Hindenburg Research, a US-based activist short seller who accused Adani Group of stock manipulation and accounting fraud last year, has received a show cause notice from the Securities and Exchange Board of India (SEBI).
Hindenburg said in a statement that it received an email from SEBI on June 27 and then a show cause notice describing possible violations of Indian regulations.
In January 2023, the short seller issued a devastating report against the Gautam Adani-led business, alleging “brazen stock manipulation and accounting fraud scheme over the course of decades”. This caused Adani stocks to plummet, with the company losing a total of $150 billion in market value.
Hindenburg said that while releasing the report against the Adani Group, it announced that it was short on its equities.
The New York-based firm said that Kotak Bank established and managed an offshore fund structure that was utilised by its “investor partner” to gamble against the conglomerate, but added that it might “barely come out above breakeven” on the trade.
Without disclosing the investor’s name, Hindenburg reported $4.1 million in gross revenue from “gains related to Adani shorts from that investor relationship” and only $31,000 from its short position in the conglomerate’s US bonds.
Hindenburg defined the show-cause notice as “nonsense” or “concocted to serve a pre-ordained purpose: an attempt to silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India.”
“After 1.5 years of examination, SEBI found zero factual errors in our Adani research. Instead, the regulator objected to our use of the word’scandal’ when describing multiple prior instances of Adani promoters being charged with fraud by Indian regulators, as well as our quoting of an individual who claimed SEBI is corrupt and works ‘hand in glove’ with conglomerates like Adani to help them skirt regulations,” it said.
The US business stated that the show cause notice answers several questions: “Did Hindenburg collaborate with dozens of entities to short Adani, earning hundreds of millions of dollars? No, we only had one investor partner, and our Adani short could barely break even after costs.
“Our work on Adani was never justifiable from a financial or personal safety perspective, but it is by far the work we are most proud of,” according to the statement.
The regulator argued that the report’s disclaimers were deceptive because the firm was “indirectly participating in the Indian securities market.”
“This wasn’t a mystery, virtually everyone on earth knew we were short Adani because we prominently and repeatedly disclosed it,” according to the statement.
The SEBI notice did not “conspicuously” name Kotak Bank, which Hindenburg has a relationship with.
“We suspect SEBI’s lack of mention of Kotak or any other Kotak board member may be meant to protect yet another powerful Indian businessman from the prospect of scrutiny, a role SEBI seems to embrace,” according to Hindenburg.
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