weeks there were reports that they had an FIR registered against them in an unrelated betting scam.3 Religare used these reports to decide that the Burmans weren’t fit and proper, and wouldn’t even apply for approval to the regulators for good measure.

The Burmans then went to SEBI about this, who eventually forced Religare to actually apply for approval. This was in June 2024, a good nine months after the Burman family’s initial offer announcement.4

Stall, stall, stall

Every year, usually sometime between July and September, every listed company in India holds their annual general meeting. This meeting is when companies are able to get all their important shareholders in one room and have them vote on things that need their approval to go through. Shareholders can also ask the board and executives questions (or share their unsolicited opinions) about the company.

Religare’s annual meeting was scheduled for sometime in September 2024, but the board delayed it to December. From Mint:

Three institutional shareholders said they were unhappy with the decision to postpone the AGM, especially since the company has given no explanation. The delay becomes crucial as chairperson Rashmi Saluja was up for reappointment at this AGM, initially scheduled for September.

[…]

Saluja is the only non-independent director on the Religare board and, therefore, comes up for retirement at each AGM. The vote to reappoint her will now take place in December after the company secured approval to defer the AGM by three months.

Saluja needed to win the shareholder vote to be reappointed as the chairperson of Religare. This vote is usually a formality, shareholders like to go for whoever’s being presented. Saluja probably didn’t want to risk it, so the meeting was pushed.

Then in December, some random guy filed a public interest litigation (?) in the Madhya Pradesh High Court in Jabalpur—a city that Religare has absolutely nothing to do with—and the court asked to wait on the meeting scheduled for 31 December (which by itself is a weird day to hold a meeting). In January, the court finally allowed the meeting to proceed because it figured that the litigation was BS.

The meeting was then scheduled again for February, and this was challenged in court again! This time by Saluja herself in the Delhi High Court. The court refused to halt the meeting.

On 7 February, the meeting finally took place and here’s what happened:

The annual general meeting (AGM) of Religare Enterprises on Friday took an interesting turn after chairperson Rashmi Saluja stopped the discussion on her reappointment (agenda 2), stating that she was not liable to retire by rotation, said sources.

“So, we can ignore resolution number 2,” she said. When an independent director present at the meeting contested her decision, she dismissed the intervention, saying that his remarks should be taken on record.

Saluja still doesn’t give up! In the meeting, she told everyone that she wasn’t due to retire, and so there was no need for everyone to vote on her reappointment. How thoughtful of her to save everyone’s time.

Of course, that wasn’t the end of it. In the physical meeting, she managed to stop people from voting against her by making sure the vote itself didn’t happen. But voting was held online for shareholders who weren’t at the meeting and two days later 97% of Religare’s shareholders had voted against her reappointment. She was finally removed from her position as executive chairperson.

It’s a state of being

Back to the Burmans. They wanted to become the promoters of Religare and decide how it should operate. Initially, Religare’s board of directors were against this and resisted to the extent that they could. Later it was just Saluja who remained obstinate to the extent of not even letting the Burmans’ offer reach the shareholders.

Becoming the promoter isn’t just about owning a large stake. Sure, yes, more shares don’t hurt. And beyond 51% there’s not a lot anyone else can do. But with Saluja no longer a board member, there was no one to stop the Burman family from becoming a promoter. So they became the promoter! Like I said, being a promoter is a state of being.

If Saluja hadn’t been booted out, whoever knows what would’ve happened! With the Burmans’ offer practically rejected by shareholders, there is no way she would’ve let Religare name them as the promoters. Eventually, sure, the Burmans would have succeeded. But that would cost time, legal fees, and maybe a lot more money for yet another long-drawn offer.

Stay out of jail card

Why was Saluja hell bent on halting the Burmans’ offer? Maybe because she paid herself a lot! She held too much sway within the company and figured out a way to earn many multiples more than other executives at the same level. From the Economic Times:

[…] Rashmi Saluja, executive chairperson of the company, acquired around 8% stake in its wholly-owned shadow bank Religare Finvest Limited (RFL), through an Employees Stock Option Plan (Esop) award, documents reviewed by ET reveal.

The award in the unlisted subsidiary ascribed its value in a band of Rs150-260 crore. Previously, proxy advisory firm InGovern had estimated the Esops awarded to Saluja in Religare Enterprises as well as its health insurance subsidiary Care Health Insurance to be worth Rs480 crore. Together with the thus far undeclared award of stock options in Religare Finvest, the total compensation earned by Saluja via Esops could be between Rs630 and Rs740 crore. This is in addition to the annual salary and places Saluja among the highest paid executives in Indian corporate history.

Highest paid executive in Indian corporate history!5 Most of Saluja’s compensation came from the employee stock options pool of Religare’s subsidiaries, worth anywhere between ₹630 crore to ₹740 crore ($73m to $86m). Her stake was so high that it would represent 8% of Religare’s NBFC! The stock option pool is usually between 5–10%, meant to serve as an incentive for all employees to work to get the stock price up and stick around for longer. Saluja hogged the entire thing.

Okay, fighting to stay around as the highest paid executive in Indian corporate history would be alluring. But come on, the annual general meeting was seven days away, and she sued the company she was the chairperson at! And asked shareholders to casually ignore something they were to vote on! That’s extreme.

The Burman family have been demanding an investigation into Saluja’s compensation. If the numbers are true, and they seem to be, Saluja has almost certainly been defrauding the company and its investors. With the Burmans running the company, I wouldn’t be surprised if any documentation around her compensation reached the investigator as a neatly formatted PDF of evidence. That makes her extreme behaviour make a little bit more sense.

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I’ve always thought it funny that a company can generate infinite shares, almost like an infinite money glitch. Generate infinite shares, sell for infinite money.

If a company sells a billion shares, it’s just splitting the same limited pie into a billion pieces. The total size of the pie remains the same. So of course there isn’t going to be any infinite money.

But because of this infinite shares creation ability, companies can shrink the size of the piece of the pie with any particular shareholder. If I own 10 shares of a company with 100 shares, and the company magically creates another 900 shares and sells them to its favourite people, those people now have 900 while I’m stuck with the same 10.

There are safeguards against this kind of stuff and it’s not something that usually happens. I probably wouldn’t be writing about it if it did usually happen. Late in December, SEBI issued an order against Bharat Global Developers, a 30-year old company whose only reason for existence was its capacity to defraud individual investors.

Bharat Global ran a classic pump-and-dump, and the first thing you do to run a pump-and-dump is hoard up on the shares of the company you’re pumping. From SEBI’s order:

[…] the Company made two preferential allotment of shares – 9.72 crore shares in April 2024 to 31 allottees and 35 lakh shares in August 2024 to 10 allottees. These large preferential allotments resulted in 99.5% of the shareholding being concentrated in the hands of these 41 allottees…

Bharat Global sold more than 10 crore (100 million) shares to 41 of its favourite people. These 10 crore shares were the entire company! 99.5% of it at least. 99.5% is quite a sweet spot if you’re looking to do a pump-and-dump.

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The pump and the dump

We’ve spoken about the general mechanics of a pump-and-dump before. It’s reasonably straightforward:

1. Find a relatively unknown company. Buy as many of its shares as you can.

2. Scream your lungs out! The nicer the story about the company, the better.

3. People thinking they’re great stock pickers will buy the shares of the company. This is a dumb illiquid stock, so its price will shoot up.

4. Sell to the suckers.

5. ??? Profit.

Bharat Global sold the bulk of its shares in April 2024, first starting with 31 people. This was a ₹97 crore sale. In August 2024, it sold another batch of shares to 10 more people for ₹73 crore.

When a company sells its shares in a “preferential allotment” or in better words, to people that it chooses to, those people cannot sell their shares to the public right away. They’re locked in for 6 months to ensure that the company isn’t just distributing free money, and so that public investors have some time to evaluate and react to the company’s actions.

The 31 people who bought Bharat Global’s shares in April couldn’t sell until at least October. As soon as October hit, the company started screaming its lungs out with announcements. Here’s a slice of the kind of disclosures it made:

1. ₹300 crore order! For potatoes! From McCain India Agro Pvt Ltd. Yeah, the frozen fries company.

2. ₹650 crore order! From Tata Agro & Consumer Products. For tea leaves and dry fruits.

3. ₹156 crore order! From UPL Agro—groundnuts to extract oil from!

4. A ₹120 crore order from Reliance Industries Ltd! For designing, engineering and constructing a refinery component.

I’m sure I don’t need to say it, but all these orders were fake. SEBI went to each company and asked them about the orders. The companies from the disclosures don’t even exist! Bharat Global just added a random “Agro” at the end of a bunch of popular companies’ names to make their fake orders sound fancy.

Between 30th October and 11th December, 13 of Bharat Global’s favourite 41 who were now out of the lock in, sold their shares. They made a massive ₹272 crore ($31 million) in profit. Here’s an example of the scale of the profit:

One of the preferential allottees, namely Mahadev Manubhai Makvana who was allotted 37,82,000 shares in the first allotment, is also the Authorised Signatory in respect of two bank accounts of BGDL with Yes Bank and Axis Bank. The account opening date for Yes Bank was March 20, 2024. He offloaded 4,97,359 BGDL shares for INR 70,71,94,153 between November 01, 2024 and December 20, 2024, making a profit of approximately INR 70,22,20,563 against an investment of approximately INR 49,73,590.

Mahadev Manubhai Makvana (MMM?) invested ₹49 lakh ($57k) and made ₹70 crore ($8M). 155 times the initial investment! Uff.

SEBI also discovered that MMM was Bharat Global. His name was on one of the company’s bank accounts! If you’re running a pump-and-dump, maybe don’t put your name on the bank account of the company you’re pumping.

And then there was Reliance

Of the four fake disclosures I highlighted, one is not the same as the others. When SEBI wrote to Reliance to figure out if they had indeed placed a ₹120 crore order with Bharat Global, here’s what it got:

RIL submitted vide e-mail dated December 19, 2024 that BGDL had not supplied any material for the FCC project of RIL’s refinery. RIL further submitted that BGDL (formerly known as Kkrrafton Developers Limited) had supplied only general construction materials to RIL for about INR 155 crore (including taxes) during the period from April 01, 2024 to September 30, 2024 which was not related to the FCC project.

Bharat Global’s announcement about a ₹120 crore order was false, no surprises there, but Reliance told SEBI that there was another ₹155 crore order which was apparently legitimate and fulfilled?!

Bizarre. Very bizarre. Bharat Global was a company whose revenue was literally 0 for many years before it turned into a money grabbing vehicle. It lied about having subsidiaries which did not exist. The company changed its name 4 times in its lifetime. (Probably picked the name “Bharat Global” because of how patriotic the pumpers-and-dumpers were.)

There was no business! There was never a business! All its disclosures were fake. And yet, somehow, out of nowhere, not only did it have a real ₹155 crore order from Reliance, but it also chose to make up a fake order when it could very well have just disclosed the real one instead?

I think this takes the cake for anything I’ve written until now. And I’ve written about some weird stuff. I really don’t know what’s happening. SEBI needs to jump on this thread and find some answers. But hey, until then, maybe I can guess?

Here’s some stuff about Reliance’s payments from SEBI’s order:

… data submitted by RIL shows that a payment of INR 57.22 crore was made to Kkrrafton Developers Limited on March 16, 2024, another 8.07 crore on March 19, 2024 and a last payment of INR 28.04 crore on August 12, 2024.

and,

[…] In this regard, from the bank statements of BGDL obtained from Indian Bank, it was observed that RIL made advance payments of Rs. 65.29 crore to BGDL in March 2024.

Reliance paid Bharat Global ₹65 crore in advance and before it even raised an invoice for that money! In all Reliance paid the company ₹93 crore, with the last payment in August. Now come on, Reliance is known to be pretty cut-throat, always getting the better half of any deal. Paying a zero-revenue company ₹65 crore before it’s even asked to doesn’t sound like it.

Let’s put these events down in chronological order:

1. In March 2024, Reliance paid Bharat Global ₹65 crore out of the goodness of its heart.

2. The next month in April, Bharat Global allotted shares worth ₹97 crore to its favourite people.

3. In August, Reliance paid another ₹28 crore.

4. Later in the same month, Bharat Global allotted another ₹73 crore worth of shares to its favourite people.

5. The money that Reliance paid Bharat Global did not show up in Bharat Global’s financial statements.

Is there a connection between the money Reliance paid Bharat Global and the money that Bharat Global’s favourite people paid it? I don’t know. Were those people really using Reliance’s money to run a pump-and-dump? I have absolutely no idea.1

Playing saviour

The people that bought Bharat Global’s shares in its second sale in August were to be locked in until February 2025. By late December, just before SEBI stepped in, Bharat Global’s pumped-up price was at ₹1300—6X the price that the August buyers got the shares at.

This post would’ve probably been a two-part pump-and-dump series, had SEBI not identified the first pump-and-dump in time. For now, the 13 folks that made the ₹272 crore profit will have to give the money back. And the others that couldn’t sell Bharat Global’s shares in time will be stuck holding the bag. 2

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If you’re a large fund managing billions of dollars and looking to buy a stock, you would typically call one of two people:

• Your favourite stockbroker.

• Your favourite investment banker.

Both of these are perfectly reasonable choices depending on the situation. If you’re buying a liquid stock with a lot of sellers in the market, you can go directly to your stockbroker and tell them which stock at what price and you’ll have it. If the stock is a little less liquid you might have to go to your investment banker first and get them to incentivise other investors to sell.

What if you mixed things up? If you went to your broker to buy a stock that was less liquid and to your investment banker for a stock that was more liquid?1 That would not make sense. If you placed a large order for a stock without enough sellers, the price of the stock would shoot up. You might not get the stock at the price that you want. And if the stock happens to be liquid, why would you want to pay a middleman fee to an investment banker in the first place?2

Here’s a SEBI order from earlier in the month about how Capital Group, a large American $2.7 trillion fund manager, was defrauded. The order doesn’t actually name Capital Group—it’s supposed to be the victim, after all—but the entire reason Capital could be defrauded was that the company, instead of calling up its stockbroker, called up its investment banker. Wait, scratch that. Capital didn’t even call up an actual investment banker, it called up some random guy named Rohit Salgaocar with a no-name financial services firm in Singapore.

A $2.7 trillion fund manager took its trades to a random guy and those trades ended up being front-run. The random guy and his accomplices made at least ₹65 crore ($7.5 million) in the process. Fun!

Passing the information

When Capital Group’s traders wanted to buy a stock, they went to Rohit Salgaocar. Salgaocar didn’t work at an investment bank, he just had his own firm registered in Singapore called Strait Crossing, which doesn’t even have a website. Salgaocar’s apparent job was to arrange for sellers for whatever stock Capital wanted to buy.

When Capital’s traders told him about the stock they wanted to buy, Salgaocar passed it on to Ketan Parekh, a financial fraudster with a well-known history. Here’s Salgaocar’s statement to SEBI:

[…] Rohit Salgaocar stated that for executing trades of the Big Client, he used to find counterparties through different market participants including foreign funds, Indian funds, other holders of the shares and Ketan Parekh. However, as per the statement of Rohit Salgaocar, around 90% of the Big Client trades were being fulfilled by Ketan Parekh alone.

Salgaocar told SEBI that his job was to look for sellers for Capital Group (the Big Client). And yet, he almost always took the the trades to Ketan Parekh. Did it worry him that Parekh had a history of financial fraud?

Rohit Salgaocar has also stated that his extent of due diligence, before engaging with Ketan Parekh for Big Client trades, was just to check that Ketan Parekh was not banned from dealing in Indian Securities Market.

Oh well, low bar.

Once Ketan Parekh got his information, he activated a network of brokers and traders (at least 16 of them) who did exactly what Parekh asked them to do. Here’s an example. On September 19, 2022 at 9:59 am, Capital’s traders messaged Salgaocar telling him that they were in the market to buy HDFC stock. Within 4 minutes, Parekh told his buddies that they should start buying HDFC shares. By 10:33 am, they confirmed that they bought 100,000 HDFC shares at ₹2,433.32 each.

Next, and I don’t know what calculation they ran through their heads, but Salgaocar got back to Capital’s traders and offered HDFC’s shares at ₹2,446 per share, that’s ₹12.68 more than their buying price. Capital wanted 250,000 shares and placed its huge orders for HDFC, and Parekh and buddies sold their shares to Capital. They made ₹12.6 lakh ($14, 700) on this trade.

Some interesting points! Capital wanted to buy 250,000 shares but Parekh’s group had only bought 100,000. Yet Capital was able to get all the shares it wanted from the market at the price it wanted. Only about 40% of the 250,000 shares it bought came from Parekh. HDFC was a liquid stock! There was no need to whip up sellers to show up, they were always already there! The profit that Parekh made came from the price difference which Capital could have taken directly.

That’s how a bunch of other trades worked as well. In some situations, Capital wanted to sell a particular stock, and Parekh’s buddies shorted that stock instead. Everything put together, SEBI figured that Parekh and buddies made ₹38.7 crore ($4.5 million) by front-running Capital’s trades.

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The known unknown

Rohit Salgaocar is an interesting guy. There is no mention of his credentials anywhere and no one is sure why or how Capital Group engaged him as a middleman. From SEBI’s order:

[…] the Big Client stated that it did not have any agreement with SCPL or Rohit Salgaocar. However, traders of the Big Client, who knew Rohit Salgaocar, engaged with him while trading with respect to securities listed in India. The trade related conversation between Rohit Salgaocar and traders of the Big Client used to happen over Bloomberg chats and calls. In their statements, the traders have stated that Big Client was aware of the dealings with Rohit Salgaocar.

Capital’s traders communicated with Salgaocar on Bloomberg Chat and that’s as official as it can get for finance folks. Yet, there was no real agreement between the two. They were passing on valuable information to some guy who didn’t technically owe them a thing.

He had no agreement with the Big Client for his services and had commission sharing agreements with the Indian TMs viz. Motilal, Nuvama etc. As per the agreements, the brokers would give him 75% of the net brokerage income after excluding costs from the trades of the Big Client. […] he had routed 90% of the Big Client trades through Nuvama and Motilal.

Salgaocar didn’t have an agreement with Capital Group, but he did have one with two large Indian stockbroking firms—Nuvama (earlier Edelweiss) and Motilal Oswal. Once Salgaocar got Parekh’s go-ahead, he would ask Capital’s traders to place their orders through one of Motilal or Nuvama. The agreement with the two brokers was that 75% of the brokerage they made would be Salgaocar’s fee. A referral fee for bringing in such a large client’s trades to them.

Salgaocar made ₹27.06 crore ($3 million) in the ~2 year period that SEBI investigated. This isn’t money he made shadily via front-running. This is money the brokers gave him because they felt they owed it to him legally! Salgaocar was making legal money but chose to help Ketan Parekh make some illegal money as well?

None of this makes sense! Why did Salgaocar pass on Capital’s trades in spite of making millions anyway? Why did Capital go to the broker Salgaocar liked and not the one that made the most sense for them? Even if Salgaocar was presumably bringing in sellers, and Capital knew that he is getting referral fees from the brokers, couldn’t it just cut the fees and negotiate a lower brokerage instead?

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Everyone’s connected

Here’s what I wrote last year for another front-running case:

One of the challenges that SEBI faces when proving securities fraud is connecting different parties involved in an apparent fraud with each other. Last year I wrote about an instance of near-certain insider trading that SEBI couldn’t defend because it couldn’t prove that the participants were connected beyond being in-laws. Life is tough.

Sometimes life is easy for SEBI, sometimes it isn’t. This particular case needed quite a bit of effort into proving that everyone was connected with one another. In the end SEBI did make a pretty compelling case.

Salgaocar’s involvement in the front-running seems to have been limited to the initial information collection phase. Once he passed on the information to Parekh, SEBI’s job was cut out to show that Parekh and his buddies interacted with each other in ways that would prove that they were trading based on Capital Group’s information

First, SEBI seized everyone’s mobile phones and read all the WhatsApp chats.3 From those chats, it figured out which were the chats with Parekh. That was quite a task. From the SEBI order:

It is noted that in none of the mobile phones, the contact numbers were saved in the name of Ketan Parekh and instead, various pseudo names such as, “Jack”, “John”, “Boss”, “Bhai”, “Wellwisher”, etc. were used to save these numbers.

Parekh had at least 10 different mobile numbers, and those numbers were saved with dummy names on the phones of Parekh’s buddies. The mobile numbers weren’t registered in Parekh’s name, so SEBI had to prove that the numbers indeed were used by Parekh. One way it did that was by getting the location history of the phones from Parekh’s network operators. There were some situations where the phones were showing up together in the same location.

It’s a bit funny where they were spotted—at hotels where the Parekhs were attending weddings. SEBI wrote to each hotel to confirm that Parekh did actually stay there:

Hotel authorities, vide email dated November 03, 2023 confirmed the stay of Mr. & Mrs. Ketan Parekh in Room No. 340, for attending a wedding. Mr. & Mrs. Parekh has also shared their Aadhaar as identity proofs to the Hotel.

The hotel manager would not have expected to receive an email from the securities regulator! All the hotels were more than happy to share exactly when Parekh stayed with them and even his room number.

Parekh attended 4 weddings in 6 months. Being a social butterfly has its downsides.

Pay up

This is bound to be the first of at least a couple of SEBI orders about this episode. To start with, SEBI wants to impound the ₹65 crore that Salgaocar, Parekh and the buddies made from the front-running. Salgaocar is a Singapore citizen though and made more than 40% of that money. I’m curious about how that’s going to turn out.

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Cover Photo by Pixabay

If you’re unsure about what MYSTERY POSTS are, read this.

We pretty much know the story at this point. Adani Green is a renewable energy company. It wanted to sell its energy to the Indian public. The way it could do this was by competing with other companies and winning government contracts. Adani Green wanted to win the contracts but could not offer the lowest price. Instead of spending on discounting its energy, it decided to spend on bribing some government officials.

America is a rich country with rich investors, and infrastructure companies need capital. So one of the ways Adani Green got money was by borrowing it from American investors. In one of the hundreds of documents Adani’s lawyers prepared so that it could borrow money was a line saying something along the lines of “we’re an ethical company and don’t bribe people or governments”. Turns out though they do actually bribe people and governments. The US loves playing global police so somehow that gives them the right to go after Adani for criminal fraud?

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I have my inkling but I don’t know whether or not Adani actually bribed anyone. The US Department of Justice and the Securities and Exchange Commission are suing Adani and over time we’ll know more. Of course, all of this will take time and the result will depend on just how much evidence the US DOJ and SEC actually have with them. (Here’s the US DOJ indictment and here’s the SEC press release.)

But there is at least one obvious securities law violation that we can be confident about. Indian securities law! In March 2024, Bloomberg reported that US prosecutors were investigating Adani Group for potential bribery. An investigation such as this would, ideally, be reported to the stock exchanges because it would affect the stock price. Any investor buying the stock had the right to know what they were buying.

Adani Group hadn’t reported it, but no matter. Another thing though that Adani Group had to do was to issue a clarification to the Bloomberg report itself.1 Here’s Adani’s clarification:

Adani Enterprises Limited (“Company”) states that it has not received any notice from the Department of Justice of U.S. in respect of the allegation referred to in the said article.

The Company states that the report is false.

Usually companies try to hide behind fuzzy ambiguous words so that plausible deniability can save them if need be. This is not that! “The report is false” is as clear as it gets. We know now that US prosecutors were indeed investigating Adani, and Adani did obviously lie about it in their disclosure. It cannot be more open-and-shut than this. The only thing for SEBI to do here is to decide the quantum of the punishment it wants to give out, based on whatever the law allows for.

How does SEBI even decide the quantum in this case? One important measure for SEBI would be to see just how material was the piece of information that Adani lied about. On 19 November 2024, the stock price of Adani Green closed at ₹1,412. After the US DOJ went public with its indictment, it fell to ₹898 in about five days. That’s 36% less as a direct result of the US DOJ’s announcement. 36% is extremely material.

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GQG likes the stock

When Hindenburg Research released its short report accusing Adani of fraud back in 2023, there was one seemingly credible investor who saw the massive fall in the Adani companies’ stock prices as an opportunity—GQG Partners. Here’s their reaction to the news of the US DOJ investigation.

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If you were to plot the risk of owning a company’s stock against its lifetime it would look something like this:

The younger a company, the riskier its stock. As it lives its life, figures its lessons, makes some money, that risk tends to go down. It’s still risky to own the stock! Just a little bit less. Somewhere in between its transition from extremely risky to a little-less risky, there is a magical blip in a company’s lifetime where its stock is probably the least risky to own. Right before it goes public!1

One reason a young company has more risk is that its future is uncertain. The founders might fight! Or the product might be a scam! But another reason is that the stock of a company is illiquid. If you’re an investor in a young company, you can’t just go out in the open market, sell the company’s stock and call it a day.2

But once a company has decided to go public and done all the good stuff—brought in bankers to market the stock, decided on how much money it wants to raise, agreed on a valuation—there is a brief period where the investor avoids the second kind of risk. You’re still an investor in a private company with illiquid stock, but now you know for sure that there are buyers lined up for you to sell your stock to. That liquidity makes your stock less risky and more valuable.

If you own a company’s stock in this pre-IPO period, I don’t know, you probably want to sit tight and revel in this magical feeling of risk-free(ish) stock ownership?

Well, earlier this month, Paytm sold its stake in PayPay, a Japanese fintech company which is the country’s largest mobile payments app. Here’s a snippet from its stock exchange filing disclosing the sale:

[…] One97 Communications Singapore Private Limited (Paytm Singapore), has approved sale of Stock Acquisition Rights (SARs) held in PayPay Corporation, Japan (PayPay).

These SARs, acquired by Paytm Singapore in September, 2020 will be sold to a SoftBank Vision Fund 2 entity for net proceeds of JPY 41.9 billion. Through this deal, PayPay is valued at JPY 1.06 trillion and accordingly, PayPay SARs held by Paytm Singapore are valued at net proceeds of JPY 41.9 billion (after netting off the exercise cost of SARs).

Paytm held some stock options, which the Japanese refer to as stock acquisition rights, of PayPay for the last 4 years. Exercising those stock options would give Paytm at least a few percentage points of stake in the company. It could have waited for its IPO, but instead it chose to sell to SoftBank. Oh that’s while SoftBank already owns a controlling stake in PayPay.

Paytm’s sale of its PayPay stake isn’t quite the same as the hypothetical I began with. But it’s close! SoftBank has wanted to take PayPay public for longer than a year now, so its IPO might not happen right away. But the specific timeline isn’t important. PayPay is doing pretty well, is somewhat close to an IPO, and its owner is more than willing to increase its stake in the company. And Paytm is in no desperation for cash—it’s got ₹10,000 crore ($1.2 billion) in the bank. It would make sense to just hold on and sell it in the IPO. Such a weird sale.

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Confusing stake

In 2021, Paytm reported that its stock options would give it a 7.2% stake in PayPay. Earlier this year in its June quarter results, it said that its stock options would give it a 5.4% stake.

Totally understandable! There’s more than three years between these two disclosures. Maybe PayPay raised more money, or gave more stock options, and Paytm’s expected stake reduced as a result.

But what is the stake that Paytm sold this month to SoftBank? Paytm didn’t share the figure so let’s look at the numbers. It says it got ¥41.9 billion (₹2,364 crore) and that PayPay was valued at ¥1.06 trillion (₹59,360 crore)—so that’s only about a 3.95% stake? That’s 28% less than its disclosure just a few months ago.

I’m confused. And it’s not just me, here are news articles reporting Paytm’s stake as 3.95%, 5.4% and somehow even as 7.2% (though that’s obviously incorrect). Let’s look at Paytm’s stock exchange filing again:

These SARs, acquired by Paytm Singapore in September, 2020 will be sold to a SoftBank Vision Fund 2 entity for net proceeds of JPY 41.9 billion. Through this deal, PayPay is valued at JPY 1.06 trillion and accordingly, PayPay SARs held by Paytm Singapore are valued at net proceeds of JPY 41.9 billion (after netting off the exercise cost of SARs).

The last two times Paytm mentioned PayPay, it was sure to mention its stake in the company. But when it actually sells its stake, it mentions the PayPay’s valuation instead? It almost feels like Paytm is speaking to PayPay’s investors here in place of its own.

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Do me a favour?

That’s two unusual things Paytm did. Sold its stake in PayPay when it didn’t need to, and didn’t mention what its stake actually was.

Before Paytm went public in 2021, SoftBank owned a large 18% stake in the company. But Paytm’s stock did badly after its IPO, and it also had some run-ins with the RBI causing its price to crash. SoftBank, being the shrewd investor that it is, ended up selling its entire stake when Paytm’s stock price was low. It ended up making a $544 million loss on its $1.6 billion investment. (Paytm’s stock price has since recovered from its crash but is still below its IPO price.)

SoftBank was the reason Paytm got PayPay’s shares in the first place. SoftBank owns PayPay and it wanted to replicate in Japan exactly what Paytm did in India. So it just asked Paytm to help out PayPay with its tech and paid Paytm with PayPay shares instead of cash.

I don’t know if these events have anything to do with each other, but here’s how I’m looking at it. Paytm seems to like its pre-IPO venture capital investors better than its public investors. Softbank and Paytm’s founders are probably buddies meeting up with each other at weddings and stuff. But Softbank lost quite a lot of money on Paytm! $544 million! Awkward.

PayPay was a very successful investment for Paytm. Sure, it could have got more out of it, but eh, who cares. SoftBank lost a lot of money on Paytm and why not just let it make some of it back with PayPay instead?3 Paytm’s public investors don’t seem to mind.

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