Indian regulators claim Hindenburg’s Adani report ‘indulged in unfair trade practices’

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India’s markets regulator has alleged that the Hindenburg Research report on Indian billionaire Gautam Adani “indulged in unfair trading practices” and said the short seller worked with a New York hedge fund to make bets.

The Securities and Exchange Board of India said in a show cause notice dated June 26 that Hindenburg Research “deliberately sensationalized and distorted certain facts”. A subpoena is often a precursor to formal legal action.

Hindenburg, who published the announcement on his website, called the allegations “an attempt to silence and intimidate those who expose the corruption and fraud perpetrated by the most powerful individuals in India”.

Upon notification of the case, India’s regulator can impose financial penalties and ban participation in its capital markets. Sebi gave Hindenburg 21 days to respond to his claims.

The Hindenburg report released in January 2023 on Adani’s vast ports, energy and infrastructure empire scuppered plans to sell $2.5 billion of the group’s shares and wiped $140 billion off the group’s market value. Adani has strongly denied the accusations.

In its notification, Sebi named US hedge fund Kingdon Capital Management as a silent partner of Hindenburg’s short bet against Adani Enterprises. Kingdon is a New York-based hedge fund founded in 1983 and owned by financier Mark Kingdon. The group entered 2024 with about $640 million in assets under management, according to a March securities filing.

Hindenburg Research, founded by Nathan Anderson, has grown into a formidable force in the financial markets. Anderson said he worked with partners including other hedge funds to fund his trades because of the small size of his firm. Activist short sellers tend to sell research to third parties who in return offer money to execute their trades.

In its 46-page notice, Sebi highlighted an alleged relationship between Hindenburg and Kingdon that began in autumn 2022, months before Hindenburg released a report alleging multiple irregularities at Adani Enterprises, which the conglomerate denied.

The short seller also disclosed that it had made about $4.1 million in gross income through the Sebi-reviewed Adani shorts, as well as $31,000 through its “minor” US group bonds.

After the costs associated with its two-year investigation into Adan, “we may come out before the end of the award on Adan short,” Hindenburg said.

The release of the report in 2023 sent shockwaves through the global financial community and put financial pressure on the empire of Adani, one of India’s richest men.

The report accused the conglomerate of moving billions of dollars in and out of entities controlled by Adani, often without making it public. He also detailed a network of offshore funds which he said “helped Adani avoid minimum shareholder listing rules”.

Hindenburg has said he bet against Adani using various financial instruments to short one of the biggest companies in India, a jurisdiction extremely difficult for offshore investors to access.

After being hit by the report, Adani shares have since recovered most of their losses.

Kingdon and Hindenburg did not immediately respond to messages seeking comment.

Hindenburg on Monday criticized Sebi for not focusing its investigation on the Adani conglomerate. Hindenburg also said Sebi was seeking to assert jurisdiction over a US-based investor.

Kotak Mahindra Bank, one of India’s largest banks and brokerage groups, “created and oversaw the offshore fund structure used by our investor partner to bet against Adani,” Hindenburg said in a blog post.

Sebi, Kotak and Adani did not immediately respond to a request for comment.

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