Domestic financial services major IIFL, which as per Hindenburg Research, facilitated setting up of obscure offshore fund structures in which Sebi chairperson Madhabi Puri Buch and her husband Dhaval Buch had a stake and were allegedly used in the Adani money siphoning scandal, has a history of run-ins with Indian regulators, including the Reserve Bank of India and the Securities and Exchange Board of India (Sebi).
Hindenburg Research, in its latest note, has alleged that IIFL has a history of setting up convoluted fund structures and has been involved in controversies and scandals in the past, including Germany’s Wirecard scandal.
“IIFL, is a publicly listed wealth management firm in India which has a long history in setting up convoluted fund structures and with previous ties to the Wirecard scandal, Germany’s largest ever fraud case… IIFL Wealth was alleged to have committed fraud in a takeover deal involving Wirecard, using a Mauritius fund structure, per a lawsuit in UK courts,” stated the Hindenburg post released on August 10.
Incidentally, this is not the first time that the diversified financial services major, whose business interest spans across segments including broking, investment banking, NBFC, and wealth management among other things, has found itself at the receiving end in terms of allegations related to governance levels.
The recent past has seen both RBI and Sebi pull up IIFL for violations of the regulatory framework put in place by the banking and the capital markets watchdogs.
Earlier this year in March, RBI ordered IIFL Finance to stop sanctioning or disbursing gold loans with immediate effect, mentioning “supervisory concerns” in the company's gold loan portfolio.
“The Reserve Bank of India has today, in exercise of its powers under Section 45L(1)(b) of the Reserve Bank of India Act, 1934, directed IIFL Finance Ltd. to cease and desist, with immediate effect, from sanctioning or disbursing gold loans or assigning/ securitising/ selling any of its gold loans,” stated the central bank on March 4.
The RBI action came following an inspection of the company, which, as per RBI, revealed certain material supervisory concerns in the gold loan portfolio of the company.
The concerns, as per RBI, included serious deviations in assaying and certifying purity and net weight of the gold at the time of sanction of loans and at the time of auction upon default, breaches in loan-to-value ratio (LTV) and significant disbursal and collection of loan amount in cash far in excess of the statutory limit, among other things.
Thereafter, in June this year, Nirmal Jain, Founder, IIFL Finance, said in the Q4 investor presentation that the company has rectified all deficiencies pointed out by the central bank for its gold loan portfolio.
Also Read: IIFL Finance’s gold loan book falls around 35% post RBI’s ban
Meanwhile, the company was the subject of a Sebi order as well when IIFL Securities was pulled up for alleged non segregation of client and own funds and misuse of credit balances in client funds among other things.
In June 2023, Sebi barred the broking firm from on-boarding any new clients for a period of two years. The broking firm, however, was able to get some respite by challenging the order at the Securities Appellate Tribunal (SAT), which set aside the Sebi order.
"In the context of allegations made in the Hindenburg Report dated August 10,2024 against us, we would like to state that we strongly deny the baseless allegations and insinuations made in the report. The same are devoid of any truth. Our life and finances are an open book. All disclosures as required have already been furnished to SEBI over the years. We have no hesitation in disclosing any and all financial documents, including those that relate to the period when we were strictly private citizens, to any and every authority that may seek them. Further, in the interest of complete transparency, we would be issuing a detailed statement in due course. It is unfortunate that Hindenburg Research against whom SEBI has taken an Enforcement action and issued a show cause notice has chosen to attempt character assassination in response to the same," reads a press statement by SEBI chairperson Madhabi Puri Buch and her husband Dhaval Buch.
Meanwhile, an email query sent to IIFL seeking comments on the regulatory actions remained unanswered till the time of going to press.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
