Hindenburg Research denied allegations from India’s securities regulator, SEBI, on Monday, accusing the firm of colluding with a U.S. asset manager to use non-public information for a short bet against Adani Group last year. In a statement on its website, the U.S.-based short-seller shared a 46-page show cause notice from SEBI, detailing accusations against Hindenburg, Kingdon Capital Management, and a Mauritius-based trading fund established by Kotak Mahindra Bank. Two SEBI sources confirmed the notice’s authenticity.
The allegations, if substantiated, could result in financial penalties and the recovery of any illicit gains. Hindenburg dismissed the notice as “nonsense” and a tactic to silence them, asserting that SEBI has failed in its duty to protect investors from fraud. “SEBI seems more focused on protecting fraud perpetrators than the victimized investors,” Hindenburg stated.
This development adds complexity to a saga that began last year when Hindenburg, led by Nathan Anderson, accused Adani Group of improper business practices. Adani, which denied the allegations, experienced a significant market value loss of $150 billion but has since rebounded. SEBI’s notice claims Hindenburg collaborated with Kingdon Capital Management by sharing a draft report on Adani before its public release.
According to SEBI, Mark Kingdon, the owner of Kingdon Capital, established a fund to trade Indian equities named K Indian Opportunities Fund, which created short positions in Adani stocks between January 10 and January 20, 2023, just days before Hindenburg’s report was published. Hindenburg’s statement revealed that a Mauritius-based unit of Kotak Mahindra Bank created and managed an offshore fund structure for an investor partner to bet against Adani shares.
The SEBI documents indicate that these positions were closed in February, yielding gains of $22.25 million. Hindenburg did not comment on its relationship with Kingdon in its statement. Emails to Hindenburg Research and Kingdon Capital were not immediately returned, and SEBI did not respond to requests for comments on Hindenburg’s statement or the authenticity of the show cause order. Kotak also did not provide a comment.
Hindenburg’s response offers insight into the mechanics of its Adani short trade, which has intrigued other investors due to the challenges foreign entities face when shorting Indian companies. Hindenburg disclosed earning $4.1 million in gross revenue from the Adani shorts through its investor relationship and $31,000 from its short position on Adani’s U.S. bonds. “It was a tiny position,” the firm noted, adding, “But, to date, our research on Adani is by far the work we are most proud of.”
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