SEBI issues show cause notice to Hindenburg, firm calls it ‘nonsense’
New Delhi: Markets regulator, the Securities and Exchange Board of India (SEBI), has issued a show cause notice to Hindenburg Research for alleged “unfair trade practices” in its 2023 report against the Adani Group. Hindenburg has dismissed the allegations as an attempt to “silence and intimidate” those exposing corruption.
In the June 26 notice, SEBI accused Hindenburg of “deliberately sensationalising and distorting certain facts” in its January 2023 report on the Adani group and collaborating with a New York hedge fund for financial gain.
Hindenburg, which published the notice on its website, stated it made just $4.1 million from its positions on Adani stocks and criticised SEBI for not investigating the report’s evidence of the conglomerate’s alleged creation of a vast network of offshore shell entities and the surreptitious movement of billions of dollars.
While SEBI seeks to claim jurisdiction over the US-based investor, Hindenburg noted that the notice “failed to name the party with actual ties to India: Kotak Bank,” which managed the offshore fund structure used by Hindenburg’s investor partner to bet against Adani. SEBI referred to Kotak Mahindra Investments Ltd (KMIL) as “KMIL” in the notice.
KMIL denied having Hindenburg as a client, and SEBI’s notice stated that Hindenburg’s client, Kingdon Capital Management, had invested in KMIL’s K-India Opportunities Fund, profiting Rs 183.24 crore ($22.25 million) from positions in Adani Enterprises Ltd prior to the report’s release.
The report’s release led to a significant drop in Adani group stocks, erasing over $150 billion in market value at their lowest point. Adani has repeatedly denied any wrongdoing, and most of its stocks have since recovered.
Hindenburg condemned SEBI’s notice as a “nonsense” attempt to suppress those exposing corruption and fraud by powerful individuals in India. SEBI has given Hindenburg 21 days to respond to the allegations.
In its 46-page notice, SEBI alleged that the relationship between Hindenburg and Kingdon began in autumn 2022, with Kingdon taking positions in Adani stocks to benefit from their decline when the report was released. Hindenburg stated it made $4.1 million in gross revenue from Adani shorts through “one investor relationship” and $31,000 from its own small short of Adani’s US bonds.
Following the Hindenburg report, the Supreme Court directed SEBI to investigate and established an expert panel to examine regulatory lapses. The panel found no adverse findings against Adani, and the Supreme Court stated that no other probes were needed apart from SEBI’s. Hindenburg asserted that SEBI’s notice did not identify any factual inaccuracies in its Adani research, instead taking issue with terms like “scandal” and quoting an individual who alleged SEBI’s corruption. Hindenburg reiterated its report’s evidence of a network of offshore shell entities controlled by Adani’s associates and the movement of billions of dollars without proper disclosures.
The US firm highlighted SEBI’s failure to mention Kotak or its board members, suggesting it was protecting another powerful Indian businessman from scrutiny. Hindenburg emphasised its role as a US-based research firm with no Indian entities, employees, consultants, or operations, and reiterated that it had always openly disclosed its short position on Adani.with agency inputs
