Indian regulators accuse Hindenburg’s Adani report of ‘engaging in unfair business practices’

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

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

Hindenburg, which posted the notice on its website, called the allegations “an attempt to silence and intimidate those who expose corruption and fraud by India’s most powerful individuals.”

Following a formal notice, the Indian regulator can impose financial penalties and ban participation in its financial markets. Sebi has given Hindenburg 21 days to respond to its allegations.

The Hindenburg report published in January 2023 on Adani’s vast ports, energy and infrastructure empire derailed plans to sell $2.5 billion of shares and wiped $140 billion off the group’s stock market value. Adani has vehemently denied the allegations.

In its notice, Sebi named US-based hedge fund Kingdon Capital Management as a silent partner in 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 filing with securities regulators.

Hindenburg Research, founded by Nathan Anderson, has become a feared force in financial markets. Anderson said he worked with partners, including other hedge funds, to finance his trades because of his firm’s small size. Activist short sellers tend to sell their research to third parties who, in exchange, provide them with liquidity to execute their trades.

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

The short-seller also disclosed that he had made about $4.1 million in gross proceeds from the short positions in Adani examined by Sebi, as well as $31,000 from his own “small” short position in the group’s US bonds.

After the expense of the two-year investigation into Adani, “we could come out of this situation ahead of breakeven on our short position in Adani,” Hindenburg said.

The report’s release 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 accuses the conglomerate of moving billions of dollars in and out of Adani-controlled entities, often without disclosure. It also details a network of offshore funds that it says “helped Adani evade minimum shareholder listing rules.”

Hindenburg said it had bet against Adani using various financial instruments to short one of the largest companies in India, a notoriously difficult jurisdiction 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 criticised Sebi for not focusing its investigation on conglomerate Adani. 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.