Hindenburg Research Denies Allegations of Collusion in Adani Short Bet

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Hindenburg Research has firmly denied allegations made by India’s securities regulator, the Securities and Exchange Board of India (SEBI), that it colluded with a U.S. asset manager to use non-public information to place a short bet against the Adani Group last year. If proven, these allegations would constitute a breach of the country’s securities laws.

Hindenburg posted a 46-page “show cause” notice from SEBI on its website. This notice outlines the allegations against Hindenburg and other entities involved, including Kingdon Capital Management and a Mauritius-based trading fund established by Kotak Mahindra Bank. This development is the latest twist in a saga that began last year when the U.S.-based short-seller accused the Adani Group of improper business practices.

The notice claims that these six entities violated rules under the Prevention of Fraud and Unfair Trade Practices regulation. Hindenburg dismissed these allegations as “nonsense” in a public statement. Kingdon Capital Management did not respond to an emailed request for comment, and Hindenburg’s statement did not address its relationship with Kingdon or respond to a follow-up email requesting comment.

In its statement, Hindenburg criticized SEBI, accusing the regulator of neglecting its responsibility and protecting fraud perpetrators rather than investors. “SEBI has neglected its responsibility, seemingly doing more to protect those perpetrating fraud than to protect the investors being victimized by it,” Hindenburg stated. Two sources at SEBI, who are directly knowledgeable about the matter, confirmed to Reuters that the notice is authentic.

SEBI mentioned in the notice that it had received information from or through the U.S. Securities and Exchange Commission (SEC) during its investigation. 

The Adani Group, which has consistently denied Hindenburg’s allegations, experienced a loss of up to $150 billion in combined market value following Hindenburg’s report. However, the company’s share price has since rebounded to pre-report levels. SEBI did not respond to a request for comment on Tuesday regarding Hindenburg’s statement or the show cause notice. If the alleged breaches are proven, they could result in financial penalties and the repayment of any gains deemed illegal.

Hindenburg revealed in its statement that it made $4.1 million in gross revenue from “gains related to Adani shorts from that investor relationship” and only $31,000 from its short position in Adani’s U.S. bonds. It did not disclose the name of the investor involved. “It was a tiny position,” Hindenburg said, shedding some light on its Adani short position, which had intrigued other investors due to the difficulty for foreigners to bet against Indian companies under local securities rules.

SEBI alleges that Hindenburg colluded with its client, Kingdon Capital Management, by providing a draft of its report on the Adani Group before it was publicly released. According to SEBI, Mark Kingdon, the owner and founder of Kingdon Capital, established a fund known as K India Opportunities Fund to trade Indian equities. This fund allegedly created short positions in Adani group stocks between January 10, 2023, and January 20, 2023, five days before Hindenburg’s report was published.

Kingdon Capital, founded in 1983, had $639.2 million in assets under management as of January, according to an SEC securities filing. The firm manages two strategies: a global long/short equities strategy, which can also invest in credit, government securities, commodities, and currencies, and a long/short strategy focused on healthcare.

Hindenburg also claimed that a Mauritius-registered unit of India’s Kotak Mahindra Bank created and oversaw an offshore fund structure used by its “investor partner” to bet against Adani’s shares. In a stock exchange statement on Tuesday, Kotak Mahindra Bank (KTKM.NS) stated that neither the K India Opportunities Fund nor Kotak Mahindra International were aware of any association between Kingdon entities and Hindenburg. The bank confirmed it had received a notice of allegations from the regulator but noted that no regulatory action had been taken against the fund.

Following these developments, shares of Kotak Mahindra Bank fell as much as 3.93% on Tuesday. 

As the situation unfolds, it remains to be seen how these allegations and the ensuing responses will impact the involved parties and the broader market.