Hindenburg Research, a US-based financial research firm, announced on July 2 through a blog post that it has received a show cause notice from the Securities and Exchange Board of India (SEBI) concerning its report on the Adani Group. The 46-page notice was delivered on June 27, as stated by Hindenburg.
In the blog post, Hindenburg revealed that it had taken a short position on Adani shares through an arrangement with an investor partner who was indirectly shorting Adani derivatives via a non-Indian, offshore fund structure. The firm emphasized that it had adequately disclosed its short position in Adani shares to allow readers to assess any potential bias, given that Hindenburg stood to benefit from a decline in Adani’s share prices.
The controversy dates back to January 2023, when Hindenburg released a report accusing the Adani Group of stock manipulation and accounting fraud. The Adani Group, a conglomerate with interests ranging from ports to energy, denied these allegations. The report’s release came just before Adani Enterprises Ltd. (AEL) was set to launch a Rs 20,000 crore follow-on public offer (FPO), which was subsequently called off.
Hindenburg’s blog post further implicated Kotak Bank, one of India’s largest banks and brokerage firms founded by Uday Kotak, in the creation and oversight of the offshore fund structure used by its investor partner to short Adani shares.
SEBI’s notice accused Hindenburg’s report of containing “certain misrepresentations/inaccurate statements” intended to “mislead readers.” Hindenburg refuted these allegations, arguing that such supposed “misleading statements” are typically central to any fraudulent scheme, thus making these findings crucial for a case pursued by any credible regulator.
In its show cause notice, SEBI outlined that Hindenburg Research shared an advance copy of its critical report on the Adani group with New York-based hedge fund manager Mark Kingdon approximately two months before its public release. This arrangement led to substantial profits for those involved, as they benefited from the significant drop in the market value of Adani group’s 10 listed companies, amounting to over USD 150 billion, post-publication. SEBI accused Hindenburg, Kingdon’s hedge fund, and a broker linked to Kotak Mahindra Bank of making “unfair” profits through “collusion” and using “non-public” and “misleading” information to trigger “panic selling” in Adani Group stocks. Hindenburg responded by characterizing the SEBI notice as an effort to “silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India.