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India’s markets regulator has alleged Hindenburg Research’s report on Indian billionaire Gautam Adani “indulged in unfair trade practices” and said the short seller worked with a New York hedge fund to make its bet.
The Securities and Exchange Board of India said in a “show cause” notice dated June 26 that Hindenburg Research “deliberately sensationalised and distorted certain facts”. A show-cause order is often a precursor to formal legal action.
Hindenburg, which published the notice on its website, called the allegations “an attempt to silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India”.
Following a show-cause notice, India’s regulator can impose financial penalties and bar participation in its capital markets. Sebi gave Hindenburg 21 days to respond to its allegations.
The Hindenburg report released in January 2023 on Adani’s extensive ports, power and infrastructure empire derailed the group’s $2.5bn share sale plans and wiped $140bn off the group’s market value. Adani has vehemently denied the allegations.
In its notice, Sebi named US hedge fund Kingdon Capital Management as a silent partner to Hindenburg’s short bet against Adani Enterprises. Kingdon is an established New York-based hedge fund founded in 1983 and owned by financier Mark Kingdon. The group entered 2024 with about $640mn in assets under management, according to a March securities filing.
Hindenburg Research, founded by Nathan Anderson, has grown into a feared force in financial markets. Anderson said he had worked with partners including other hedge funds to finance his trades due to his firm’s small size. Activist short sellers tend to sell research to third parties who in exchange provide cash to execute their trades.
In its 46-page notice, Sebi outlined an alleged relationship between Hindenburg and Kingdon that began in the autumn of 2022, months before Hindenburg published a report alleging extensive impropriety at Adani Enterprises, which the conglomerate denied.
The short seller also revealed that it made about $4.1mn in gross revenue through the Adani shorts scrutinised by Sebi, as well as $31,000 through its own “tiny” short of the group’s US bonds.
After expenses related to its two-year investigation into Adani “we may come out ahead of break-even on our Adani short”, said Hindenburg.
The publication 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 Adani-controlled entities, often without disclosure. It also detailed a network of offshore funds it said “helped Adani evade minimum shareholder listing rules”.
Hindenburg has said it bet against Adani using various financial instruments to short one of the biggest companies in India, a notoriously difficult jurisdiction for offshore investors to access.
After being hit by the report, Adani’s stocks 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 the Adani conglomerate. Hindenburg also said Sebi was seeking to claim 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.