SEBI Unveils Shocking Allegations Against Hindenburg Research and Adani Group

The Securities and Exchange Board of India (SEBI) has issued a 46-page show-cause notice to Hindenburg Research, a US-based short-seller, accusing it of making “unfair” profits by sharing an advance copy of its report against the Adani Group with a New York-based hedge fund manager, Mark Kingdon, two months before its publication. The report, which was published on January 24, 2023, led to a massive rout in the market value of Adani Group’s 10 listed firms, resulting in losses of over ₹150 billion.

According to SEBI, Hindenburg shared the report with Kingdon, who is the founder of Kingdon Capital Management, and together they profited from the deal by betting against Adani Enterprises Ltd, the flagship firm of the Adani Group. The regulator has also charged Kingdon with making “unfair” profits by using “non-public” and “misleading” information to induce “panic selling” in Adani Group stocks.

The notice reveals that Kingdon’s fund, K-India Opportunities Fund Ltd, placed bets on Adani Enterprises Ltd and made significant profits of ₹183.23 crore (₹22.25 million) after the report was published. The fund also transferred ₹43 million to build short positions in AEL ahead of the report’s release and squared off these positions soon after the report was released.

SEBI has also accused Kotak Mahindra Bank, a leading Indian bank, of being involved in the deal. The bank’s subsidiary, Kotak Mahindra (International) Ltd, created and oversaw the offshore fund structure used by Hindenburg’s investor partner to bet against Adani. The regulator has sent notices to Hindenburg, Kingdon, and Kotak Mahindra Bank, as well as its founder, Nathan Anderson.

In its response, Hindenburg has described the show-cause notice as an attempt to “silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India.” The company has also revealed that the vehicle used to bet against Adani’s flagship firm belonged to Kotak Mahindra (International) Ltd, a Mauritius-based subsidiary of Kotak Mahindra Bank Ltd.

Senior lawyer Mahesh Jethmalani, who has previously spoken for the Adani Group, has made further allegations against Kingdon, claiming that his wife, Anla Cheng, is a “Chinese spy” who was involved in the deal. Jethmalani has alleged that Kingdon and Cheng hired Hindenburg to conduct a research report on Adani and used Kotak to facilitate a trading account to short sell Adani shares, making millions of dollars in the process.

SEBI has given Hindenburg 21 days to respond to its allegations, which could lead to formal legal action, including financial penalties and a ban on participation in the Indian capital market. The regulator can also seek government help to geoblock the research firm’s website.

In its response, Hindenburg has criticized SEBI for not focusing its investigation into the January 2023 report, which it claims provides evidence of the Adani Group creating a vast network of offshore shell entities and moving billions of dollars surreptitiously into and out of Adani public and private entities. The company has also accused SEBI of masking the name “Kotak” with the acronym “KMIL” and failing to name the party with an actual tie to India, Kotak Bank.

Historical Context:

The Adani Group, a multinational conglomerate, has been embroiled in controversy since the publication of a report by Hindenburg Research in January 2023, which accused the group of financial irregularities and stock manipulation. The report led to a significant decline in the market value of Adani Group’s listed firms, resulting in losses of over ₹150 billion. This latest development, where SEBI has accused Hindenburg Research and its partner, Mark Kingdon, of making “unfair” profits by sharing the report with Kingdon two months before its publication, adds a new layer of complexity to the ongoing saga.

Summary in Bullet Points:

• SEBI has issued a 46-page show-cause notice to Hindenburg Research, accusing it of making “unfair” profits by sharing its report against Adani Group with a New York-based hedge fund manager, Mark Kingdon, two months before its publication. • The report, published on January 24, 2023, led to a massive rout in the market value of Adani Group’s 10 listed firms, resulting in losses of over ₹150 billion. • SEBI has charged Kingdon with making “unfair” profits by using “non-public” and “misleading” information to induce “panic selling” in Adani Group stocks. • The regulator has also accused Kotak Mahindra Bank of being involved in the deal, creating and overseeing the offshore fund structure used by Hindenburg’s investor partner to bet against Adani. • Hindenburg has described the show-cause notice as an attempt to “silence and intimidate those who expose corruption and fraud perpetrated by the most powerful individuals in India.” • SEBI has given Hindenburg 21 days to respond to its allegations, which could lead to formal legal action, including financial penalties and a ban on participation in the Indian capital market. • Hindenburg has criticized SEBI for not focusing its investigation into the January 2023 report, which it claims provides evidence of the Adani Group creating a vast network of offshore shell entities and moving billions of dollars surreptitiously into and out of Adani public and private entities. • The company has also accused SEBI of masking the name “Kotak” with the acronym “KMIL” and failing to name the party with an actual tie to India, Kotak Bank.