THE LONG ARM OF THE LAW (AND THE SEC)

Gautam S. Adani is the founder and chairman of the Adani Group, an Indian multinational conglomerate, founded in 1988 as a commodity trading business.  Today, it includes companies involved in electricity generation and transmission, natural gas, coal mining, infrastructure, weapons and property management.  The Adani Group is closely associated with India’s ruling party, the Bharatiya Janata Party (“BJP”).

Adani’s stock price is famously volatile.  In 2022, it had a market capitalization of $206 billion.  The company lost more than half of its market value in 2023 amid allegations of fraud and market manipulation by a short seller, Hindenburg Research, but recouped those losses in 2024.  No Adani company has been listed on a US exchange since 2023.

One Adani company, Adani Green Energy Ltd., is in the business of developing solar and wind power in India.  In 2019, it was awarded a contract by the Solar Energy Corporation of India, a state owned and controlled entity, to build power plants and sell solar power. But the award did not commit the governments of Indian states, which Adani Green was counting on as purchasers under a newly-awarded contract, to buy its power.  The states balked at entering into solar power deals at the above-market prices Adani Green proposed.

In 2022, Adani Green offered bonds for sale globally, designating $175 million of the $750 million dollar-denominated bond issue for sale in the US.  Its activities soon caught the attention of US regulators, who commenced an investigation of an alleged bribery scheme connected to the Indian national government’s contract award to Adani Green.

The result of the investigation was a series of coordinated legal actions in the US:  an indictment by the US Department of Justice of Gautam Adani and others connected with the Adani Group,[1] followed closely by two civil suits brought by the Securities and Exchange Commission:  one against Gautam Adani and Satar Adani, his nephew; the other against Cyril Cabanes, a former director of Azure Global Power Ltd., a US-listed company which partnered with Adani Green, and which the SEC alleged paid a portion of the bribes. [2]

According to the DOJ and the SEC, Adani Green paid approximately $265 million in bribes to Indian state government officials between 2021 and 2023 to induce them to enter into agreements with the company to supply power at prices favorable to the Adani Green and its partner, Azure Global.  Adani characterized the payments on its books as “cash incentives”—a characterization which, under the circumstances, appears to be a thinly-disguised euphemism for bribes.

In its September 2022 Offering Memorandum for the bonds, Adani Green represented to prospective investors that an integral part of the company’s corporate philosophy was its “environmental, social and governance (‘ESG’) policy” and its “commitment to ESG principles.”  Throughout its corporate documents, and in its 2023-2024 Annual Report, the company promised that it was committed to “zero-tolerance” for bribery and maintained the “highest standards of governance.”  According to the DOJ, Adani Green falsely claimed that it was not being investigated by US agencies.

While the Adani Green was portraying itself as a good corporate citizen, and particularly as a leader in the development of solar power, its failure to disclose that the success of its business model was dependent on the payment of massive bribes, was not, in the view of the DOJ and SEC, an earmark of the good corporate governance of which the company boasted.

The failure to disclose the bribes, the indictment asserts, defrauded potential investors.  In other words, those investors, presumably committed to ESG principles, were fraudulently induced to invest in a company which had created the false appearance of transparency and good governance. 

In all, the DOJ named seven persons associated with the Adani Group, charging them with conspiracy to commit securities fraud, securities fraud, conspiracy to commit wire fraud, obstructing the FBI and SEC investigations and violations of the Foreign Corrupt Practices Act. The FCPA was enacted in 1977 to prohibit US persons from bribing foreign government officials to further their business interests.[3]  Congress extended the reach of the law in 1998 to apply to foreign firms and nationals who, like the Adani Group, have some connection to the US and engage in corrupt practices abroad. [4]

So, what’s really going on here?  Well, the DOJ and SEC have alleged a massive bribery scheme in a series of actions that, at first blush, seem well justified.  But these US agencies do not claim that Americans were either offered or received any bribes.  And, although US persons bought nearly one quarter of the bonds on offer, all were repaid the face value of the bonds.  Some investors may have been influenced to purchase Adani Green’s bonds under the mistaken impression that the company was socially conscious.  But their mistake didn’t cost them anything.

To date, Gautam Adani has not been served with a summons, and the Indian government appears not to have an appetite to conduct its own investigation, calling it a controversy between “private firms and individuals and the US Department of Justice.”  The BJP’s opposition party has demanded a probe, so far unsuccessfully.  And you can add to these complications the difficulty involved in gathering evidence on the other side of the world.

Evidently, our criminal and securities laws provide a basis for the DOJ and SEC to use US courts to bring the Adani Organization to justice, both criminally and civilly.  But it’s not entirely clear that there is a compelling governmental interest to do so.

Endnotes:

[1] United States of America v. Adani, No. 24-cr-433 (E.D.N.Y filed Oct. 24, 2024).

[2] Securities and Exchange Comm’n v., Adani, No. 1:24-cv-08080 (E.D.N.Y filed Nov. 20, 2024); Securities and Exchange Comm’n Cabanes, No. 1:24-cv-08081 (E.D.N.Y. filed Nov. 20, 2024).

[3] 15 U.S.C. §§ 78dd-1 et seq.

[4] See Pub. Law 105-366, 12 Stat. 3303 (Nov. 10, 1998).